Newswise — Sarah Palin has a new book out, and the former Alaska governor's rise to fame has brought more notoriety to her native state than it's had since the United States dropped $7.2 million in gold to buy it from Russia in 1867.
But a new analysis by a University of Iowa economist suggests the investment hasn't been worth it for U.S taxpayers.
"Cash flow from Alaska to the federal government since 1867 has certainly exceeded the initial purchase price, but this fact is not sufficient to demonstrate the purchase was a sound financial investment," said David Barker, an economist and adjunct professor of finance in the Tippie College of Business. "The economic benefits that have been received from Alaska over the years could have been obtained without purchasing the territory. In financial terms, Alaska has clearly been a negative net present value project for the United States."
Barker acknowledges that Alaska provides many benefits to the country. It's a rich source of natural resources, especially oil; its vistas, open spaces and wildlife provide unmatched natural beauty; and, for many Republicans like Barker, there's Palin herself.
But Barker argues that the federal government spent so much money to acquire Alaska (the $7.2 million in gold had the value of about $10 million in greenback currency at the time), then govern the area and build the infrastructure needed to access its resources that whatever financial benefits the state has provided have been far offset by the costs.
By Barker's calculation, the state has cost the federal government $13.4 million in 1867 dollars, which translates to a $16.5 billion loss in today's dollars, adjusting for the size of the economy.
"A good example is the Alaska Railroad, built by the federal government at a cost of over $53 million from 1915 to 1924, and operated at a loss until 1938," Barker said. "The railroad showed some profit from 1938 through the end of World War II, but then required another $100 million in rehabilitation. The 1964 Anchorage earthquake caused $30 million in damage to the railroad. In 1983 the railroad was valued at $22 million before it was sold to the State of Alaska. It now shows a small annual profit, but mostly as a result of large subsidies from the federal government."
He said the purpose of the railroad was not military, but to improve the Alaskan economy and, in turn, federal tax revenues. "The federal government clearly would not have made these expenditures if Alaska had not been purchased."
As for revenues, Barker said the federal government has collected many forms of them from Alaskans over the years, including income and excise taxes, a seal fur tax early in the territory's history, land leasing and sales, and, most significantly, taxes on oil. But he said that revenue can best be described as "occasional spikes followed by long periods of net federal subsidy" and have never offset the costs to the American taxpayer of purchasing, financing and paying to develop Alaska. Even today, no state collects more federal aid than Alaska, Barker said.
Barker also acknowledges that Alaska has been helpful strategically to the United States. For instance, its North Slope reserves provide an important domestic source of oil for the country.
But Barker points out the belief among many historians that if the United States had not purchased Alaska, Great Britain would have acquired it and made it a part of Canada. Given the historically close and friendly relationship between the United States and Canada, Barker said Americans still would have had access to Alaska's resources, just as Americans today have largely open access to Canada's resources, including its oil.
But that access would have come at a much lower cost to Americans, Barker notes, because the costs of developing the region's economy with roads, rail, port facilities and other infrastructure would have been paid by Canadian taxpayers, not American.
A copy of Barker's study is available online at http://news-releases.uiowa.edu/2009/november/David%20Barker-Alaska.pdf