Downsizing America?

Washington Post’s reporter Steven Mufson suggest, tongue in cheek, to sell Alaska in order to solve the U.S. debt problem.

“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.”

Among potential buyers one would find the Russian Federation, China, OPEC nations (“it would boost the cartel’s share of the world oil market and enhance the group’s pricing power”) and even Donald Trump, or the Alaskan citizens themselves, in an “employee buyout” or “citizens’ buyout”.

The idea is not so absurd as it would seem. After all:

“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.”

And:

“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.”

The problem is, however, that it wouldn’t solve the U.S. budget problem for long, given that the deficits from 2013 through 2017 would add $3.44 trillion to the national debt.

“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.”

 My comment:

Instead of shrinking the U.S. state on the extensive (geographical) margin, maybe it would be better advised to shrink it first on the intensive (Expenses/GDP) margin.

But in assets management terms, selling Alaska could be a good move. According to David Barker, an economist at the University of Iowa, who wrote a 2009 paper on “Was the Alaska Purchase a Good Deal?”:

“The purchase of Alaska from Russia for $7.2 million, ridiculed in 1867 as “Seward’s Folly,” is now viewed as a shrewd business deal. A purely financial analysis of the transaction, however, shows that the price was greater than the net present value of cash flow from Alaska to the federal government from 1867 to 2007. Possible non-financial benefits of the Alaska purchase are also examined.”

One lesson of this “economic science fiction” debate is that considering the state as a firm and trying to maximize its value is now on many minds, as states’ problems are intensifying.

Read Mufson’s column here.