Colombia’s natural resource wealth is counted in the billions
or HOW to CALCULATE your RESOURCE WEALTH
by Matt Bruenig / January 4, 2014
Jesse Myerson has a piece at The Rolling Stone detailing five economic reforms he believes Millennials shoud be fighting for. His proposed reforms are a job guarantee, a universal basic income, a land value tax, a sovereign wealth fund, and state banks. … With the exception of Myerson’s call for a job guarantee, all of the other reforms he proposes—a universal basic income, a land value tax, a sovereign wealth fund, and public banks—are clearly possible because they already exist in the world.
Universal Basic Income
The U.S. already has a basic income system called Social Security. Every month, a check is sent to every qualifying elderly person in the country. The program pulled 22 million people out of poverty last year and overwhelmingly accounts for the 71 percent reduction in elderly poverty we have seen in this country since 1960. It is the most successful anti-poverty cash transfer program in the history of the country. There is no reason why you cannot, at least on some scale, replicate this program in the country as a whole. Just as the federal government can send checks to elderly people each month, it can send checks to everyone else each month.
I think Myerson may overstate how far we can actually push such a program when he suggests we could construct in a way that allows a lot of people to drop out of the formal labor force. Too big of a reduction in the size of the paid labor force would cause a UBI program to descend into a death spiral and unravel. But this a quibble about how big to make the UBI, not with the UBI itself. At some UBI benefit level, the program is entirely doable. To avoid pushing it too far and causing a labor supply death spiral, I have advocated starting such a program at a relatively modest benefit level and then building it up from there. Although the ignorant but deep bench of conservate Twitter users reacted to this proposal as if it is some sort of manifestly absurd impossibility, conservative superstars Charles Murray, Milton Friedman, and F.A. Hayek have registered support for it in the past.
Land Value Tax
Land value taxes of one form or another already exist in this country as well. Pennsylvania seems especially fond of them. Most recently, the city of Altoona, Pennsylvania switched over to a pure land value tax, replacing the more conventional property tax it used to levy. The proposal to levy a land value tax should be the most non-controversial on the list. Municipalities already tax land value to some degree because property taxes are levied against land value as well as the buildings that sit on top of the land. Obviously it is not absurdly impossible to change from assessing taxes on land plus buildings to assessing taxes on just land.
Implementing this tax has some normative appeal insofar as nobody makes land and so taxing its value does not run afoul of any notion that people should not be deprived of the product of their labor. But more than that, most arguments for the land tax center around its ability to encourage economic production and growth. Taxing land allows you to reduce taxes on things like the construction of buildings (subjected to property taxes), work (subjected to income taxes), and investment (subjected to capital gains taxes). If conservatives believe their own arguments about how devastating to growth such taxes are, switching to a land value tax should be a huge priority for them. As with the UBI, this proposal has also scored substantial support from those on the right side of the political perspective. The person credited with coming up with and popularizing it, Henry George, was a libertarian.
Sovereign Wealth Fund
America is also already home to a number of sovereign wealth funds as well. The purest sovereign wealth fund is the one Alaska runs called the Alaska Permanent Fund. It is like a big endowment for the state, and the returns from it are sent out each year to every Alaskan citizen in the form of a social dividend (which is itself a kind of basic income). But it is not just Alaska. Every single public employee pension fund in the country is a kind of sovereign wealth fund. The state manages a big fund of money and pays out benefits from it to public employees. In some places, states have failed to put enough money into the funds to match the benefits they have promised, but the funds themselves are generally well-managed and function just fine. As with the prior two proposals, this is entirely doable. These things already exist in the world and do perfectly fine. There is nothing about them that makes them impossible.
This country is already home to a state-owned bank in North Dakota that has been in existence for nearly 80 years. According to the Public Banking Institute, 20 other states are considering starting public banks themselves. While I do not personally understand why some people get so excited about these things, you cannot say they are manifestly impossible. Once again, they already exist in the world.
“The Sovereign Wealth Funds Law Centre gives assistance to SWFs and their home states, to host states, and to companies seeking SWF as investors, in assessing the legal risk in recipient countries legislation, the relevance of immunity protection and of Bilateral Investment Treaties in force.”
Seven GOP-Controlled States Can’t Be Wrong
by Matt Bruenig / January 7, 2014
Yesterday, I wrote about some interesting programs that exist in Alaska that conservatives called communist when they saw Jesse Myerson propose them in The Rolling Stone. One of those programs is Alaska’s sovereign wealth fund, which is just a big pot of money that the state invests and generates revenue from. The less unhinged parts of the internet appear to be waking up to the fact that what Myerson proposed is not nearly as crazy as conservatives seemed to think. Even Josh Barro at Business Insider provided reluctant support for some of the proposals. One of the things Barro did not support though was the sovereign wealth fund idea:
Similarly, I don’t see the appeal of a sovereign wealth fund for the U.S. We’re already sort of in this business: state and local pension funds are like mini-sovereign wealth funds. The investment sides of those operations are mostly pretty satisfactory, but problems arise when governments count on high expected returns on equity as a justification to incur fixed multi-year obligations. I see lots of risks from the federal government getting into this game (what promises might it make on the back of expected stock returns?) and few benefits.
I think Barro’s analysis here is lacking. First, the appeal of a sovereign wealth fund is pretty straightforward. It is a way for the state to passively capture capital income and spread it out to the public as a whole. Why might we want to do that? Barro himself incidentally identified the answer elsewhere in the post when he referenced “the sliding labor share of national income.” If more of the national income is flowing to capital, then putting the state in a position to passively capture a lot of that capital income is a fantastic way to fight inequality. The rise in capital income has, after all, been the biggest contributor to the rise in inequality in recent times.
Second, Barro’s concerns about a sovereign wealth fund are not particularly well-founded. He concedes that, in fact, the sovereign wealth funds we have are run pretty well. He just speculates that promises made on the revenues of the sovereign wealth fund could be imprudent. But that’s true of any type of government revenue. The government can make imprudent promises on expected tax revenues just as well as it can on sovereign wealth fund revenues. By itself, the SWF is just another revenue generator. Barro’s objections therefore having nothing to do with SWFs and everything to do with potential government handling of revenues in general.
Moreover, we have so many examples of SWFs already in the wild that are doing just fine. The Alaskan SWF, which I wrote about in my piece yesterday, is doing great. But there are many other SWFs throughout the country that are also doing well. There is the Permanent School Fund and Permanent University Fund in Texas. There is the Alabama Trust Fund. There is the North Dakota Legacy Fund. There is the Permanent Wyoming Mineral Trust Fund. There is the Louisiana Education Quality Trust Fund. New Mexico has three different sovereign wealth funds. And that’s just here in America. Forty-one other countries have sovereign wealth funds as well.
No assessment of actually-existing sovereign wealth funds that I have ever seen gives any support for Barro’s speculations on their revenues being uniquely subject to political mishandling. If anything, the trend appears to be that, unlike normal revenues, SWF revenues are often put to some dedicated social project and not just spent and promised willy nilly. In close, I do think it is amusing that all seven states which have sovereign wealth funds in this country are headed by Republican governors. Insofar as this is impermissible communism, you’d think the conservative commentators have a lot of work to do within their own party to eradicate these communist ventures.
Alaska’s Answer to the Dreaded Resource Curse
LIKE THEY DO in ALASKA
by Matt Bruenig / January 5, 2014
Hoping to bring some sense to the discussion, I explained on Saturday that four of the five reforms Myerson advocated already exist in America right now in one form or another. Here I want to build on that with a special focus on Republican-controlled Alaska. Why Alaska? Because it already has two (and arguably three) of Myerson’s proposals in place right now. It is, I guess, America’s great communist province.
In 1976, Republican Governor Jay Hammond started Alaska’s sovereign wealth fund (SWF), which has come to be called the Alaska Permanent Fund. The way it works is Alaska has a big pile of money that it uses to buy up the means of production (sometimes called stocks and bonds). Those investments yield returns and revenue for the state. Right now, Alaska plows that revenue into its universal basic income (UBI) program, which is called the Permanent Fund Dividend. The way it works is the state sends a check to every single Alaskan each year. Last year, it was $900, but in better years, it has been as high as $2000. For a family of four, that’s a $3,600 and $8,000 income boost respectively. The Alaska communist story gets more interesting than that though. The way Alaska builds the principal of the fund is in line with another of Myerson’s proposals: take back the land. You see, the oil wealth in Alaska happened to reside underneath public land. Instead of doing the red-blooded American thing and just giving all of that natural wealth that nobody creates away to oil companies, Alaska held on to its ownership and collects royalties from the oil. Those royalties are plowed into its SWF. So what you have in Alaska is a state that is leveraging publicly-owned natural resources to build a SWF that pays out a UBI. Or as conservatives on twitter call it: a communist hellscape.
How has communist Alaska fared you may be asking? Well, they have a 10 percent poverty rate, which is 33 percent lower than the nation as a whole. It has the second lowest level of income inequality in the country. It must be pretty cool to live there because half of the shows on TV are about it. It does not appear to be on the verge of collapse any time soon. And there are no, as far as we know, gulags or forced labor camps yet. So all in all, I’d say its adventures in communism have been pretty successful. What’s actually going on in Alaska is a kind of market socialism. The idea of creating a sovereign wealth fund that finances a universal basic income was cooked up at least 80 years ago by market socialists, most prominently Oskar Lange. It’s a way to socialize the ownership of capital resources without centrally planning anything or otherwise disrupting normal market operations. It works fine and there is no reason you couldn’t have a program like this in place in every state or one at the federal level.
“Norway has carefully managed its oil income since discovering its first field in 1969″
WHERE EVERYONE’S a MILLIONAIRE
Norway’s Oil Fund Heads For $1 Trillion; So Where Is Alberta’s Pot Of Gold?
by Daniel Tencer / 01/13/2014
Every man, woman and child in oil-rich Norway became a theoretical millionaire this week. The country’s oil fund — which collects taxes from oil profits and invests the money, mostly in stocks — exceeded 5.11 trillion crowns ($905 billion) in value this week, making it worth a million crowns per person, or about $177,000 per Norwegian. That’s right. Norway, the “socialist paradise,” is effectively running a surplus of nearly a trillion dollars, thanks to oil revenue. About the same time this happened, the Canadian Taxpayers Federation released calculations showing that the taxpayers of Alberta are on the hook for $7.7 billion in debt, or about $1,925 per person. It expects the debt to spike to $17 billion by the end of the 2015-2016 fiscal year. The CTF is so alarmed by the province’s descent into deficits that it has launched a debt clock specifically for Alberta. What’s wrong with this picture? Norway, with an economy and population somewhat larger but on the same scale as Alberta’s, has managed to guarantee its citizens’ prosperity for decades to come. Norway’s oil production is declining, down to one-half what it was in 2001. Alberta, where oil production keeps growing and growing, is writing IOUs. Norway isn’t the only one, though its fund is the largest. The United Arab Emirates’ funds are valued in excess of US$800 billion, Kuwait has about US$400 billion, and Russia and Kazakhstan have accumulated about US$180 billion each. These facts should renew the long-running debate about whether the federal government or the provincial governments of oil-rich provinces should set up the sort of sovereign wealth fund that has made Norway stupendously, incomprehensibly rich.
But are Albertans, or other Canadians, ready for the sort of reforms that would turn Alberta into the new Norway? In socialist-leaning Norway, oil profits — including from state-run Statoil — are taxed up to a whopping 78 per cent, and that’s where the seed money for the fund comes from. Alberta, meanwhile, never even had a provincial sales tax. Albertans pay far, far lower taxes than Norwegians, and if conventional economic theory is right, this should give Alberta the advantage. But does it? The average total income in Alberta is around $53,000, well below the province’s (stunning) economic output of $80,000 per person. Norway’s economic output is actually much lower than Alberta’s, at $65,000 per person, but its average income is about the same, at $58,000. Norwegians take home a much larger chunk of the economy’s wealth than Albertans do. The Alberta government blames its deficit on the “bitumen bubble.” Oilsands product is selling for considerably less than conventional crude, mostly because of the boom in shale oil production in the U.S. It was selling for 22 per cent less than West Texas Intermediate oil as of this week, and this, apparently, is putting pressure on Alberta’s finances. But this is a sad excuse. Norway, too, has had to deal with low oil prices over the decades, but always found the political will to feed its rainy day fund. Alberta “was just greedy and decided that a drunken, blow-out dance party today was better than a string of candle-lit dinner parties down the road,” writes noted economics reporter Eric Reguly in Corporate Knights. Had Alberta set up a proper sovereign wealth fund decades ago as Norway had — or even if it were simply willing to draw higher royalties — it could use that money to stay out of deficits. It wouldn’t have to go begging to the federal government for aid when flooding hits.
This isn’t news to policymakers. The IMF, the Canadian International Council (CIC), and a recent University of Saskatchewan report are among those recommending Canadian governments set up sovereign wealth funds. “The arguments in favour were just so logical,” said Melanie Drohan, co-author of a CIC report favouring oil funds, in an interview with iPolitics. It would insulate the economy from commodity price busts, allow governments to save for future generations, and perhaps best of all, “it would keep government spending within their means,” she said. “We wouldn’t have these huge surpluses going into huge deficits.” Some parts of the country are listening. British Columbia Premier Christy Clark last year announced the creation of a wealth fund that will collect profits from the proposed development of the liquified natural gas (LNG) industry on the west coast. It won’t be anywhere near the size of Norway’s fund; the B.C. government projects it will collect $100 billion of a projected $1 trillion in LNG wealth generated over the next 30 years. Then again, the LNG business in B.C. isn’t expected to be as large as Norway’s oil business. But aside from B.C., there is little interest among elected officials. The Harper government has roundly rejected the creation of a federal sovereign wealth fund. And in Alberta, the idea of a sovereign wealth fund appears to have come and gone. The province came close when then-Premier Peter Lougheed set up the Heritage Savings Fund back in 1976. But the province didn’t take it seriously at all. After a decade in operation, Alberta’s government basically stopped paying into it, instead drawing on it as another source of revenue. It stands today at a measly $16.7 billion, a tiny fraction of what Norway has accumulated. Incidentally, the fund’s size is about what Alberta’ debt is projected to be in a couple years. The province could just give up the ghost, raid the fund and pay off the debt. It won’t help make Alberta a more fiscally responsible place in the future, but at least it will temporarily eliminate the unforgivable embarrassment of Canada’s wealthiest, most economically dynamic province showing the world how to waste its wealth.
Heap-leach mining of gold on land that was once part of the Fort Belknap Indian Reservation in northern Montana has left the Little Rockies scarred and the reservation’s water fouled. Tens of thousands of abandoned mines taint the landscape across the West. Photo: Gilbert W. Arias/Seattle Post-Intelligencer
MEANWHILE : the GENERAL MINING ACT of 1872
The General Mining Act of 1872 has left a legacy of riches and ruin
by Robert McClure & Andrew Schneider / June 10, 2001
Gold, silver, platinum and other precious metals for free. Land for $5 an acre or less. That’s the deal mining companies get from the U.S. government when miners turn their explosives and earthmovers toward public land in the West. It’s pretty much the same deal miners have had for 129 years, ever since Congress approved the General Mining Law in 1872. Modern mining methods have left the West pockmarked by huge craters, some so large that they are visible from space. Whole mountainsides are ground to dust and doused with cyanide, teasing out enough gold for a single wedding ring from several tons of rock and soil. And tens of thousands of abandoned mines scar the landscape, many emitting an orange-red, acid-laced runoff called “yellow boy.” These mines have poisoned more than 16,000 miles of Western streams. When a mine goes bankrupt, taxpayers sometimes get stuck with the costs of cleaning up the mess — more than $275 million for three mines alone in Colorado, South Dakota and Montana that closed in the 1990s. Under terms of the antiquated law, miners cart away everything from gold to kitty litter from public lands — minerals worth about $11 billion in the last eight years alone. Not only does the U.S. Treasury get nothing, Congress has granted miners a tax break worth an estimated $823 million in the coming decade. Over the years, public lands the size of Connecticut have been made private under terms of the 1872 law, all for $2.50 to $5 an acre, though not all of it has been used for mining. Some claims became ski resorts, housing subdivisions, hotels and even a brothel, in Nye County, Nev. Congress has acted over the years to rein in some abuses allowed under the act, but problems persist, and the debate over the future of Western lands continues. New mining regulations designed to protect taxpayers and the environment went into effect just hours before George W. Bush became president — and he soon moved to get rid of them. A watered-down version of the rules or a full suspension is expected next month . The controversy over the new regulations for administering the old law is just one more battle in a land-use war that has raged for generations. It’s a complex subject, rich in history. But the issues boil down to three broad areas of disagreement: To what degree mining harms the environment, whether the jobs it produces are worth the damage, and whether the public interest is being subverted by the miners and their friends in Washington, D.C.
Opening the West
Complaints about a taxpayer rip-off started just about as soon as miners arrived in the vast American West. Trying to establish order amid the chaos of the California gold rush in 1848, an Army colonel named Mason sent a dispatch to headquarters warning: “(T)he government is entitled to rents for this land, and immediate steps should be devised to collect them, for the longer it is delayed the more difficult it will become.” Nearly two decades later, Congress adopted the Lode Law of 1866 — a troubled bill that won passage because it was attached to unrelated legislation. The 1866 law, updated in 1870 and in 1872, probably wasn’t what Colonel Mason had in mind. It simply legitimized what miners were already doing: Find a bit of federal land that appears to contain gold, silver or other “hard-rock” minerals, pound stakes at its corners to warn off others, dig, and — if you guessed right — cash in. Like the better-known Homestead Act, which offered free land to anyone willing to farm it, the mining law was intended as an incentive to those willing to push West and settle the frontier. That frontier was closed long ago, but the mining law remains on the books and very much in use — even where mining would harm an increasingly settled region. The new mining regulations targeted for repeal by the Bush administration give the government the right to reject a proposed mine if it would cause “substantial irreparable harm.” Currently, federal officials must administer a law they say promotes mining as the best use of millions of acres of federal land, even in sensitive places such as Top Of The World, Ariz., a wide spot in the road 70 miles from Phoenix. There, a Canadian company called Cambior wants to dig copper where wild boars roam and the hedgehog cactus blooms brilliant red in the spring. The sulfuric acid, trucks, noise and dust from a 24-hour-a-day mine would be plopped down just upstream from a lush, tree-shaded canyon — a rarity there. Cambior, which also ran a mine in Guyana where 300 million gallons of a cyanide-bearing solution spilled, wants to dig three pits covering nearly a square mile, reaching a depth of 600 feet. The hundreds of millions of tons of earth removed would be piled into heaps covering an additional square mile-plus. The ore, the material that bears copper, would be doused with 400 tons of sulfuric acid per day. To do this, the company would reroute more than two miles of streams, some through channels constructed of a concretelike material. The Canadian firm and its subsidiary, Carlota Copper Co., will pay no more than $1,700 for the public portion of the land it would mine. The company expects to mine some 478,000 tons of copper worth about $728 million at current prices. Even a federal lawyer trying to defend the government’s approval of the mine had to admit, “The circumstances here include a proposed project that is so invasive to the forest that it would never be considered, much less approved, were it not for the mining law of 1872.”
And a federal judge handling a suit by environmentalists who tried to stop the project ruled that the mining law trumps their concerns. “Because mining has been accorded a special place in the national laws related to public land, the development of mineral resources in the national forests may not be prohibited or unreasonably circumscribed,” U.S. District Judge Paul Rosenblatt wrote. “The Forest Service consequently has no authority to categorically reject an otherwise reasonable mining plan of operations.” Bob Walish, manager of the Cambior project, said it is misleading to consider only the $5 per acre the company will pay the government. He said the company spent about $61 million prospecting, obtaining permits and fighting lawsuits. Echoing the industry’s supporters in Congress, Walish said the government should follow through with the intent of the mining law — to privatize land in the West. More than half of some states are still owned by the government, he noted. “The debate in our mind isn’t that we’re stealing this from the public,” he said. “It’s ‘Why is there (still) all this public land?'” Stephen D’Esposito, president of the Mineral Policy Center, an environmental group dedicated to mine-law reform, points to Top Of The World and places like it when asked what’s wrong with the 1872 law. “It’s time for a new deal that keeps our water clean, protects our public lands from destructive mineral development, eliminates corporate subsidies and gives the taxpayer a fair return,” D’Esposito said. “What’s needed are three common-sense reforms: the right of the public to say ‘no’ when mining isn’t the best use of our public lands; a requirement that mining companies pay to clean up their messes as a cost of doing business; and a provision that mining companies pay taxpayers a fair price for mining on public lands.”
Though less of an economic force than in the past, mining remains an economic savior of some rural areas in the West, where more than 100 hard-rock mines are operating. And those who run the international corporations that have replaced the pick-and-shovel prospectors of the 1800s say the public still benefits from their hard work and willingness to risk a fortune to develop mines that might not return one. They point out that mining still pays better than most jobs in the rural West, and they note that mining firms and their employees pay taxes, too. And society gets something it can’t live without, they argue: metals. U.S. manufacturers get about half their metals from right here at home. “Mining makes our civilization…. Everything you do today depends on mining,” Rep. Jim Gibbons, R-Nev., a former mining geologist, said at a recent congressional hearing. Before another hearing, Gibbons said that efforts to crack down on mining companies “may relegate us to a Third World status.”
The miners say they are regulated enough. The government already has put about 165 million acres off-limits, and on an additional 182 million acres, the U.S. Forest Service or the Bureau of Land Management can reject mining permits. That leaves about 350 million acres of the West open to mining. And miners note that the law doesn’t excuse companies from having to abide by more-recent federal laws such as the Clean Water Act and the National Environmental Policy Act. “We can’t mine in parks. We can’t mine in sensitive areas,” said Jack Gerard, president of the National Mining Association. “The government every day makes public lands/public policy decisions.” Yet exercising this power can be expensive. In 1995, President Clinton proposed a ban on mining in an area near Yellowstone National Park. A Canadian firm, Crown Butte Mines Inc., already had applied to privatize some land in the area and planned to use land already patented — that is, converted to private property by others who paid a small fee. The government had to pay $65 million to stop the mine. The money went to Battle Mountain Gold, which had bought Crown Butte. Battle Mountain Gold wants to open Washington state’s first major open-pit gold mine, the Crown Jewel project in Okanogan County. The 1872 Mining Law has been under fire for decades, but the industry has been able to head off countless attempts at reform. One of its bedrock arguments is that overhauling the law would risk national security. “Destroying the mining law will risk the lives of our sons and daughters, for many will surely die in battle on some foreign shore because of it,” said Richard Lawson, a retired four-star Air Force general who until recently headed the National Mining Association. “Without the protection of the mining law, America cannot get the minerals it must have to remain free and secure, and we will go to war to get those precious metals.” But some Western communities pay a high price for this freedom.
A notice warns of a waste pile from an old mine in Washington near the Canadian border. Hundreds of thousands of such abandoned mines — no one knows how many — lace federal lands in the West. One watchdog group puts the cleanup costs at $32 billion to $72 billion – Photo: Gilbert W. Arias/Seattle Post-Intelligencer
Superfund sites abound
Signs near Spokane carry an ominous warning: “This health advisory is posted to alert you to the presence of elevated levels of lead and arsenic in soils along the shorelines and beaches of the upper Spokane River…. Swallowing or breathing loose shoreline soils may be an increased health risk to people, especially infants, small children and pregnant women.” The signs, posted by the Spokane Regional Health District, warn that children shouldn’t play in muddy soils along the river and should be closely supervised to ensure that they don’t put dirt in their mouths. Toxic goop is spilling into Washington fully 50 miles downstream from the Silver Valley, where North Idaho miners dug silver, lead and other metals from the earth for more than a century. The Spokane flows from Coeur d’Alene Lake, which the Environmental Protection Agency says holds some 70 million tons of mining waste — enough to cover a football field 4.7 miles high. And rivers all across the West are tainted by old mines, including the Columbia and the Okanogan in Washington.
The U.S. Environmental Protection Agency’s roster of the nation’s worst industrial contamination hot spots, the so-called Superfund list, includes more than 25 mines, a handful still active. Cleaning them up will cost billions of dollars. Whole towns in Montana and Idaho have been swallowed by Superfund sites, their stream banks and hillsides denuded of plants. In Idaho’s Silver Valley, the source of the mine waste in the Spokane River, tests show that one in six children under age 6 have enough lead in their bodies to affect learning and other functions. While much of the damage done by mining in the West happened decades ago, environmental problems continue:
- Near Deadwood, S.D., a small Canadian firm went bankrupt and left taxpayers a $40 million cleanup bill.
- At Montana’s Fort Belknap Indian Reservation, another bankrupt Canadian company stuck taxpayers with an estimated $33 million in cleanup costs.
- In southern Colorado, yet another bankrupt Canadian concern created a mess that will cost more than $200 million to clean up, while 17 miles of the Alamosa River were left devoid of fish and most other creatures for about eight years.
- In central Idaho, Hecla Mining Co.’s Grouse Creek mine, hailed as a marvel of modern mining when it opened in 1994, has slowly leaked cyanide into the ground and into a nearby creek.
- Near San Luis, Colo., Battle Mountain Gold’s self-proclaimed “environmentally friendly” mine experienced a large and unexpected buildup of cyanide within a year of opening.
- Near Whitehall, Mont., the Golden Sunlight mine, run by Placer Dome, a Canadian company, contaminated wells of two nearby ranchers.
There’s a big difference between mines envisioned by Congress in 1872 and those operating today. Modern mines are far bigger, and many employ deadly cyanide to leach precious metals from rock. The leaching technique was used in small measure by miners in the early 1900s to draw gold and copper out of ore so low in mineral content that large-scale operators would have tossed it out as waste. In the old days, leaching was done by misting cyanide over a barrel or large vat filled with crushed ore. The cyanide dissolved microscopic specks of gold from the rock, much as water dissolves sugar. As gold soared to $850 an ounce in the early 1980s, mining companies brought back the leaching technique in a big way, wringing more gold from long-closed mines and developing new ones where the ore had been considered too poor to bother. Miners still mix cyanide and water and slowly trickle it over piles of ore, but the piles are much bigger. Now they blast away entire mountains of rock, pile the ore in heaps the size of a football field and apply a river of cyanide, leaving behind hills of tailings and waste rock. Environmentalists cringe at the technique, not just because of the hazard of an accidental cyanide release, but also because of a long-term risk related to exposure of rock to the weather. The ore is often high in sulfides, and water passing through the rock and soil creates sulfuric acid, which in turn leaches poisonous heavy metals into runoff water, with iron in the rock turning streams an orange-red.
Failure to add value to resource wealth chains Canada to its colonial past
Forest Service, BLM decide
Environmental Protection Agency officials estimate that 40 percent of Western watersheds are affected by mining pollution. And sometimes EPA officials have advised against allowing a mine to open. But the EPA’s concerns are sometimes ignored since the ultimate go-ahead comes from the Forest Service or the BLM. The Grouse Creek mine in central Idaho, for example, won Forest Service approval even though the EPA warned that a strikingly beautiful high-elevation wetland valley would be destroyed. “Let the fun begin!!!!!” Forest Service mining engineer Pete Peters wrote in jest to a supervisor as he tried to figure out how to manage millions of gallons of muddy runoff water at the mine. Today, Peters acknowledges that he was unprepared for the enormity of his task of regulating the mine. “There’s no textbook. You have to hope you can stay ahead of it,” he said. “It was like nothing I’d ever dealt with.” The mine, leaking cyanide, closed after three years without making a profit. Signs posted by a nearby creek for a time warned, “Caution — do not drink this water.”
Mining industry officials acknowledge that there have been environmental problems, even with modern mines. But they say that the industry generally does a good job of policing itself, and that state regulators also keep an eye on miners. “The mining industry is not perfect, and mining has risks and it has impacts,” said Laura Skaer, director of the Northwest Mining Association. “Over the years, the industry has developed the practices and the techniques, coupled with regulations, to mitigate those impacts. It doesn’t mean there aren’t going to be accidents; that there isn’t going to be an occasional bad actor.” Accidents started to happen as soon as the Summitville mine opened in southwestern Colorado. Within six days, cyanide was leaking. The mine operator, Galactic Resources Ltd. of Canada, later went broke. Galactic was one of a series of small mining companies, often financed through the loosely regulated Vancouver Stock Exchange, that rose to prominence during the mining boom before crashing in bankruptcy. Like other Canadian companies, it was allowed to mine on U.S. federal land even though Congress in 1872 specifically limited the privileges of the General Mining Law to “citizens of the United States and those who have declared their intention to become such.”
The reason: In 1898, the U.S. Supreme Court ruled that corporations have the same legal rights as people. So today, a Toronto-headquartered firm such as Barrick Gold Corp. can set up a subsidiary in Nevada and privatize nearly 1,950 acres for less than $10,000. Last year, Barrick hauled away nearly 2.5 million ounces of gold worth more than $600 million on the open market. “We have concluded, and the U.S. has concluded and many countries around the world have concluded that it is in their interest to provide an incentive to cause people to search for a mineral that otherwise isn’t know to exist in that ground,” said Pat Garver, Barrick’s head lawyer. Yet another Canadian firm, with offices in Spokane, Pegasus Gold, left three failing mines in Montana, including one that will cost taxpayers $33 million to clean up. Most Pegasus staff members kept working for the company as it reorganized, continuing to operate more profitable mines. Some even got bonuses.
Red Mountain Creek, with its highly acidic, heavy metal-laden water, flows through Ironton Park alongside U.S. Highway 550 south of Ouray. (Photo Brett Schreckengost)
Nothing for U.S. taxpayers
Not all critics of the 1872 law call for reform because of environmental damage. Some are galled by the fact that the law, breaking with tradition, allows miners to dig a fortune from public land without giving a share to the American citizens who own it. Europe’s royal families demanded a portion of all minerals taken from their New World colonies. And in the 18th century, Congress passed a law requiring a third of the profits from mines on federal lands go to the Treasury. “Even the early miners in the West followed local mineral laws modified from German and British traditions which required a portion of the minerals to be returned to the community,” said Carol Russell, mining specialist in the EPA’s Denver office. “However, it appears that in the rush of the gold rush, royalties were forgotten, and haven’t surfaced yet.”
In 1920, Congress removed oil, natural gas and other minerals that could be used for fuel from the 1872 Mining Law. Instead, the government would lease the rights. And in 1977, Congress decreed that miners of coal on federal land would have to pay a royalty of 8 to 12.5 percent, and clean up after themselves. The government in the past decade has collected $11.08 billion from companies taking coal, oil, and natural gas, plus $35.8 billion in rents, bonuses, royalties and escrow payments for offshore oil and gas reserves. Still, hard-rock miners pay nothing for the gold, silver, platinum, copper and other minerals they get. Walish, the manager of Cambior’s Top of the World project, joins many in the mining industry in warning, “If massive royalties are put on federal land, you’re going to see a lot less mining.” Critics are even more agitated about the mining companies’ ability to transform public land into private land for no more than $5 an acre — close to the fair market value for ranch and farmland in the West in 1872. Since 1964, more than 289,000 acres have been privatized, or patented, for mines. Congress has temporarily prevented additional land from being privatized, but applications already in the pipeline are eligible to continue with the process. About 73,000 acres could eventually be privatized this way. In 1872, Congress sold the land cheap because it wanted the West to be settled. That’s why a typical claim of 20 acres cost $100 — about three months’ rent in a Seattle boardinghouse. Now, critics ask, why should the government continue to sell public land for a pittance when the frontier is closed, and the West largely settled?
‘Why are they tearing it up?’
Years ago, a young man growing up in northern Arizona was surprised to see a big hole being scooped from the flanks of the picturesque San Francisco Peaks near his home. The mountains are considered sacred by the Hopi, the Navajo and 11 other tribes. “They started ripping the side of this mountain open, and I remember asking early on: ‘Who owns this land? And why are they tearing it up and carting it away?'” he recalled. Decades later, “it’s expanded into a gigantic scar on these sacred mountains. … One of the most unspeakably beautiful places in the Southwest is being carted away, truckload by truckload.” The man is Bruce Babbitt, former Arizona governor and Interior secretary in the Clinton administration. For eight years, Babbitt administered the 1872 Mining Law. Babbitt hates the 1872 Mining Law. What was being mined near Flagstaff was pumice, a light volcanic rock. Today most of it is used to give denim that soft, “stone-washed” look. “It’s not like it’s being mined for some metal that’s necessary,” Babbitt said in an interview before leaving office. “It’s being mined to make blue jeans look old. It’s just a scandalous commentary on the Mining Law of 1872.” (The Los Angeles Times reported last week that Babbitt is helping The Hearst Corp., owner of the Seattle Post-Intelligencer, broker a deal worth $200 million or more that will determine the fate of Hearst’s seaside ranch at San Simeon in central California.)
Babbitt never forgot the San Francisco Peaks, and last year the government agreed that federal taxpayers would give the mine’s operators $1 million to stop digging. He also worked hard to overhaul the law that allowed them to do it in the first place, calling it “a license to steal.” His case was bolstered by the General Accounting Office, the investigative arm of Congress, which issued numerous reports critical of the 1872 law, saying it “runs counter to other national resource policies” while allowing valuable land to be sold at nominal amounts. Facing stiff opposition from a Republican-controlled Congress, Democrat Babbitt switched gears in early 1997, pushing for more modest reforms through a rewrite of his agency’s own rules for administering the law. Opponents in Congress moved to block even that reform. They ordered Babbitt to stall the rewrite of the rules until a panel appointed by the National Academy of Sciences could study the issue and report back. The NAS panel concluded that mine regulations “are generally well coordinated, although some changes are necessary.” It listed seven “regulatory gaps,” including “financial risks to the public and environmental risks to the land” because companies sometimes post inadequate bonds to pay for reclamation after mining ends. Likewise, the EPA’s inspector general concluded that “critical gaps” in bonding programs “could result in environmental problems and sizable cleanup costs for the federal taxpayers.”
These criticisms stemmed from a system that allowed local Forest Service and BLM officials to negotiate a financial guarantee with a mining company to cover cleanup costs. Those “guarantees” can prove uncollectible after a bankruptcy. Cleanup bonds posted by some miners were often inadequate to cover the true cost of fixing the environmental damage associated with huge modern mines. They also assumed the company would save money by doing much of the work itself, while bankrupt firms often simply abandon mines. Babbitt went further than the NAS panel suggested, though. The new regulations set minimum environmental standards for mines and, for the first time, gave federal land managers authority to deny a mining permit if it would cause “substantial irreparable harm … that cannot be effectively mitigated.” As for reclamation bonds, the new rules assume a worst-case scenario: The company goes bankrupt, and the government has to take over. Some forms of bonds that have proven difficult to collect were forbidden. The rules were published in the Federal Register in November, and went into effect at 12:01 a.m. on Jan. 20 — just hours before George W. Bush was sworn in as president. The mining industry has characterized the rules as “burdensome, complex, counterproductive … onerous and misguided regulations rushed through during the waning days of the Clinton administration.” Jack Gerard of the National Mining Association said that “the Clinton administration took a sledgehammer to deal with a mosquito.”
Among those to challenge the rules in court were his association and the state of Nevada, home of most of America’s gold mines. Environmentalists, too, have been critical of the new regulations. Alan Septoff, legislative director of the Mineral Policy Center, said miners are still allowed to harm the environment, so long as they “effectively mitigate” the damage elsewhere. “Even though the stronger mining rule is monumentally better than the old rule, that’s a testament to the inadequacy of the old rule,” Septoff said. In March, Babbitt’s successor as U.S. Interior secretary, Gale Norton, ordered a reconsideration of the rules. Next month, the BLM is expected to issue a watered-down version of Babbitt’s rules or revert to old regulations adopted in the Carter administration. At the EPA, this prospect causes concern — particularly if rules on cleanup bonds are to be weakened. “The vast majority of these (mining Superfund) sites were historic sites, but in recent years we’re finding sites that are inadequately bonded, and the government is getting saddled with the cleanup costs,” said Nick Ceto, mining coordinator at the EPA’s Seattle office. “There are others that are coming up.”
137 Years Later / July 20, 2009
“It’s hard to believe that the 1872 mining law is still with us. Signed by Ulysses S. Grant four years before the invention of the telephone, the law sets the rules for mining hardrock minerals like gold and copper. Useful in the days of westward expansion, it is a disaster now. It demands no royalties from the mining companies and provides minimal environmental protections. Its legacy, if it can be called that, is a battered landscape of abandoned mines and poisoned streams. Republican and Democratic presidents alike have urged Congress to reform the law. Yet it survives, thanks largely to Congressional inertia and friends in high places. At the moment, that friend is Harry Reid, the Senate majority leader who resists reform because mining is big business in his home state of Nevada. Still there is hope for change. In 2007, the House passed a good bill that would require mining companies to pay royalties, just like oil and coal producers do. The money would help pay for cleanups of abandoned mines. The bill would also strengthen environmental safeguards and allow the secretary of the interior to block mines that pose a clear danger to the environment. Senator Jeff Bingaman, the chairman of the Energy and Natural Resources Committee, introduced a comparable bill in April. This is the first comprehensive reform bill the Senate has seen in years. But what really encourages those who seek a better law is the Obama administration’s ardent and public support. Ken Salazar, the interior secretary, told Mr. Bingaman’s committee last week that he saw mining law reform as a “top-tier issue” that he hoped would not be buried under other Congressional priorities. And this week, using his emergency authority under another law, Mr. Salazar placed a temporary hold on any new mines on about one million acres surrounding the Grand Canyon. These are enormously encouraging gestures from a department that resisted reform during the Bush years. It bears repeating that these reforms do no more than subject the mining industry to practices that oil and gas operators, coal miners and other intensive users of the public lands — including ski areas — have operated under without strain for decades. Our hope is that Mr. Bingaman’s leadership and Mr. Salazar’s enthusiasm for change will command the attention of Mr. Reid and, in time, force a vote on the Senate floor. One can live in the 19th century for only so long.”
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