Financial Psychosis

Curing the Financial Psychosis
of Federal and State Forestry Agencies

(Original message posted in bionet.agroforestry and saf-news December 15, 1998.  Links added December 30, 1999.)

Psychosis: fundamental mental derangement characterized by defective or lost contact with reality. (Webster's Collegiate Dictionary)

The basis of all problems with federal and state forestry agencies may be attributed to one simple cause:  they are out of touch with financial reality.  They are in fact financially psychotic.  Since there is virtually no financial accountability for management of federal or state forests, costs are routinely greatly in excess of returns.  USFS costs are currently about 4300% of returns to the Treasury.  Massachusetts state forest costs are currently about 300% of returns.

That wouldn't be so bad if this psychosis were confined to public lands.  Unfortunately, it is the same federal and state agencies that are responsible for motivating private landowners to manage their lands.  Is it any wonder that private landowners don't respond when they see the examples set by federal and state forestry agencies? 

Of course the disgraceful cost information is generally not available to private landowners.  Public forestry agencies don't publicize their gross inefficiency and irresponsibility.  However, whenever it comes to talking about the economics of forest management to private landowners, there tends to be a great deal of obfuscation and disinformation by these agencies and their "service forester" and extension forester cohorts. 

This makes no sense at all if the purpose really is to motivate private landowners to do forest management.  But it makes perfect sense if the purpose is to cover up the inefficiency and irresponsibility of public forestry agencies--or at a minimum to avoid embarrassing questions for them.  This bind leads to an inherent conflict of interest among "service foresters" and extension foresters, and it is in fact the root cause of the lack of good forest management on private lands.  In Massachusetts and elsewhere, only about 15% of private forest land is under management. 

Private landowners have been repeatedly told by "service foresters" and extension foresters that trees only grow at 3-5% per year .  They are also told that the primary purposes of management are aesthetic and recreational--or timber production for the next generation.  The idea that private landowners would or could actually manage for a good return on investment is never mentioned.  This disinformation has been spread by public foresters for decades.

So of course landowners, being rational financial agents, make the simple calculation that if their trees are only growing at 3-5%, why bother with costly management practices?  Or worse, why not just cut them all and put the money in the stock market where it will have a chance at 10%, 15% or even 20%?  This kind of disinformation also makes landowners easy prey for unscrupulous loggers who take advantage of their financial ignorance.

Is there a way out of this dilemma for "service foresters" and extension foresters?  Is there a way that they can actually tell the truth about tree value growth rates--that they are competitive with rates on stock investments--and thereby motivate private landowners to do good management?  It would appear that they cannot do this without putting their relationships with their public land agency cohorts at serious risk.  

Therefore the only way to resolve the dilemma is to introduce some financial sanity into public land management, and put an end to state and federal forestry agency psychosis.  Public land managers must be made accountable to the same financial demands that private landowners face.  They must become good fiduciaries if they are at all serious about fostering good forest management on private lands.  Absent this sort of sea change, we will continue to get poor or non-existent management on our private forest lands.

Of course, given the multiple demands on state and federal forest lands, managers should not be required to earn the highest rates of return, but they should at a minimum earn a positive rate of return.  And they should be required to explain and justify all their costs in terms of the benefits that they provide to the users of state and federal forests and the public at large.

However, even with such a sea change in attitude and policy, there would remain yet another serious conflict of interest for "service foresters" and extension foresters.  This conflict stems from the fact that a primary justification for their jobs has historically been the perceived unprofitability of forest management--and the need for the state to subsidize forest management through "service foresters," extension foresters and cost-share programs. 

If forest management were suddenly to be seen as profitable, there goes a big part of the justification for their jobs.  Thus "service foresters" and extension foresters are in a double bind when it comes to providing accurate information about forest investments.  They don't want to risk their cohorts' careers, and they don't want to risk their own careers either.   

Therefore, it may well be that there is not a way out of this double bind for these public foresters.  It may be that they will have to stop trying to educate and motivate private landowners altogether.  It may be that they will have to either move into management of public forest lands themselves, or find other jobs in the private sector.

Ultimately, if federal and state forestry agencies are unable to cure their own psychosis, and perform in a financially responsible manner, then management should be put out to bid to private forest management companies.  If private companies cannot perform responsibly, then the land should be turned into parks, and not managed for forestry purposes at all.