Home Culture Economics Oil and Big Government Prevented Alaska from Experiencing the Great Recession

Oil and Big Government Prevented Alaska from Experiencing the Great Recession

105
0

The State of Alaska Department of Labor, Research and Analysis economist Neal Fried looks like a character from a movie or Saturday Night Live, complete with a bow tie and glasses. I watched him perform in October 2012. He reinforces the “look” by rattling off numbers while referencing a humorous power point, effectively making what most Americans consider to be a very complex subject understandable to the layman.

For instance, Fried points out that Alaska has experienced 21 years straight of economic growth, with the exception of 2009. That’s the year the Great Recession visited Alaska. It was a short visit. The Alaskan economy bounced back and in 2010 returned to its track record of growth.

Currently, the State’s median income is $67,825. We are number two in ranking for richest state in the Union.

The American economy is bounding back. We are no longer losing jobs. We are gaining them and all the indicators say that we are engaged in a Recovery. If that is true, then why was unemployment and the ability to grow the economy such a prominent campaign issue? In Alaska, Great Recession doesn’t appear to be affecting us.

The Department of Labor (DoL) is tasked with inspiring the growth of Alaska’s economy by fostering coordinated activity with the Department of Education and University of Alaska. The goal is to develop the workforce to meet the needs of current employers and initial job creators of new industries. They are meeting success. In 2010, 1,800 jobs were added. In 2011, 5,200 more jobs came on board.

This is how the Department of Labor framed it:

“The last several years have been rough economically for the country, and although Alaska wasn’t unscathed, a comparison of U.S. and Alaska job numbers is revealing. Jobs for the U.S. as a whole fell in 2008, 2009 and 2010 with severe losses in 2009 when the nation’s average monthly job count dropped by 6 million… Alaska, on the other hand, lost jobs in just one of those three years – 2009 – and at just 0.4 percent, the losses were 11 times milder than for the U.S. Alaska resumed adding jobs the following year, and the preliminary 2011 numbers show a 1.6 percent gain, stronger than average for the decade.” (Alaska Economic Trends, January 2012, page 4)

Alaska is a simple economy compared to the Lower 48. DoL uses the “three-legged” stool metaphor to explain it. We’re a population of just 733,000 persons, with most of them concentrated in three distinct regions: Anchorage/Mat-su is the largest, claiming 266,000 citizens; Fairbanks houses 181,000 citizens; Juneau counts approximately 90,000. The other 196,000 live in Bethel, Nome, Kenai, Sitka and the smaller communities scattered throughout the interior. Alaska’s sources of revenue are: the oil industry (31%), federal government (35%) and the private sector (34%).

Despite the simplicity of the Alaskan economy, the Department of Labor rejects the idea that Alaska’s destiny is intrinsically bonded to the national economy. The department treats Alaska’s economy as separate from the national one. The reasoning is simple: we are a source for oil.  

It’s an economic blessing regardless of the broader economy because America runs on oil, this is almost single-handedly keeping our economy afloat. A barrel of oil is fetching $86 on the open market. Consequently, let the industry take a nose-dive and Alaska loses its most dominant revenue stream.  The DoL emphasizes that “Nearly 90 percent of the state’s unrestricted government funds in 2010 were from oil-related property taxes, corporate petroleum income taxes, oil production taxes, and oil-related royalties.” (page 5)

Second to the oil industry, the federal government is the second strongest driver of the state’s economy. Consider Joint Base Elmendorf Richardson in Anchorage and Fort Wainwright in Fairbanks. Without these bases, Alaska is in dire straits. In fact, the Department of Labor is surprised Fairbanks has fared so well with the deployment of 4,000 troops in May 2011. It was expected that the wives and children of the deployed soldiers would choose to return to their state of origin. Not only did this not happen, DoL expects Fairbanks to expand by 200 jobs total. (page 11)

Southeast Alaska is suffering from the reduction of the timber industry. It is being supported by State spending and tourism, which is expected to grow by 50,000 more visitors.

The Department of Labor has very little to say about the private sector, which is the third and final leg of the Alaskan economy. As DoL economist Caroline Schultz said:

“It is difficult to answer the question of how the private sector creates jobs. No one answer exists. The answer depends on which economist you ask the question to. We do know that private sector job creation is a factor of population. The relationship between population and job creation is highly disputed. For example, Alaska’s large non-Native population is here as a result of jobs in the natural resource industries.

“There is no bumper sticker answer. Current job creation is the result of heavy reliance on public sector and natural resource extraction income. This income is shared with the grocery story and insurance salesman and eventually the art collector. Very little manufacturing because we import so much into this state. The existence of the internet is slowing down the creation of retail jobs. Goods producing jobs, such as construction, mining, fishing and timber are good for the local economy because they bring skills-based individuals into the State. You have to be here to extract the goods.”

If we cannot depend on the private sector to generate jobs, without the other two legs doing their part, Alaska’s economy is put in a precarious position of risk. The Department of Labor predicts, “In addition to the risks associated with declining oil production, the other big economic issues facing Alaska is a pending decline in federal spending. Sooner or later, the nation will likely undergo some of the austerity measures other countries have undertaken to rein in government debt and budget deficits. That’s when the desperation we see on the news in the lower 48 might make a trip up north, and land in our backyard.” (page 6)

Considering the fiscally conservative campaign rhetoric, the idea that Alaska’s economy is based on oil production, big government, and the private sector – in that order – came as a shock to me. So did the fact that managing an economy is just as uncertain as starting a small business. Nothing is a given. And, all business/economy is driven by we the citizens. Alaska has managed so far to escape the pains of the Great Repression, let’s make sure the three legs of our State economy continue to work together so the Department of Labor can boast of a 30 year streak of growth.