Our debt solution: sell Alaska
12/17/2012 6:00 PM
12/15/2012 10:37 PM
The prospect of once again hitting the federal debt ceiling has provoked the ritual round of hand-wringing about the intractable nature of this $16 trillion conundrum. But there is a simple, elegant option that involves no tax increases, no spending cuts and just a bit of imagination.
That’s right. Put the entire state – from Juneau to Deadhorse, from the Bering Strait to the Beaufort Sea – on the auction block.
Absurd? No more absurd than the spectacle taking place right now as we skid closer to the “fiscal cliff.”
Selling real estate at top dollar is all about timing, and now’s a great time to unload the Klondike state. The federal government, which owns 69 percent of Alaska, could cash in on the vast, resource-rich state at a time when oil prices are high and wild salmon is flying off the shelves at Whole Foods. Selling Alaska could fetch at least $2.5 trillion and maybe twice that amount, enough to lop off a huge chunk of the national debt and perhaps as much money as President Obama and House Speaker John Boehner hope to save or raise over the next decade.
The return on investment would look great, too. Secretary of State William H. Seward – you might know him as the handsome fellow played by David Strathairn in the new Steven Spielberg movie, “Lincoln” – bought Alaska from Russia in 1867 for $7.2 million, drawing ridicule. One New York newspaper that year called Alaska a “sucked orange,” saying Russia had already drained all the value out of it. But even after adjusting for inflation, the price paid for “Seward’s folly” or “Seward’s icebox,” as it was known back then, looks pretty cheap – about $114 million.
What is Alaska worth today?
There are 3.7 billion barrels of proved oil reserves and 9 trillion cubic feet of proved natural gas reserves in the state, according to the Energy Information Administration. Oil companies are eyeing even bigger potential reserves in unexplored areas. The Interior Department estimates that the Chukchi Sea alone could hold up to 12 billion barrels, equal to half of the country’s proved reserves, and Cook Inlet and the Beaufort Sea as much as 8 billion barrels. The state has large shale areas where new hydraulic fracturing techniques could yield new supplies.
In the mid-1980s, Michael J. Boskin, a Stanford University economist, estimated that Alaska’s oil and gas reserves alone were worth at least $200 billion. But new discoveries have outstripped production, and Boskin was assuming a price of $26 a barrel for oil, less than a third of today’s prices.
Alaska has countless other natural resources, some in areas we hold off limits, such as the Arctic National Wildlife Refuge, and others on state lands. Mining companies are salivating at the prospect of more than $300 billion worth of copper, gold and molybdenum at their proposed Pebble mine in the southwestern part of the state. The state’s forests could also be exploited.
I e-mailed Alaska Lt. Gov. Mead Treadwell to ask him how he would feel about having his state sold out from under him.
“I can’t talk down our value,” he replied. “It’s a great piece of property. We love this place. Great views.”
Imagine how many nations, even individuals, would rush to bid on the sale of the century.
First in line might be the Russian Federation, with its deep historical ties to the state. For 126 years, Russia governed Alaska, which has been part of the United States for just 145 years. Vladimir Putin, who is seeking to restore Russia’s power and glory, could re-establish the seat of government at the former Russian capital, Sitka, a southern seaside town that still has a Russian Orthodox church, St. Michael’s. First built in the 1840s, it houses icons from that era.
Next would be the Chinese, flush with cash and starving for energy resources and open spaces.
It would be simple for Beijing to use its $3 trillion in foreign exchange reserves – a large chunk of it invested in U.S. Treasury debt – to vacuum up Alaska’s resources and to resettle some people from China’s overcrowded and heavily polluted cities. As the Arctic ice melts with climate change, Alaska could also serve as a valuable shipping route, saving time, fuel and money for cargo ships traveling from China to Europe.
The transaction could be done by simply canceling the Treasury debt, thus avoiding the financial upheaval that would result if China sold those securities on the open market.
Mideast oil exporters, sitting on large sovereign wealth investment funds, might want a place to cool off as the planet heats up. What’s more, if an OPEC nation bought Alaska, it would boost the cartel’s share of the world oil market and enhance the group’s pricing power.
Treadwell makes a strong case for a home-grown offer. He notes that of Alaska’s 365 million acres, the state government already owns 103 million, which were deeded at the time of statehood. An additional 44 million acres came with the Alaska Native Claims Act.
“U.S. cash in our till would barely cover a week of federal deficits, but we believe the potential here is worth trillions, especially if we gained freedom to drill it,” Treadwell said. “Location, location, location.”
And he said Alaskans wouldn’t need to borrow money to fund their offer. “We could print our own currency to complete the sale,” Treadwell said, “but unlike yours, ours still could be backed by gold as well as vital rare-earth minerals, oil and gas, timber and fish, fur-bearing critters, geothermal and hydro power, flyover rights to Asia, valuable military bases, and of course our fastest-growing export – reality TV shows.”
The proposal is not without precedent. In 1803, France was in a position that should sound vaguely familiar. France, the superpower of continental Europe, had suffered a severe setback in Haiti, where fighting had exacted a steep cost in lives and treasure. Napoleon wanted to bring the troops back home to confront England. So rather than maintaining all of his far-flung empire, he decided to sell the Louisiana Territory – including part or all of 14 modern-day U.S. states – to us for $15 million.
What could selling Alaska do? It could shrink the federal debt by 10 to 25 percent of gross domestic product, bringing it well within the range considered safe. Even without a budget deal to cut spending and boost revenue, there would be no need to ask Republicans to raise the debt ceiling for another five or six years. Now that’s long-range planning.
Of course, there is the $16 trillion question: How much time could be bought by selling Alaska? How long would it take before the federal government would be groaning once again under an unsustainable debt?
Say we get a premium price of $4 trillion for Alaska. That would slash the debt held by the public to $7.6 trillion, about half of GDP.
But not for long. The Obama budget proposal forecast that the deficits from 2013 through 2017 would add back $3.44 trillion to the national debt. Over the next decade, deficits would total $6.7 trillion. We’d be bumping our heads against the ceiling again in six years – assuming, plausibly, that Democrats and Republicans can’t agree on a budget deal and fiscal deadlock continues.
And at that point, we wouldn’t have Alaska anymore.
The solution then would be to sell more assets. After all, that’s what happens in the private sector: Companies that run in the red are forced to restructure, trim unnecessary costs and focus on their core competencies.
With manifest destiny looking manifestly unaffordable, the federal government could auction off more territory. There’s plenty there. The government owns 40 percent or more of California, Nevada, Oregon, Idaho, Arizona, New Mexico and Wyoming. Then there are the oil-rich federal waters of the Outer Continental Shelf.
It all depends on the budget talks over the next two weeks and the tax reform efforts next year. Our fate – Alaska’s fate? – is in Washington’s hands.
Treadwell said, “Let me know when we can put together a bid.”
Mufson is a Washington Post reporter covering energy and other financial news. He has enjoyed visiting Alaska without needing his passport.
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