Wednesday, October 19, 2005

The true cost of privatizing public lands

Last night I discussed the true cost of communities trying to "preserve" open space from development. Over the weekend, I read this article along the same lines. Like most news items, there's never any attempt to hide the liberal bias: the stupid insinuation is that the land is being sold too cheaply.
Colorado Residents Challenge Mining Laws

Colorado Residents Challenge Antiquated Mining Laws That Allow Government to Sell Public Land


CRESTED BUTTE, Colo. - The ruddy slopes of 12,392-foot Mount Emmons loom over this town, drawing hikers, backcountry skiers and snowshoers. But to residents such as Jim Starr, they also stand for what is wrong with the nation's antiquated mining laws.

Those laws allowed the Bush administration to sell 155 acres of public land on the "Red Lady" to a mining company for less than $900. The land has deposits of molybdenum, a gray metal used to make steel, alloys and lubricants.

"It's a huge threat. If anyone did put a mine in there, it's hard to imagine that it would not destroy this area," said Starr, a lawyer and Democratic chairman of Gunnison County's board of commissioners.

The sale was made possible by an 1872 mining law that lets the government sell, for just $2.50 or $5 an acre, public lands that contain minerals. This land sale, known as a patent, gives companies absolute title to the property.

Since October 1994, Congress has voted each year to renew a temporary ban that prevents companies from submitting new patent applications to buy more government land at rock-bottom prices.

That left the Interior Department's Bureau of Land Management with 405 applications it had received before October 1994. Those applications came from companies looking to buy land managed by the BLM and the Forest Service.

John Leshy, who approved 68 of those patents as the Interior Department's top lawyer during the Clinton administration, said the law requires the government to give land away needlessly.

"The mining law was a cover for getting the land for non-mining purposes like hunting, fishing, brothels or a saloon. I don't think people need incentives to settle the West any longer," said Leshy, a University of California law professor and author of "The Mining Law."

The Bush administration and Congress have made a push to approve the remaining applications approximately 200 that were unresolved when President Bush took office. Under the Bush administration, 139 were approved and 50 remain to be considered.

The BLM's deputy director, Jim Hughes, said the patents convey property rights, but not a free pass to disregard environmental laws. He said private investment, mostly in the rural West, provides good jobs, but acknowledged that some oppose mining because of legitimate aesthetic values.

"As always, the BLM is sort of caught between the two and we have to make decisions on those competing interests," he said. "At the end of the day, we are told to follow the law. It's not an easy choice."

Getting a patent is not easy. Slightly more than one-third of the 405 applications were withdrawn or rejected by the Bush and Clinton administrations, often for lack of supporting paperwork.

Companies have to convince the Interior Department that the land has a valuable mineral deposit and it can be mined at a profit. Department officials say companies typically spend about $10,000 to $15,000 per acre trying to document that it is economically viable to mine there.


Once a patent is granted, officials say, the law does not let them challenge a company if it drops its plan to mine at a site that could be resold as valuable real estate.

The department acknowledges cases in which lands that companies had patented for mining were used for private, commercial development, such as at the ski resorts of Aspen, Breckendridge, Keystone and Telluride in Colorado and Park City in Utah.

At Keystone, developers fetched $11,000 an acre in 1989 selling off more than one-quarter of the 160 acres the government had sold. The land was never mined.

In Arizona, a Phoenix luxury hotel sits on 61 acres, part of an area that a businessman patented in 1970 for $153. He sold it to a developer for $400,000, plus a 1 percent share in future profits.

Congress has made numerous efforts to change the law, and not even the National Mining Association is a vigorous defender. Spokeswoman Carol Raulston said the trade group would support updating the law so companies pay "fair market value" for patents....

The remaining applications, mostly in Nevada, Arizona, California and Montana, involve selling 71 square miles of federal land in 11 states for just $130,000, according to Westerners for Responsible Mining, a coalition of 12 state and national conservation groups.

The lands' real value is $178 million, the coalition has estimated, based on figures from local assessors and real estate agents. Some $85 million of that total is in just one parcel 3,000 acres near Arizona's popular Roosevelt Lake that could be sold for $8,500, the coalition said.

Other patents, the coalition said, would allow the sale of 995 acres of California's Inyo National Forest, worth $7.5 million, for $3,100; 673 acres of California's Mojave National Preserve, worth up to $1 million, for $2,300; and 100 acres of Washington state's Mount Baker National Forest, worth up to $937,000, for $470....
It naturally seems like a great deal for me if you will sell me something for $5 that I value at $10,000. But what if you require that I spend $9996 to prove that it suits my needs? Then it's obviously not that good a deal. The official purchase price on accounting ledgers may be $5, but the actual, true cost to me, the buyer, is $10,001. [Corrected - you may have noticed my numbers were off. I changed the actual buying price but forgot to adjust the others accordingly.]

This is a form of what public choice economics calls rent-seeking, which is usually to lobby for special government favors. In this case, companies have no choice, because lobbying groups (like environmentalists) have successfully raised the cost of doing business with the government. Their goal is a selfish one: they want to abuse the power of government to deny jobs and resources to other people. They want their vistas for free, when others are willing to invest money in operations that will create jobs and extract valuable minerals.

If environmentalists want to preserve a piece of land, then let them offer a fair market price themselves. As the direct owners, they wouldn't have to let anyone come on the land, let alone use it. But environmentalists don't want to do this, because they'd actually have to put up their own money. Ted Turner has the wealth to buy a lot of these lands, but like all environmentalists, he prefers lobbying government because that's spending just pennies on the dollar.

What I found particularly hypocritical is that the person giving the first soundbite complained about the effects of mining, but the rest of the article claims that companies buy the land to develop commercially, not to mine. So which is it? It's either, because the environmentalists will use any excuse to block people from offering government a fair market price for unused land that isn't doing anyone any good.

In the middle of its environmentalist rhetoric, the article admits how "companies typically spend about $10,000 to $15,000 per acre" basically to prove how much they can use the land. So the first example of 155 acres for under $900 is not costing the buyer about $5.80 per acre, but more like (using the lower figure) $10,005.80 per acre -- more than $1.55 million total. If the geologists, geophysicists and other experts are very expensive to hire, and the company spends $15,000 per acre, then the total cost is over $2.3 million.

Developers at Keystone sold "more than one-quarter of the 160 acres" that they bought from the government. But at $11,000 per acre, after factoring in what they would have paid before they could buy the land, they could have easily sold it at a loss. In fact, if selling the land was such a quick and large profit, why did they sell only a fourth, and not all?

The businessman who sold his 61 acres in Phoenix for $400,000 made only $6557 per acre. The article doesn't say when he sold it, but it doesn't sound like it was immediate. So besides the fact that he would have spent a lot of money, even in 1970, to demonstrate how well he could use the land, he would have spent additional money maintaining the land over the years.

The article mentions "71 square miles of federal land in 11 states for just $130,000"; 71 square miles is a hair under 45440 acres. If someone spends $10,000 per acre, then the total cost to buy it is $454 million. So the "coalition" is grossly underestimating things when reckoning the land's value at $178 million. The same goes for Inyo National Forest: 995 acres worth $7.5 million, but possibly costing the buyer $9.95 million in proving mining potential. Mojave National Preserve: 673 acres worth $1 million, but possibly costing the buyer $6.73 million. Mount Baker National Forest: 100 acres worth $937,000, but possibly costing the buyer $1 million.

Like the environmentalist extremists I discussed last night, these other preservationists fail to calculate the full cost. They probably think that it benefits society to require teams of experts to study and evaluate the land, because it will create jobs. This is the biggest Keynesian fallacy: creating jobs for the sake of having jobs. If the experts were necessary, and certainly some are, the companies would have hired them regardless of government regulations stipulated.

Forcing companies to hire people they don't need to hire, before the companies can buy the land, is nothing more than wasting money that could have gone to other endeavors. We might as well require people to hire an attorney at least twice a year for some litigation. That will at least provide good-paying jobs for attorneys, right? Wrong, Bastiat would tell us. His famous "Candlemakers' Petition" was all about the fallacy of domestic protectionism, and requiring certain actions to create or preserve certain jobs. It's not just a transfer of spending, but a diversion from what the free market would have deemed efficient spending to unnecessary, wasteful expenditures.

But we're really dancing around the issue: government shouldn't be bothering with these lands at all. Government should absolutely sell them off, if anything so that taxpayers' money isn't continually feeding the bureaucracy that monitors the lands. This is one thing Doug Bandow advocated last August at the Foundation for Economic Education. Untold sums have been wasted building roads on public lands, because the fees collected aren't enough. A private company, on the other hand, wouldn't have spent the money unless it calculated it would be worthwhile. So it's clearly better that government wash our hands of most public lands and sell them to those who bid the most (i.e. value them the most). Or as Andrew Jackson wrote in his letter to Congress explaining why he vetoed the bill to renew the Bank of the United States' charter:
It is not conceivable how the present stockholders can have any claim to the special favor of the Government. The present corporation has enjoyed its monopoly during the period stipulated in the original contract. If we must have such a corporation, why should not the Government sell out the whole stock and thus secure to the people the full market value of the privileges granted?
I told Dr. David Gilmartin, a regular at FEE with whom I talk at length, that for an uneducated, self-taught lawyer from the backwoods, Jackson knew his economics. Dr. Gilmartin hypothesized that Jackson learned from Jefferson's writings, and Jefferson in turn learned from Jean-Baptiste Say.

Until Jackson stopped it, investors (both foreign and domestic) made fortunes through the Bank of the United States. It is no different today when ranchers, loggers, etc., earn money by harvesting resources on public lands. Both are at the taxpayers' expense, so it's best to sell the land (letting companies bid against each other, which will eventually demonstrate the land's truth value) and let private companies truly earn their money.

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