There are two possibilities behind John Key’s announcement that $40 billion of the $100 billion Cullen Fund is to be directed into New Zealand assets.And it is a truly appalling idea. Having the government buy up assets will do nothing to help improve New Zealand's economic performance. As Matt Nolan says
The first is that he knows it’s a dumb idea but thinks it smart politics. That would be bad.
The second is that he thinks it’s a good idea – now that would be truly appalling.
If capital at home made the highest return, then we wouldn’t need to legislate a 40% investment - as the Cullen Fund would put all its dosh there anyway. As a result, by “forcing” the fund to keep 40% onshore, we are reducing the return on our investment plain and simple.To this you can add the idea that this extra government investment could just crowd out private investment, both from within New Zealand and from overseas. So the total amount of investment in New Zealand may not change much at all. And then there is the issue of what happens if politicians start to take an even more hands on approach to the fund. The last thing we need is for investment decisions to be made, not for good economic reasons, but purely for party political reasons.
Update: Save the Humans comments on Key or Keynes?