This year’s presidential hopefuls all agree that America has serious problems, with each party blaming the other. As readers of this blog know, the Number One problem in my view is the end of strong income growth for a majority of American households since 2002. However the candidates define the problem, they all have answers (of sorts), ranging from sweeping tax cuts to major initiatives for training, higher education and infrastructure. None of them will say how to pay for their agendas; but as it happens, they’re all in luck: A new book by Swedish economists Dag Detter and Stefan Foster, titled immodestly, The Public Wealth of Nations, has found hundreds of billions of dollars, even trillions of dollars, hiding in plain sight.
It begins with two facts. Governments own more assets than all of their richest citizens put together; but unlike wealthy people, governments don’t manage their assets. The U.S. government owns more than one million buildings, vast networks of roads, military and space installations, public utilities and railroad facilities, and 25 percent of all the land in the country (including 43 percent of all forest land). No one in government even knows precisely what all of those assets are worth, because there is no standard or systematic accounting of public assets, much less professional management to enhance their value, like private assets.
Professionally managing a country’s public assets is an idea associated mainly with the national wealth funds created by Norway, Saudi Arabia and a few other countries that found themselves with more energy revenues than they could handle. The Swedish economists make a good case that the United States and other countries should apply this model to their physical assets.
Here’s what it could mean if we tried it. The Bureau of Economic Analysis estimates that the federal government’s non-financial assets are worth about 20 percent of GDP, or about $3.5 trillion today. (The physical assets of city and state governments, including their networks of schools, hospitals, prisons, roads, and so on, are worth some $10 trillion.) Detter and Foster reviewed the evidence and the literature, and conclude that the professional management of public assets can raise their returns by 3.5 percentage-points, which by any measure is a lot of money.
Let’s be conservative and say it would raise those returns in the United States by just 2 percentage-points. At that rate, the professional management of federal assets would generate an additional $70 billion per-year without raising a dollar in taxes or cutting a dollar in spending. With a reasonably growing economy, 10 years of such professional asset management should produce more than $800 billion for the government and its taxpayers, and 20 years would produce $1.9 trillion.
And if the Swedes are right that professional management could raise those returns by 3.5 percentage points, it would generate more than $120 billion per year, $1.4 trillion over 10 years, and $3.3 trillion over 20 years. That would cover about 40 percent of the projected funding shortfall of Social Security.
There also are models on how to do it, since versions are in place today in the United Kingdom, Norway, Finland, Sweden, and Singapore. First, establish an independent enterprise with the authority to manage the government’s nonfinancial assets, overseen and operated by independent, publicly accountable directors and executives. The closest domestic model we have is the Federal Reserve, and like Janet Yellen and her deputy, senior executives and board members would be appointed by the president and confirmed by the Senate. The executives and board would hire platoons of professionals in every area, all outside the civil service, to competently manage our public wealth.
It could mean, for example, that the Postal Service might use its assets as deftly as UPS or Fedex, or at least close enough so that its productivity gains were half those of UPS and Fedex instead of less than 30 percent. Or consider the Bureau of Land Management (BLM), which oversees 260 million acres of federal lands. Those holdings include the “Green River formation” in Colorado, Utah and Wyoming, which happen to be the world’s largest known sources of shale oil and gas. Unlike the BLM, professional asset managers could lease some of those lands for shale production. And in another division, managers could weigh the case for moving various military facilities currently sited on some of the country’s most expensive land, like the barracks for dress Marines on Capitol Hill in Washington, D.C., and leasing such desirable facilities to commercial tenants.
Most people would fire their investment managers, if they didn’t know what their clients held and had done nothing for decades to increase their value. If we applied the same standards to federal assets, we could find the means to carry out the ambitious initiatives the country so badly needs.