Housing construction is in the worst decline in years. That means less demand for lumber and other building materials. And that means less business for the forest products industry. That, in turn, means less work for loggers and mill workers. The linkages are pretty straightforward. The question is whether government should try to do anything about it.
Here in Minnesota, despite the lack of large old-growth forests, logging — together with saw mills, paper mills and oriented-strand board plants — employs quite a number of people. An OSB firm recently announced it would temporarily close one plant and lay off 500 workers.
It is an election year, and some politicians are calling for sharp reductions in stumpage rates — the price of trees from state owned forests — as a measure to help these companies and prevent layoffs. Others object to selling public resources to private companies for less than market value.
The nation takes different approaches toward the sale of our resources, largely based on quirks of history.
Auctioning resources to the highest bidder can get the public as much money as possible. That is what we do with federal oil- and gas-drilling rights and with timber from national forests.
Under the 1872 Mining Act, we give mineral deposits to the first person to file a claim. Any payment made to the government seldom exceeds a few dollars per acre of land surface. Unlike federal oil and gas rights, there is no competitive bidding.
The rationale is that mines produce valuable minerals and metals for the U.S. economy.
That judgment probably was true in 1872 when the law was passed — and when the environmental costs of mining were ignored. It probably is not true now. Moreover, in a global economy, the benefits of cheaper metals or coal get passed to consumers around the world and not just U.S. citizens.
Minnesota is unusual in that it has a lot of state owned forest land. Several counties in the northeast part of the state also have forests. What example should we follow — hold auctions to get top dollar for citizens or sell well below market to bolster employment and provide cheap materials for businesses or households?
Historically, the Department of Natural Resources has held auctions throughout the year for tracts of timber in various geographic areas.
Should we pass up some or all of this revenue to keep employment from dropping?
There would be a substantial cost to the state treasury however. And that cost per job “saved” would be much higher than the help we extend to any other unemployed workers. Moreover, the shake-out in housing comes after a long period of what many saw as unsustainable growth. Something had to give and it is giving at present.
If new construction is going to return to what history tells us are sustainable levels, then there will have to be cutbacks at various stages of the process.
States and counties won’t be exempt from the adjustment. Bids for trees on new auctions will fall from levels seen the past few years. The state will earn less money from timber auctions. That is part of a natural process. It may be prudent to reduce the area offered at new auctions.
It would not be prudent to give trees away in an effort to prevent layoffs. Would the public support writing checks equal to the value of stumpage it is proposed we forego? If not, we should forget the idea.
Economist Edward Lotterman teaches and writes in St. Paul, Minnesota. Write him at email@example.com.