Fiscal Cliff Solution: Sell Alaska

Yes, you read that correctly. Steven Mufson of the Washington Post recently discussed such a possibility in his article To solve our debt problems, let’s sell Alaska. Mufson runs through a list of buyers that include Alaskans, Russians, Chinese, Donald Trump, and Middle East Sovereign Wealth Funds.

Photo: NatGeo

Photo: NatGeo

How Much Did We Pay?

Secretary of State William H. Seward… 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.

How Much is Alaska Worth?

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.

Conclusion:

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… 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.

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.

With the earth’s carrying capacity reaching plausible tipping points and global market and political volatility likely to remain elevated, I think it would be smarter to hold all the assets we can. Especially those with mass amounts of natural resources. Do you think the road to selling off assets is something that Americans should start down?

(h/t Greg Mankiw)