Alaska is in a recession. Alaskans understand that, but, looking around, they don't see much of a crisis. Anchorage home prices are down 6 percent in eight months but are still 24 percent higher than five years ago. Employment is down in the last year but only by 2 percent.
I wrote last week that Alaska is in the midst of an existential economic crisis. So why does the economic data show only a mild recession?
The answer is that over the last four years the state pumped more than $12 billion from its savings through state government and into the Alaska economy. Those billions have disguised economic reality and camouflaged the crisis.
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The money keeping the Alaska economy afloat came from the state's constitutional and statutory reserves. They are now about empty but most politicians and business leaders want to continue propping up the economy with savings cycled through state government. Only now they want money from the Permanent Fund.
Can the Permanent Fund save the Alaska economy?
Well, sort of. The economy can be kept afloat but the money won't end the recession any more than the $12 billion prevented it. Eventually the Permanent Fund, like the constitutional and statutory reserves, will be emptied. By then, maybe something will have invigorated the economy. More likely, Alaska would once again face an economic cliff.
Either way, cycling Permanent Fund money through state government puts the future of the fund in doubt. Dave Rose, the fund's first executive director, said the greatest threats to the Permanent Fund are the "intense temptations of powerful people, (and) the strongest defense of all is the Alaska Permanent Fund dividend." It is this nexus between the safety of the fund and the dividend that kept the fund intact all these years. We sever that connection by diverting Permanent Fund money to government.
As Paul Jenkins pointed out in December, diverting Permanent Fund money to government is also inefficient. If you want to reduce economic distress and alleviate human misery, the Institute of Social and Economic Research showed that sending the money directly to households produces a bigger bang for the buck.
Last week, Alaska Dispatch News columnist Dermot Cole wrote me: "You don't want to use $2 billion a year from the PF to pay for government. So do we cut spending that severely?" Implicit in his question is the assumption that the state budget gap is so large that there is no alternative to backfilling a big part of the gap from the Permanent Fund.
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This assumption is widespread and altogether false. If Alaska taxed income at the same rate as Oregon, it would raise over $1.5 billion, eliminating more than three-fourths of Cole's $2 billion budget gap. Other modest tax increases and budget cuts could fill the rest. Forty-nine other states finance what citizens of those states consider an affordable level of state and local public services, and do it without earnings from a permanent fund.
The argument that Alaska is too poor to support itself is – ironically – the same argument Sen. Strom Thurmond, then a South Carolina Democrat, made 58 years ago in opposing Alaska statehood.
"I doubt that Alaska's underdeveloped economy will ever be able to assume the responsibilities of statehood," he said, addressing the U.S. Senate.
Using the Permanent Fund to support government perpetuates what economist Scott Goldsmith calls the "Alaska disconnect." When state government services are paid from oil rents supplied by outsiders, there is no balancing of the pain of taxes extracted from taxpayers with the benefits the taxes buy. That means reduced restraint on government spending, which tends to rise, absorbing all the rents. With the general public paying less attention to the growth of government, the benefits of that spending increasingly skew toward those who do pay attention, the rich and well connected.
Substituting Permanent Fund money for oil money substitutes one kind of rent for another. It preserves the disconnect. Ending the disconnect is a fine reason for keeping the camel's nose of government out of Permanent Fund earnings. Another, even better reason is to keep the money going to households, where it will do the most for the people whose fund it is. The most important reason is to assure that the fund survives to benefit future generations of Alaskans.
Gregg Erickson is an economic consultant with offices in Juneau and Bend, Oregon, and a former editor of the Alaska Budget Report. He can be reached at gerickso@gmail.com.
The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com.