Can Federal Assets Cover the National Debt?

The federal debt is $26.3 trillion and growing, having increased by a trillion dollars in just 40 days prior to last Friday. There’s too much complacency about the size of that debt, and much of this complacency can be traced to a 2013 study by the Institute for Energy Research estimating the value of federal land and energy resources to be around $200 trillion.

Since then, that study has been cited in Forbes, Time, MarketWatch, and by various bloggers, as well as President Trump’s staff, all of whom argue that don’t need to worry about the size of the debt because we can pay it off by selling federal assets. Unfortunately, this is based on a serious misreading of the IER study, mainly that the study used gross resource values, not the prices the federal government could get for its resources.

For example, the study assumed that oil is worth $100 a barrel, which is the price at a refinery. From this must be deducted the costs of finding, extracting, and transporting the oil to the refinery. The federal government’s share of the oil it sells was about $12 a barrel in 2013 and, with declining oil prices, about $9 a barrel in 2019.

The Institute for Energy Research may have understood the difference between gross and net values, but none of the people quoting them did. Moreover, I haven’t seen any indications that the institute bothered to correct these misinterpretations.

Worse, federal resources include so much oil, natural gas, and coal that it will take hundreds of years to extract it all. Federal coal reserves in the contiguous 48 states alone represent 1,300 years of American coal consumption. This means we can’t simply multiply the price of coal per ton by the number of tons owned by the federal government; we have to discount future coal mining by an appropriate interest rate.

Using a 3 percent discount rate, and assuming federal oil, gas, and coal is produced at a rate equal to half of all U.S. production (which is far faster than it is being produced today), all energy resources owned by the federal government are worth around $2 trillion, not $200 trillion. At a 4 percent discount rate, the value is reduced to $1.5 trillion. Even these numbers are questionable because more than 80 percent of the federal government’s oil is shale oil, which is the most expensive to extract, so royalties paid by oil producers for that oil will probably be lower than for other energy minerals.

Further, it is easily possible that energy substitutes for oil, gas, and coal will become available and economical long before the federal resources are exhausted. You can see my detailed calculations along with other caveats in this four‐​page paper.

To this can be added the value of federal lands. The federal government owns about 623 million acres of land. A 2015 paper from the Bureau of Economic Analysis estimated the 464 million acres of land in the contiguous 48 states was worth an average of $4,100 per acre, for a total of $1.8 trillion.

There are problems with this number as well. First, about a third of these lands are in national parks, wilderness areas, and wildlife refuges that Congress would never dare to sell. To collect total revenues of $1.8 trillion, the remainder would have to be worth $7,200 an acre.

Perhaps half of the remainder are forest lands, but such lands are generally not worth $7,200 or even $4,100 an acre. Weyerhaeuser recently sold 630,000 acres of forest lands in Montana for $230 an acre. Even in the Oregon Coast Range, which has some of the most productive timberland in the world, land typically sells for under $4,000 an acre. Timber and timberland values are low because, says the Forest Service, the United States is growing timber far faster than it is cutting it.

Some of the remaining land might be considered agricultural and is used for grazing cattle and other domestic livestock. But the United States has 1.1 billion acres of private agricultural lands and only uses about 350 million of them to grow all the crops we need to feed ourselves and our livestock plus export food and grow corn for ethanol. Most federal lands in Alaska, incidentally, are also in national parks and/​or are tundra that certainly can’t be sold for $4,100 an acre.

In short, the federal government is even less likely to get $1.8 trillion for its land than it is to get $2.0 trillion for its energy resources. Selling all of these resources will cover, at most, 14 percent of the national debt as it stood last week, and probably a lot less. This means no one should be complacent about the size of the national debt thinking that the federal government has the resources to cover it.