Reason № 3 behind why the Alaska economy is in a recession and potentially, about to get worse …
Yesterday in response to a question during the Fairbanks presentation of the Alaska Senate Majority’s Fiscal Plan Senator Click Bishop said that he had started talking to colleagues about developing an “economic stimulus plan” of various capital projects. The question and response begins at about 54:00 of the following video. Fortunately, I was sitting out of the frame, so my resulting facepalm is not recorded for posterity.
In many ways, Sen. Bishop’s response tells you all you ever need to know about why the Alaska economy is in the shape it is, and why it will become worse if either the current Alaska Senate Majority or Alaska House Majority Coalition fiscal plans are enacted.
Alaska already has what many economists view as an outstanding and long term “economic stimulus plan.” It’s the Alaska Permanent Fund Dividend (PFD). According to a March 2016 analysis by the University of Alaska-Anchorage Institute of Social and Economic Research (ISER), each $1 distributed as a PFD in Alaska produces about $1.40 in income in the overall Alaska economy. As “stimulus” packages go that’s an extremely good bang for the buck.
As significantly, according to the March 2016 and subsequent ISER studies the PFD also materially reduces state poverty levels and helps reduce income disparity, both also very important economic objectives.
But that program is troublesome to some because it puts the dollars — and economic decisions — in the hands of individual Alaskans, rather than government. So, rather than do whatever it takes to maintain the program during an increasingly serious economic recession, the majority caucuses in both bodies are currently proposing to curtail it severely and move roughly half of the dollars — and resulting control over how those dollars are spent — over to government, substituting instead things like Senator Bishop’s “economic stimulus plan” to help drive the economy.
The problem with that? Their alternatives don’t produce anything approaching the PFD in terms of what should be the goal of any economic stimulus package — generating overall state income (i.e., cash in the local economy).
Again using the ISER numbers, because a large portion of the dollars go immediately out of state for steel and other specialty products, every $1 in state capital spending only produces roughly $0.60 (yes, sixty cents) in Alaska income. That is roughly 40% of the overall income that the PFD produces.
Even if the money is used for a combination of capital spending and retaining state jobs, every $1 spent by government still only produces roughly $1.07 in Alaska income, about 75% of what a $$PFD produces.
So including the first step of cutting the PFD, the overall result of Sen. Bishop’s proposed economic stimulus plan? It severely #hurts, does #injury to, causes #damage to, the overall Alaska economy and Alaskans, by reducing overall income, increasing poverty and widening income disparity.
Yes, it will help some be more comfortable. Note that during his response Sen. Bishop placed emphasis on the impact of such a step on his own personal story: “… that’s what I used for how many years to put food on the table for my family, the capital budget.”
But from the perspective of the overall Alaska economy it will send the state even deeper into recession, hurting even more those Alaskans that already are suffering its effects the most.
Why is this an example of Reason №3 of why the Alaska economy is in the shape it is and potentially, about to become much worse?
Because the Alaska Senate Majority and Sen. Bishop’s proposals do a great job of revealing a fundamental flaw about Alaska — that many, including apparently even many elected Republicans, believe that government is the answer to our economic problems, and that if we only give government more money by cutting the PFD and letting them redirect the money into the economy their way, we will be fine in the end.
Well the numbers — those damned numbers — tell a much, much, much different story. Hopefully enough will realize that before they plunge Alaska even deeper off the economic cliff.
Editor’s Note: Alaska currently is in the midst of an intense public debate about how to handle a state government budget shortfall in the midst of a overall economic recession. One of the proposals has been to cut and cap the state’s Permanent Fund Dividend (PFD), an annual payout to the state’s citizens from the earnings stream produced from the state’s Permanent Fund. The PFD was created in the early 1980’s as part of a vision articulated by then-Governor Jay Hammond this way (from Hammond’s book, Diapering the Devil at p. 15, 19):
“I wanted to transform oil wells pumping oil for a finite period into money wells pumping money for infinity. …
[Once the “money wells” were pumping,] each year one-half of the account’s earnings would be dispersed among Alaska residents …. The other half of the earnings could be used for essential government services.”
The first part of the vision (“I wanted to transform …”) was a description of the reason behind the formation of the Permanent Fund. The second and third parts (“each year one-half … the other half”) was a description of the intended use of the earnings produced from the Fund once the “money wells” were pumping.
The proposal by some, most recently reflected in a bill (SB 26) passed last week by the Alaska Senate, would permanently cut and cap the PFD at 25% of the earnings from the Fund, rather than the 50% originally envisioned by Governor Hammond and used since, with the difference diverted to government.
A different proposal is being considered by the Alaska House (HB 115) which would couple a PFD cut with an income tax.
The following piece is one of a series of ongoing reactions to that, posted to the Alaskans for Sustainable Budgets Facebook page. For a continual discussion of these issues, readers can follow that page or Brad Keithley’s blog at bgkeithley.com.