Before I comment further on the substance of Senator Warren’s proposals, some background about American Indians is in order. Indeed, the stage must be set. There are roughly 2.6 million American Indians in the United States. Twenty-one percent reside on reservations. Indian reservations cover a total of 56.2 million acres, an area that’s about the size of Idaho. The reservations are held in trust by the federal government. They are managed by the Bureau of Indian Affairs (BIA) in Washington, D.C. in conjunction with local tribal councils.
Even though the reservations have alleged broad powers of sovereign, self-governing “nations,” the federal government, through the BIA, has traditionally played a large role in all aspects of American Indian life. Indeed, the economic affairs of Indian tribes are micro-managed by the BIA. The BIA typically negotiates contracts, determines natural resource use, makes investment decisions, manages tribal financial records, and determines tribal employment policies. As an indicator of the government’s involvement in Indian affairs, consider that the federal government spends over $20 billion annually on American Indians. This amounts to roughly $7,605 for each Native American.
Economic development on Indian reservations, when it occurs, is limited, with the gambling boom on some reservations representing an exception. Indian reservations resemble many less developed countries. Unemployment rates for Indians residing on reservations are, on average, about three times higher than the overall U.S. rate. Moreover, government make-work programs account for a great deal of the so-called employment. Median family incomes are about 53.7% of the national average, with 37.9% of all Indians living in poverty—over 2.5 times the U.S. rate. Not surprisingly, American Indians suffer many of the ills that accompany poverty: high rates of alcoholism, criminality, familial instability, and general poor health. If this were not enough, corruption is widespread on reservations.
Indian reservations represent man-made disasters of the first order. Communal ownership of reservations and widespread federal government failure have resulted in this sad state of economic affairs. There have been numerous specific events that have created this tragedy for American Indians. One occurred back in 1831, when the U.S. Supreme Court concluded that the relationship between the federal government and the Indian tribes was that of a “ward to his guardian.” With that, the die was cast. The Indians were deemed to be mere wards of the State — dependencies of the federal government.
The federal government imposes many rules and regulations on its wards. As for the reservations themselves, they are communally owned and operated under the collective eye of tribal councils. Private ownership is scarce as hens’ teeth in Indian country. This institutional setup results in a massive amount of waste. Indian grazing lands are typically overused, while timberlands and mineral lands are underused. As for the Indians themselves, there are few incentives to save and invest in communally-owned resources. So, there is little investment.
To understand the waste, fraud, and abuse that occur on communal lands, it is instructive to consider why private lands are used in a more economically efficient manner. Private owners stand to gain enhanced wealth from the wise care of and prudent improvements on their property, reductions in production costs, proper land use, and the like. Indeed, private owners are “residual claimants” who have a strong interest in maximizing the residual profit or capital gain arising from land ownership. Communal owners, by contrast, lack a “residual claim” in any meaningful sense. Consequently, communal lands are used in an uneconomic manner. This observation is, of course, not new. In 1776, Adam Smith concluded inThe Wealth of Nationsthat, “The attention of the sovereign can be at best a very general and vague consideration of what is likely to contribute to the better cultivation of the greater part of his dominions. The attention of the landlord is particular and minute consideration of what is likely to be the most advantageous application of every inch of ground upon his estate.”
To remedy the economic maladies that afflict Indians, a Presidential Commission on Indian Reservation Economies recommended a sweeping privatization program in 1984. As the Commission put it: “Private ownership of tribal enterprises contemplates ownership of the means of production, private management, for-profit motivation and freedom for individual Indians or groups of Indians who have or share an interest in participating in business activity on an Indian reservation.”
If implemented, the Commission’s privatization proposals would release American Indians from being wards of the State. They could function as property owners, as do all other Americans.
This brings me to Senator Warren’s proposals. The Senator begins by correctly observing that the federal government has not lived up to its promises to American Indians. Indeed, when it comes to treaties and obligations, there has been a massive failure of the federal government to deliver—a classic case of government failure.
Senator Warren moves from that correct and obvious observation about government failure to a non sequitur. Yes. She proposes more of the same, arguing that it’s all a matter of more money. Her proposals do nothing more than rearrange the chairs on the Titanic. They fail to correct the problem. That problem is communal ownership of Indian lands and businesses and the massive government meddling in the lives of American Indians, who are currently deemed little more than wards of the State.
If all this isn’t bad enough, it’s clear that Senator Warren not only wants to keep the Indians as wards, but she wants the rest of us to become wards of the State, too. Indeed, that’s where her costly “Medicare for All” and social security proposals would leave us.
