Did we get our money's worth when we bought Alaska from the Russians?
It only cost $7.2 million in 1867, but David Barker wonders if the U.S. taxpayers might have been better off without it: Was the Alaska Purchase a Good Deal?
An annual gross state product of over $40 billion is not the appropriate benefit measure. That's gross, not net. Moreover, $40 billion - or whatever the right benefit figure is - would have been heavily discounted in 1867. Still more - Alaska costs a lot to maintain; the $7.2 million was a start; we had to defend it from the Japanese, rebuild it after the 1964 earthquake, and pay the heavy costs of governing in this large, remote, and often hostile environment.
But the key point: what would have happened if we hadn't bought it, and how would U.S. citizens have done under that regime. We need to compare the benefits of owning Alaska with the benefits of this other scenario, not with an effective baseline of no benefits at all. Barker believes that if the U.S. hadn't purchased Alaska, Great Britain would have and that today, Alaska would be a part of Canada.
And U.S. citizens have always had relatively easy access to Canadian opportunities. Immigration rules have been liberal. "In 1867 [which is when the purchase decision was made - Ben] there was no reason to think that Americans who wanted to move to Alaska could not do so without a United States purchase of Alaska. Without the purchase, these emigrants would simply have paid taxes to a different government."
I have to think a little more about whether I agree that U.S. citizen access to a Canadian Alaska would have been all that easy. But Barker's bottom line is, "From the point of view of taxpayers funding the purchase, therefore, the gain from the purchase of Alaska would have been federal revenue net of federal costs, not income opportunities in Alaska for citizens, since these opportunities were available to those who were likely to be taxpayers without the purchase."
The $7.2 million price paid for Alaska was greater than the net present value of the cash flow from the state.
Cross-posted from Ben Muse.