How bad can things get with the national economy? In the past that question would be of little relevance in a column that is supposed to be focused on Alaska matters, but this time things are different. Alaska's economic future is more closely tied to the nation's than at any other time since statehood. Why? Several reasons: crude oil prices, investment in oil and gas, interest rates, inflation and tourist spending will all be turned against Alaskans by a steep decline in the U.S. and world economies.

• How bad can the recession get?

Measured by the year-to-year drop in real (inflation-adjusted) gross domestic product, the 1982 decline of 1.9 percent marked the worst U.S. recession since statehood. In 1982 civilian employment dropped by 871,000 persons. This one is already the worst since the 1930s. A 2008-09 decline in real GDP of 4 percent or more could easily be in the cards. If so, we face the possibility of further job losses on the order of 3 million or more, over and above the 4.9 million jobs lost between November 2007 and February 2009, counting both payroll workers and the self-employed. For the record, the worst year for post-1930s job losses until 2008 was 1991, when the national economy lost 1.1 million jobs.

• What is the potential for stagflation of the sort experienced in the 1970s and early 1980s?

With the Federal Reserve printing money at an unprecedented rate, there is every chance that inflation will become a problem in the next year or two. If we are supremely lucky, the massive deficits and attendant massive increases in the money supply will pull the economy out of recession before inflation becomes a problem. If we are unlucky, then we could well be looking at both double-digit inflation and double-digit unemployment rates.

• In the late 1970s and early 1980s interest rates hit double-digit levels in response to double-digit inflation. Can that happen again?

Yes, and the probability is very high. In 1981 conventional mortgage rates peaked at 16.63 percent and AAA corporate bonds at 14.17 percent. In part that was the result of then-Federal Reserve Chairman Paul Volcker driving the Federal Funds rate to over 16 percent in a successful attempt to defeat inflation by inducing a recession. Volcker is now a top Obama adviser.

• So what kind of a scenario would produce this mess?

Here it is. Massive stimulus and attendant increases in the money supply lead first to inflation (check the most recent numbers that "surprised" so many economists) leaving us for the next year or so with both high unemployment and high inflation. Then the economy recovers but inflation continues. This leads to a change in policy of the sort administered by Volcker in the 1980s. Interest rates soar both because the Federal Reserve is pushing them up and because inflationary expectations remain counterproductive for at least six to 12 months.

• How likely is it that something like this ugly state of affairs will to come to pass?

Very likely. Only the degree of ugliness is uncertain. As I said in an earlier column, there is almost no chance that policy can result in a smooth transition to high employment and low inflation. We are not that good at fine tuning. The only reasonably likely alternative is a protracted recession.