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 49th 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 (R) 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.”
He proposed that Alaskans themselves try to buy their state. I thought it sounded like an employee buyout; Treadwell said he preferred to think of it as a “citizens’ buyout.” He said, “I don’t think we want to leave the country to help save it, but if it comes to that, I’m sure we’d bid.”
There would be a lot of competitors. Imagine how many nations, even individuals, would rush to bid on the sale of the century, which would be held in the Treasury’s ornate Cash Room — whose very architecture of Italian-palazzo-style ceilings, bronze chandeliers and marble floors are a lavishness we can no longer afford.
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 reestablish 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.
Russia already has plenty of space and oil. But if it hoisted its own red, white and blue flag over Alaska, Sarah Palin would actually be able to see Russia from her front porch.
Next would be the Chinese, flush with cash and starving for energy resources and open spaces. Why should China fiddle with acquisitions of companies such as Canada’s Nexen or U.S. battery-maker A123 Systems, hoping for approval from the government’s guardian of national security, the Committee for Foreign Investment in the United States?
It would be much simpler 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.
How about an individual buyer? Donald Trump comes to mind. He could advertise on Mount McKinley — or just rebrand it Mount Trump, the highest peak in Trumpistan. He could even issue his own birth certificates to avoid any confusion about the national origin of public officials there. Of course, this 570,640.95-square-mile bauble would be a tad expensive for him, and he’d have to make it a very leveraged buyout, but he’s gambled big before.
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.”
Like many absurd ideas, the notion of auctioning off Alaska has legs planted on solid ground. The idea comes from Jim Millstein, a former senior Treasury official for restructuring who oversaw the successful, and profitable, federal overhaul of collapsed insurance giant AIG. He now has his own investment and advisory firm.
He floated the proposal (tongue in cheek) in a paper for a Wharton Business School conference on U.S. government debt. Speaking on a panel called “U.S. Ability and Willingness to Pay: Unwinding the Empire,” he also tossed in the possibility of selling off vast federal lands in the Rocky Mountain states and offshore areas. In a book based on the conference, his chapter was called “Burning the Furniture to Heat the House — The Potential Role of Asset Sales in Funding the Federal Government’s Deficits.”
As Millstein noted, there is a serious point beneath all this: Countries that spend with abandon and ask little of taxpayers end up facing some unpleasant choices.
Selling off the national furniture isn’t unusual or far-fetched in other parts of the world. When governments spend beyond their means, the International Monetary Fund usually rolls up and offers aid, often with a condition: Sell state-owned assets. Sometimes that means the state-owned airline or phone company. After the fall of communism, Eastern European countries sold off state-owned enterprises.
This can wound national pride, as in Greece recently. Two right-wing German politicians triggered outrage in Athens in 2010 when they said Greece should sell historic buildings, artwork and unpopulated islands.
But it’s 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.
The deaccessioning of Alaska would also slash the interest the government pays on the national debt. Under the budget plan Obama proposed in February, those interest payments would otherwise grow to more than $600 billion in 2017, and in 2018 they would become the third-biggest item in the federal budget, after defense and Social Security.
There would, of course, be objections. Some Alaskans might want to resettle in the Lower 48. Others might become squatters. Environmentalists would certainly squawk. Alaskan Inuits might not want to give up their special status, and certainly, neither the Russians nor the Chinese would want to create yet one more unhappy autonomous region.
And then 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?
According to Treasury, as of Nov. 30, there was $11.6 trillion of federal debt held by the public. That comes to about 75 percent of GDP — uncomfortably close to the 90 percent level that the respected Harvard economists Kenneth Rogoff and Carmen Reinhart say is an unmanageable albatross that damages growth and threatens national solvency.
Add in the $4.8 trillion that on paper is owed to, and not actually sitting in, the Social Security fund, and the national debt comes to $16.369 trillion, more than GDP and just $63 billion shy of the statutory limit. The Republicans are threatening not to budge on that limit.
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, as Millstein suggested, 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.
Millstein said he proposed a federal asset sell-off to embarrass “the current crowd” of lawmakers and administration budget-writers. He wanted to suggest that things are so bad, it could come to this.
“I think selling all this stuff would be criminal, but in the absence of compromise on spending and tax policies, it may be necessary, even if totally humiliating,” he said.
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.”
Steven Mufson is a Washington Post reporter covering energy and other financial news. He has enjoyed visiting Alaska without needing his passport.