Privitizing federal land is a terrible idea
Republicans can't do government right
The Twitter wonk space recently took an eye to Senator Mike Lee’s (R-Utah) proposal to put hundreds of millions of acres of federal land up for sale. The argument from the wonks on Twitter is as follows:
Federal lands aren’t used productively.
Private owners could put these lands to productive use.
The GDP growth from private development helps society at large.
The money from the land sale helps the U.S. cover its debts.
This is a terrible argument and an even more terrible proposal. Let’s walk through why.
The Terrible, Horrible, No Good, Very Bad Argument for Privatizing Federal Lands
It’s true that federal lands aren’t used for their most productive purposes. There are millions of acres of federal land that the U.S. could use for some form of mineral extraction, industrial development, or residential ventures.
However, the argument that the public must (or should) privatize these lands to put them to productive use isn’t correct. Public entities can develop real estate just as private entities can. Governments across the world strike an optimal balance, and the U.S. should follow suit. Before I get to that, here are a couple of reasons why we should hesitate before privatizing public assets:
The community at large determines where the fruits of public wealth flow rather than private shareholders. This often means returns to public wealth benefit the neediest or the community at large rather than a small minority of already wealthy investors.
If we care about the government’s balance sheet and long-term fiscal health rather than short-run cash accounting, developing public wealth and maintaining public wealth are preferable. For instance, imagine a company saying it's going to sell a factory for $1 billion to cover its pension liabilities. That’s what Mike Lee proposes, and boardrooms across the corporate world would laugh it out of the room.
Any normal return flowing to the state from a competitive, entrepreneurial activity is a return that the state can use to eliminate or reduce distortionary taxation.
A Better Proposal
Let’s take a look at how Sweden strikes the balance I referenced earlier. In Sweden, they split real estate holdings by the government into several independent holding corporations, each charged with developing properties and generating returns. Let’s use ‘Akademiska Hus’ as an example, charged with property management and development for the country's higher education institutions.
In 2022, this holding company alone generated a dividend to the Swedish people of 2.9 billion SEK. This is equivalent to around $275 million USD. If the United States had a similar holding company, this would be a population-equivalent return of over $8.5 billion in a single year.
Any land good enough for private developers is good enough for public developers, and the U.S. could do something similar to Sweden. For example, the U.S. could establish a holding corporation with independent, professional management, with the goal of maximizing returns from a consolidated portfolio of federal lands, from residential development to extraction to any industrial purpose.
This single holding corporation has great potential. A 2015 paper valued U.S. federal lands at $1.8 trillion (in 2009 prices). There are a lot of difficulties in attempting to value all federal lands, such as a lot of the land being in remote, difficult-to-develop areas. More residential areas don't have clean comparisons to use in the market, and the federal government likely wouldn’t sell certain pieces of land under any circumstances (like with national parks).
However, let’s assume the value of all federal lands is a conservative $3 trillion as of today. Assuming an equally conservative 5% yield, that equals $150 billion in dividends to the state each year, tax-free, and since this yield is higher than the average yield of outstanding U.S. Treasuries, the long-term fiscal health of the country is better relative to selling the land off to private investors.
Some might say that we can't expect the government to figure out independent holding corporations, and it’s more realistic to sell off public wealth instead, but is this the optimal policy to advocate for? Clearly, it puts the U.S. in a worse state financially long-term since we can only sell off public wealth once, and do we like the idea of allowing politicians to sell off public wealth anytime they need to fill a fiscal deficit in the short run?
That doesn’t seem like a workable solution to me. The way we set up holding corporations and entrepreneurial institutions for a public purpose matters a lot, and sometimes selling off public wealth could make sense, just as a company selling off its assets could make sense, but, at the very least, we should demand our politicians do actually good policies and not policies out of convenience.
It might be one step harder for the U.S. to pass a bill, consolidate federal land holdings, and begin developing the land with a return requirement, but it’s the best thing to do for the community and the government in the long run.
We know how to structure holding corporations to run professionally and profitably, and that’s exactly what the U.S. should do.
For point 1, why not just privatize the federal land, use those funds and taxes on income from those private entities for targeting the neediest communities? “Rather than a small minority of investors” is this a point to wealth inequality?
And wouldn’t point 2 not be analogous bc selling a factory is to entirely scrap your ownership in it. The government selling land to private firms means they still have equity of the land through taxation (while in your case the factory seller never gets any equity of the future earnings of the factory)
Also i agree that extra cash flows should be used to eliminate bad taxes.
You are right that "selling" the land isn't exactly like selling a factory, because the state still reserves the right to tax the land, but it all depends on the details of that taxation.
You are very close to re-inventing Georgism with the idea that the state should sell the land and then reap the rewards through taxation, except the Georgist goal wouldn't be to extract income taxes from the owners, but to extract land-value taxes from the land. The Georgist playbook would be sell the lands off, so they become fully private with respect to their use, re-sale, division and subdivision, etc, but the terms of the sale impose a 100% land value tax. In George's terms, "no need to confiscate land, just confiscate rent". Then the economy at large gets the full economic benefits of the supposedly more efficient private land development, meanwhile the value of that development goes to the state (and public) through the capture of the resulting land value, which fixes the "only enriching the private landowners" problem, because there is zero profit to be had from the land itself in the first place.
Really, the mathematical / financial difference between Georgism and Econoboi's proposal is almost nothing substantial. Whether the state retains "ownership" of the land but leases it out for optimum development at presumably maximum lease values, or whether the state "sells" the land but retains the right to tax at presumably maximum tax values, is almost a distinction without a difference. The benefit of the Georgism path is 1) it's an easier sell because you can claim to be privatizing the land and all the dumbshits out there who just think public=bad can be tricked into supporting it, as well as the free-market set who believe the government can't manage anything, because you can say it's privately managed and 2) theoretically the free market over time will optimally exploit the land for revenue potential, whereas the state managing the land might manage it with other goals in mind, this could be good or bad. If the state retains ownership of development, the state might decide to exploit the land to some end besides raw monetary return. But then again the state sort of does that with private land too when they impose zoning or environmental restrictions or workplace rules or whatever else, which the state can still do under Georgism.