Fortunately, the logging operation in the Tongass has been scaled way back in very recent years and loggers are cutting secondary-growth rather than old-growth timber. The Forest Service and private conservation groups are restoring some of the damage. But the question remains: Why would the Forest Service sponsor this environmentally damaging, economically senseless logging in the Tongass decade after decade? Why?
To help you think this question through, here is a useful technique for policy analysis that distills much of the wisdom of public choice economics, the branch of economics that studies the choices made by people in the public sector:
Of any policy, ask two questions:
1. What groups are primarily affected?
2. What are their incentives?
Those incentives will determine (or strongly influence) the outcomes.
The answers to that pair of questions often give one a very good start at understanding the consequences of any public policy, and even its reason for existing in the first place; we’ll applied this technique for analysis in this and future chapters. How would you answer these questions for the Tongass? Think it over before continuing.
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The groups with the most obvious financial interest in the logging program are, of course, the logging interests—the logging companies, loggers, and local sawmills. The logging companies lease the right to take timber from the Tongass, and because they don’t pay for the logging roads as they would if they owned the land, a large part of their costs is born by taxpayers. Their profits and those of the local sawmills are far larger than they would be if the logging companies had to build their own roads; more to the point, they are profits instead of losses. Both the loggers and mill workers themselves benefit from high-paying jobs, and the owners of the logging companies benefit through higher (or positive) profits.
Follow the money. Who funds the thousands of miles of roads the logging companies use? The funding comes from another group with a major interest in the Tongass logging program—the United States Forest Service, which administers the program. What is the Forest Service’s interest? Well, the program is huge, and a source of substantial revenue to the US Forest Service (even as it is a large drain on the US Treasury). In fact, as early as 1985, “about 342,000 miles of roads [had] been constructed [in all national forests combined] under the auspices of the Forest Service …, more than eight times the total mileage of the U.S. interstate highway system.” The program means a huge budget, many jobs, many offices, many studies to do, and many subordinates for Forest Service officials.
We can suppose and hope that many Forest Service personnel feel guilty about this program. We can imagine, for example, a young college graduate newly hired to the agency and full of idealism about protecting America’s forests, when he first learns the reality of this logging program. We can imagine him going to his superior in dismay and saying, “This is terrible; this program should be eliminated, or at least cut back to areas where it makes economic sense!” His superior smiles patronizingly and says, “Really, Joe? And where will you look for your next job if that happens?” We can imagine the young man recoiling, realizing the implications for himself personally, trying to reconcile the conflict between his environmental values and his career plans, and perhaps mumbling something about making the program more efficient. Troubling though it may be to accept, the Tongass logging program is in the economic self-interest of many Forest Service employees; they accordingly have a strong financial incentive to support and build the program.
Follow the money back another step to find another group with an interest in the program: Who provides the Forest Service’s funding? Congress does. What benefit does Congress realize from logging the Tongass at a loss? Who might support Congress for supporting this program? The logging companies and those in related industries do. Alaska’s senators and representative receive substantial campaign contributions and other political support from the logging interests, to encourage them to keep the logging subsidies coming to Alaska. The representatives have a strong incentive to vote for the logging program to please their constituents and keep those campaign contributions coming.
Of course there are only a few members of Congress in Alaska, but they and the politicians from other timber states gain majority support for the logging program by promising to vote for the pet programs of their colleagues in non-timber states in return.
These are the incentives that have sustained the cycle of money and favors, year after year. The loggers support their congressmen, the congressmen support the Forest Service, and the Forest Service supports the loggers. Each group has strong financial and career incentives to keep this program going.
There is, of course, one other important group hidden in this picture—the taxpayer-citizens. Our role is to surrender to the IRS the money that finances the whole works. Because the loss-making logging in the Tongass is so much against our interests, both financial and environmental, we may ask, “Why don’t we stop it?” Public choice economics gives a persuasive answer to this question that we will examine in Chapter 7 on the special interest effect. For now, however, let us simply ask a key question crucial to understanding the perverse incentives driving the spoliation:
Who owns the Tongass?
I generally receive three different, but equivalent, answers to this question. The first answer is “We do,” or “Everybody owns it,” or “All the citizens.” Of course that is true in a sense: The National Forests are held in trust by the government for all the citizens of the nation. We all have some right to the National Forests and the privilege to use them according to guidelines set out by the Forest Service.
The second answer, at first, sounds very different: “Nobody.” This, too, is true in a sense: there is no identifiable person or group with exclusive right to use, control, and dispose of the National Forests as they see fit.
The third answer is “the government.” Ultimately, these three ostensibly different answers turn out to be different versions of the same one. What everyone owns, no one owns. That everyone owns something means that no one person or group has the privileges of ownership—the right to use, control, and disposal. You are an “owner” of the Tongass, but can you sell your share? Do you have any say in the decisions about how it is used? No. The Tongass is best understood as government-owned, because the government determines its use, control, and disposal.
That, I will suggest, is the problem. But first, let’s consider a counter-example.
Multiple Uses of a Privately-Owned Wildlife Sanctuary
The Paul J. Rainey Wildlife Sanctuary is a 26,800 acre marshland on the Gulf coast of Louisiana, owned by the Audubon Society. According to John Baden, in his book Destroying the Environment: Government Mismanagement of our Natural Resources, the sanctuary “is a home for deer, armadillo, muskrat, otter, [and] mink” and 100,000 migrating snow geese use it to rest and feed. Baden tells an interesting story about Rainey, however, that helps us understand the incentives of private ownership. He writes that “since the early 1950s, thirty-seven wells have pumped natural gas (and a small amount of oil) at various times” from the sanctuary.
That’s a surprise. In today’s climate of zealous environmentalism, most of us would expect a conservation group such as the Audubon Society to reject with horror the approaches of an oil company—an oil company!—that wanted to put drilling rigs, with their inevitable noise and unsightliness, not to mention their possible pollution problems, into a bird sanctuary. Few things seem less likely, on a cursory glance, than Audubon’s allowing the oil company in.
And yet, until 1999 when leases expired, oil and gas were extracted from the Rainey sanctuary. What do you think happened such that oil companies were admitted there?
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Sometimes my students suppose that the oil companies got into the Rainey Sanctuary because of some government intervention, and that is a sensible guess. In this case, however, there was no government intervention; Audubon Soc
iety’s property rights were completely respected. Here the public policy was laissez-faire—the parties relied upon the protection of property rights and freedom of exchange. So what happened?
Again, ask two questions:
1. What groups are primarily affected?
2. What are their incentives?
Those incentives will determine (or strongly influence) the outcomes.
One group primarily affected was the oil companies. They had a strong incentive to make oil production in the wildlife preserve advantageous to conservationists. The other primarily affected group was the Audubon Society, of course, who had a strong incentive to protect the wildlife in the Rainey Sanctuary, but also to protect other wildlife elsewhere, too. The oil companies offered the Audubon Society a deal. They would let the conservationists set the terms on which it would allow oil production in Rainey, including very substantial royalties. Baden reports that “[the] managers of Rainey found that the timing, placement, operation and structure of oil exploration could be carefully planned in conjunction with the seasonal requirements of wildlife, and adverse environmental effects could be avoided.” The oil company offered to route their roads over the least sensitive lands. They had the ability to drill at an angle, so they could site their drills on unimportant land and still reach the expected oil and gas deposits. They agreed to suspend operations in nesting season. Of course they agreed to safety procedures strict enough to satisfy Audubon. And they agreed to pay Audubon very well. Over the years, Audubon earned over $25 million in royalties from their gas and oil. What did Audubon do with the revenue? It maintained Rainey with it, and also bought additional land on which to preserve still more wildlife.
As of January, 2010, the officers of Rainey were investigating further leases in hopes of earning more revenue with which to maintain and improve the sanctuary.
Rainey gives us a marvelous example of dual use of a resource. From that beautiful marshland, society gains both wildlife preservation and more abundant natural gas. The oil company benefits. Audubon benefits. Consumers of gasoline and heating oil benefit. There are benefits all the way around.
The All-Important Institution of Private Ownership
Consider the contrast between the Tongass National Forest and Rainey Wildlife Sanctuary. In the former, we have serious environmental degradation at a substantial financial loss. In the latter, we have both environmental and energy benefits. In the one, the physical resource is allowed to deteriorate; in the other, it is carefully maintained.
What explains the difference? Is Tongass run by bad people and Rainey by good? No. The difference is in ownership and the corresponding incentives triggered by ownership in each case. Tongass is owned by everybody, therefore by nobody. Decisions about it are made by government bureaucrats with no ownership stake in the land. When the logging operation loses money, there is no particular owner who feels and notices that loss. Accordingly, there is no one with a compelling incentive to stop the damage and red ink.
Why is Rainey so different? Because it is privately owned. As owner, Audubon Society has a strong incentive to make the best possible use of the resource to achieve the organization’s goals. The resource is a precious asset, all of whose value must be tapped in order for Audubon to benefit as much as possible.
In recent years a number of environmental economists, sometimes known as “free market environmentalists,” have studied the consequences of private and government ownership on the stewardship of natural resources. The essence of their “new resource economics” is captured as follows: because private owners enjoy any profits and suffer any losses flowing from a resource, they have a strong incentive to use it well. As we discussed in the previous chapter on profit and loss, in a society that permits only voluntary interactions, if resource owners are to benefit from their property, they must use it in ways that satisfy the actual wants and needs of others at reasonable cost. Others communicate their wants and needs by the prices they offer. The owners notice the profit opportunities these prices present for different uses of their resources. They choose the most highly valued combination of uses because they bear the opportunity cost of the choices they make. If Audubon Society, for example, yields to pressure from radical environmentalists today and refuses to restart gas production in Rainey, it will bear the opportunity cost of that decision—the royalties it could earn and the improvements to the sanctuary those royalties could finance. Audubon feels that opportunity cost. It notices; hence it studies the possibility.
With government ownership of resources the incentives are entirely different. The public servants charged with managing those resources, well-intentioned though they may be, do not have an ownership stake in the resource. They get paid a salary, often regardless of how well or poorly they do their jobs. If the resource is used profitably, they receive no bonus; if it is used at a loss or damaged, they suffer no personal loss or reduction in pay. Because they do not stand to profit from discovering any new and better uses of the resources than those the legislature dictates, they are not alert to such possibilities.
In other words, these public servants do not bear the opportunity cost of use. In the Tongass, the Forest Service does not experience the operating losses; taxpayers do. The Forest Service would not realize any savings that would accrue from stopping the waste. Indeed, the public administrators of publicly owned goods generally cannot even know the opportunity cost of use. The opportunity cost of any use of a resource is revealed only in competitive markets, in which an entrepreneurial owner tries out some new and different use, or where some other would-be owner offers a price for the resource, which she would try to use to serve the public better. But government-owned resources are almost never for sale, so they have no price. The administrators of Tongass cannot compare the logging companies’ lease payments to, say, the purchase prices offered by logging or eco-tourism companies that would like to buy a few thousand acres. The forest is not for sale.
Because the actual uses to which the resources are put have little to no influence on the personal fortunes of the public administrators in charge of them, those public servants have little incentive to serve the public as well as possible. They have a strong incentive, however, to serve the interests that support them politically. And they have a strong incentive to protect their turf. The Forest Service has a strong incentive to serve the logging interests and their congressional overseers, and they have a very strong incentive to keep the subsidy dollars flowing, regardless of what happens to the Tongass and the taxpayers’ money.
The point of these contrasting examples is to illustrate the basic principle this chapter presents:
Private ownership and freedom of exchange, the foundational institutions of a free market, lead people to serve others in order to benefit themselves, whereas government interventions tempt people to benefit themselves at others’ expense.
The Rainey Wildlife Sanctuary’s private ownership and its owners’ freedom to make exchanges with the oil companies as they see fit are free market institutions. They motivate the members of the Society to benefit themselves by serving both nature lovers and NASCAR lovers by simultaneously protecting the wetlands and supporting oil and gas production.
In the case of the Tongass National Forest, both government ownership (or non-ownership) and the compelled transfers of money from taxpayers to the logging program are government interventions. These interventions tempt the logging interests, members of Congress, and the Forest Service to benefit themselves at the expense of the citizen taxpayers.
The point made in the Tongass example merits more discussion, because so many people are accustomed to assuming that the different parts of government act in the public interest. Do they, in general?
People are Self-Interested in Public as in Private Life
People are self-interested—they pursue their personal well-being as they see it—in both private and public life. And in both settings they make mistakes and sometimes behave badly.
Thi
s claim is at the heart of public choice economics. One of the founders of public choice, Nobel Laureate James Buchanan, has called it “politics without romance” because public choice rejects the tendency to contrast the imperfections of free market processes with an idealized, romantic view of government intervention. Public choice does not presume that government interventions “will accomplish the desired objectives.” It compares the realities of the free market, with all its problems and imperfections, with the realities of government intervention, with all its problems and imperfections. Perfection is just not available to imperfect human beings. In choosing between free markets and government intervention, we must ask ourselves not which is perfect, but which is preferable, or least bad, all things considered.
Nearly everyone assumes that people in business are self-interested: Of course business people seek to maximize their profits and advance their careers. (As we saw in the last chapter, this pursuit of self-interest benefits others as long as it occurs in free markets.) But what about public servants—US Forest Service bureaucrats, game wardens, city politicians, zoning board members, regulators in the Food and Drug Administration, school board members, state licensing boards, politicians at various levels—are they also self-interested? Do they try to achieve their own personal well-being as they see it? Or do they strive exclusively to achieve the public interest, the well-being not of themselves, but of others?
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