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Sunday, September 15, 2019
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Private sector, not government, drives the economy

By BRUCE TANGEMAN
GUEST CONTRIBUTOR

Despite what you might read in some recent media publications, Alaska’s economy is recovering.

Jobs have increased every month since last year’s election, GDP is up by more than 3 percent, wages are climbing, and the private sector is showing a willingness to invest in Alaska. If you believed some of the recent doom and gloom headlines that have come out you’d think that state government is truly the economic driver of a state’s economy and without it, we are destined to fall off the cliff.

[Read: AEDC says they like Permanent Fund dividends, sometimes]

In reality when looking at the entire operating budget and all fund sources, the reductions equate to about a 6 percent reduction from FY19, hardly fiscal Armageddon for a state government that has been living comfortably for several decades.

Fortunately, most Alaskans understand that the private sector, not the government, is what drives an economy.  It’s true that Alaska’s private sector has been through the wringer the past four years but businesses large and small are starting to get back on their feet. A smaller, leaner more efficient government will help build confidence as these businesses make investment decisions in Alaska.

While there has been a bit too much “the economy may never recover” rhetoric, it was good to see that Anchorage Economic Development Corporation recognized some of the great things that are happening in our economy.  Some of the highlights include statewide cruise volumes increasing by 16.5 percent as well as new developments on the North Slope adding an estimated 350,000 barrels/day in the next few years.  Alaska is and will continue to be a resource state and AEDC nailed it when they reported North Slope investment is “an encouraging sign of optimism among producers.”

Overall investment on the North Slope has increased from $4.4 billion in FY18 to a projected $5.5 billion in FY20. However these new developments will require multi-billion-dollars of additional investments by the private sector. We are realizing this rebound in investments is due in large part to the fiscal stability we’ve had in place for the past five years.

Make no mistake, Alaska does not have the expertise or balance sheet to develop these resources.  We will continue to rely on private sector investment to get our resources to market.  They in turn must count on the state to put in place a stable budget that lives within its means.

There was a substantial disconnect between how private sector and government reacted to the recent recession. The private sector was forced to react swiftly and immediately while government refused to face the reality of the recession. How can I say this? Just look at the actions taken over the past few years. Spending far outpaced annual revenue as we blew through $15 billion in our biggest savings account, the Constitutional Budget Reserve.

At the same time family households and businesses small and large were forced to adjust their spending habits to adapt.  During this time Alaska lost 12,000+ jobs, of which a very small fraction were government jobs. Job losses are painful regardless of how they are funded but government was held harmless for the most part through the Constitutional Budget Reserve spend down. It is more important than ever that we create a smaller governmental footprint to adjust to our new revenue realities.

Alaska does hold nearly $70 billion of reserves, almost 25 percent of which is in unrestricted accounts. Those financial assets generate nearly $4 billion per year in earnings and represent a potential source of funding should a temporary reduction in revenues cause cash flow troubles. That’s on top of over $2 billion of other state revenues that covers nearly half of the cost of running our state government. This means we have a coverage ratio that is the envy of almost any other government.

I met with all three rating agencies (Moody’s, S&P, Fitch) last week and they certainly recognize the vast financial and natural resources with which Alaska is blessed. They also give the previous legislature and governor kudos for passing SB26 in 2018 – the Percent of Market Value framework, which accesses a portion of the Permanent Fund Earnings Reserve Account.

However, they also correctly point to the statements made by those same politicians last year regarding SB26 as only a “partial fix.”  The Permanent Fund dividend calculation has been faithfully followed for nearly 37 years. SB26 is a 12-months-old law and an incomplete one by many legislators’ own admission.

If there’s one thing that government can do to assist in this recovery it will be to get its fiscal house in order which will allow the recovery to continue. Alaska is blessed with tremendous resources and will rely on private sector capital to monetize our resources.  An unbalanced state budget will ultimately lead to confiscation of hard earned private sector dollars. It is imperative that we reduce the government footprint to put our state on solid footing for generations to come.

Bruce Tangeman is the commissioner of the Department of Revenue.

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  • What does all the growth mean when wages are down and inflation is taking off. Fed interest rates are as low as they can go. To preserve a decent lifestyle is to prepare for that doom and gloom, sir. I do wholeheartedly agree that we need to minimize government. It costs too much to operate and has done absolutely nothing to improve the lives of Alaskans. And people, before you go crazy with the replies, welfare IS NOT HELPING YOU. I say we (Alaska) detach ourselves from the federal system in the way of education. My justification for this comes from the writings of great men such as John Taylor Gatto, Adam Smith, Benjamin Franklin, Thomas Jefferson, Steve Jobs. They all said that compulsory schooling is a hindrance, not a help. They say that it is specifically designed to keep society in the pot and you, the individual, easily controllable. If you care about your kids, get them out of the compulsory school system.

    • This is a total crock!

      • Are you going to explain why? Or are you going to prove to my point? That publicly educated folk are conditioned to stay in a state of permanent adolescence, unable to control their emotions, unable to articulate their thoughts fully, and therefore unable to properly debate. Ultimately, I expect this conversation (if it continues) to boil down to pejoratives being lobbed in one direction and irrelevant platitudes to be railed off that were supplied to you by authorities. The worst part is, you will deny my latter statement because you will actually believe those platitudes are your own thoughts. Why is this? Because, you are a sheep. I don’t blame you though. You had no choice. You were a child, and your parents were compelled by the state to put you into a school with a heavily regulated curriculum. If anyone is to blame it is your parents, for being so ignorant and incurious about who they were handing their child off to for 8 hours a day.

        • Agreed. Some of the stupidest people I have ever met were and still are part of the University system. They’re so clueless as to real life I have no choice but to agree with you. Sheer experience, my unfortunate teacher.

          • What’s more is the fact that most people will read my statement and not think anything of it. What I’m trying to convey potentially is the secret to progressing to the next phase of humanity. Open-source learning, I am convinced is the key to the modern renaissance. First step, shining a light on the compulsory education system that was created by corrupt robber barons over 100 years ago. It’s had 100 years, it hasn’t worked and has actually caused regression, time to innovate. That’s what I believe. Thanks for recognizing the truth in what I’m saying. Please read or find on YouTube a public school teacher named John Taylor Gatto for reference.

        • Stephann, your rant was a collection of your opinions, and you are the expert on your opinions, but that is all they are. Further you’ve not backed up your stuff with anything but more opinion.
          I just happen to disagree with your entire spiel. A real knee-slapper to see someone get out that far on a limb from a single statement.

          • I literally cited John Taylor Gatto, Adam Smith, Benjamin Franklin, Thomas Jefferson, Steve Jobs as my sources. You’re welcome.

          • And here’s poor little BillY spouting his “your rant was a collection of your opinions, and you are the expert on your opinions, but that is all they are.” on yet another post, but it fails to realize is that’s its comments are usually nothing more than a rant or an opinion, which, of course, it is an expert on. It fails to realize that most of us “just happen to disagree with your entire spiel.”

            Gotta luv the self-anointed “enlightened ones” who luv to lecture and pontificate to the rest of us.

          • Yip yip….bill yanky… pulling it off. Little Chiwaaawaaaa makes talk. Yip yip…..yank…yank

        • Stefann,

          Bill Yankee does not debate or argue, according to his own words. He admittedly reposts others thoughts as his own without citing the source until he is asked to clarify the posts he makes, then falls back and admits they are not his thoughts at all, then he calls names. This is standard operating procedure for Bill Yankee, he has done so repeatedly over the past few days.

          • Thanks man, but truth is I’m just as bad as he is. Drawing out the likes of him and his ilk on comment threads is a guilty pleasure of mine. I get to speak what I believe and sadly, the only people that really read what I say are the people that disagree. Everybody else seems indifferent. What I get out of it, is practice in shaping rebuttals and solidifying my ideas. Best regards.

          • Most who agree with you don’t respond, as there is little need. Silence does not always equate indifference. Keep posting here, you are a welcome addition with a unique perspective.

  • “I met with all three rating agencies (Moody’s, S&P, Fitch) last week and they certainly recognize the vast financial and natural resources with which Alaska is blessed.”
    .
    That’s a very nice way of saying “narrow economy” with no plan for diversification. Which, incidentally, is the phrase Moody’s used when it lowered our bond rating.

  • Again I’m curious what the correlation is between government and business in Alaska? This is a stale talking point that is pure nonsense derived from a notion of the Laffer Curve. There IS NO Laffer Curve in Alaska. Zero. Businesses here don’t pay enough taxes to cover their employees PFDs and transportation services let alone the PCE.

    .

    When do you get tired of pumping out this divisiveness? A large portion of the economy IS in based on Federal matching funds being spent into the private sector. That’s not ideology it’s fact.

    .

    Those tremendous resources are leaving the State at an alarming rate with no benefit at all to the local economy in the form of value additives. This is a resource colony and the multinational corporations want to keep it that way.

    • Can I get an amen.
      .
      This godless religion destroyed countless lives in Chile. It kept Bolivia mired in poverty for years.
      .
      On your second post — there is approximately zero empirical support for the Laffer curve even in states with appropriate corporate and income taxes.

      • Chile, before it started being infiltrated by socialism, has been doing great. If you’re referring to Pinochet, capitalism was not the ideology that motivated him. It was his response to the countless lives that communism ended that was his raison detre. He was “cracking a few eggs.” A term communists often use when justifying the mass murder of tens of millions of people in the name of the revolution. Bolivia, is a corrupt state. Much akin to many African country’s. Governments which receive millions in our tax money, pocketed by corrupt politicians. Lastly, I can tell you don’t know what you’re talking about because you said “ appropriate corporate and income taxes.” Your use of the word “appropriate” indicates that you believe there is an objective number that is most suitable. The laffer curve only applies accurately in a free market, free of controls and the perfect number is constantly in flux in relation to the ever changing market. Please read “Basic Economics” by Thomas Sowell it will really help you out.

        • I’d rather read Belloc and Chesterton on Distributism than see the world run by one of 5 competing oligarchiess.

          .

          Which will it be Bezos, Zuckerborg, a Chinese run Google, or whatever Apple morphs into? The concentration of the means of production has hit the top of the pendulum swing. We are at peak oligarch, and I hate radical socialism.

          • What you are describing is cronyism. We haven’t had anything resembling a free market since the civil war. Read “Weapons of Mass Instruction” by John Taylor Gatto. He says exactly what you are saying in regard to the American oligarchy. But his solution is different. It contains a great list of citations proving the issue is corporatism and cronyism. Shrink the government and you defang the corporations.

          • What I’m describing is unrestrained free trade. When the monopolies get big enough they eat the nation’s to nobodies benefit but themselves. If boundaries are not placed on these monopolistic forces they will always achieve regulatory capture and use our own governments to enslave us.

            .

            What ever happened to the middle class and small business? Government in the hands of big business.

          • So shrinking the regulator in a State like Alaska is going to defang the cronies precisely how? They’ve already achieved market domination.

            .

            How big was government in the Era of Standard Oil an Bell Telephone? Your hypothesis would suppose that the government preceding Teddy Roosevelt was too big (thus allowing for the formation of monopolies). It supposed that monopolies cannot form without government.

            .

            I would argue that if your solution to monopolies is to force society into a perpetual state of anarchy to avoid them that you might be the type who deals with the moles in your yard with a nuclear warhead.

        • Also on my reading list would be most things written by Dmitry Orlov.

        • I have read Sowell — I don’t take him seriously.
          .
          Yes, I think Pinochet transformed the country into a Chicago school experiment in free market capitalism.
          .
          The experiment failed. Badly.
          .
          By “cracking a few eggs” you mean encasing people in concrete and throwing them in ocean. Or murder.

          • You say you’ve read Sowell, I am almost certain you are lying. He is a historian with an economic bend. There is nothing to refute. Chicago is a Fabian socialist indoctrination camp. Don’t believe me? Read “The Creature from Jekyll Island” or “Tragedy and Hope.” F.y.i. I know you are publicly educated, not only by your lack of historical knowledge but by your low impulse control and inability to communicate effectively.

        • I think most arguments are lost when party has nothing to add but insults.
          .
          On low impulse control — physician heal thyself.
          .
          Sowell is a sloppy scholar. I first came across him when he became a darling of the new right. He was commenting on an issue that I knew something about and he was dead wrong. I’ll give him that his writing is clear enough but he’s an easy read because he’s blind to complexity and really just skims the surface.
          .
          Anyplace where in which free market theories have been put into practice have resulted in increased poverty and a loss of freedom. See Kansas. See Pinochet’s Stalinesque capitalism. See any number of failed states.
          .
          See how well the totalitarian capitalist paradise of Singapore does on measures of economic “freedom”. And once you find it near the top of the list take a look at what Sinapore bans and ask yourself if that is a really a free society.
          .
          TL;DR — “free markets” mean freedom for a few and misery for the most.

          • Those weren’t insults, merely observations. I am aware on my position in this thread. You have yet to complete a thought. Instead you choose to speak in platitudes. One request I have if you choose to continue, please stop plagiarizing Wikipedia. “Darling of the new right?”

            Thomas Sowell has been a prominent economist/historian since the 70’s. As for the rest of your fantasies…capitalism was not the ideology behind Pinochet, his hate for communism was. Even if the element of capitalism was removed from history, Pinochet still would have killed the communists, obviously. He said so himself in his essays.

            Chile enjoyed a time of great freedom and prosperity after embracing even their moderate form of capitalism. And still are reaping the benefits despite the best efforts of the socialist government that exists there today. I know you are trolling now. “Loss of freedom?” It’s free-market capitalism. Free is in the name. What use is the economic freedom index (Hayek model) when the highest rated country in the world today is rated a 16 on a scale of 100?

            Singapore is a mixed economy that has a highly homogenous population. Pray tell, how does a population that voted to ban spitting in public relate to its economic freedom? In regards to your last statement, you continue to mischaracterize the term free-market. It’s almost like you don’t know what it is…it was Thomas Jefferson who said “There is no greater inequality than the equal treatment of unequals.”

            Some people are just better at acquiring property than others. At least in a free market, there is nothing stopping anybody from acquiring what they are willing to work for. Now, before you skreee “MONOPOLY.” Please find one single example in all of history of a monopoly forming that, A. Didn’t have any form of government coercion supporting it or B. Continued to exist even after providing unacceptable service. If you can find one single example, I will admit defeat.

          • Stefann, your test for monopoly is ridiculous. Civilizations have governments, modern ones have corporations. No corporation is going to survive if the don’t understand how to harness and optimize their operations with regards to the government they are under. Again, you can boil this argument down to anarchy being the solution. Capitalism like communism doesn’t work because it hasn’t been “done properly”.

            .

            Anarcho-capitalistism is a stupid religion up there with the likes of State Communism.

        • “If you can find one single example [of a monopoly without a state] I will admit defeat.”
          .
          Opium trade, Northern Afghanistan under warlord Dostum.

          • Hahaha that’s not what I said and you know it. You are moving the goal posts, sir. Do you want to try again? Dostum IS the government. The government IS a monopoly, yes I agree with that. The government has a monopoly on the use of force. But I clearly stated, “find one monopoly that didn’t have any form of government coercion supporting it.” I’ll give you one more try.

          • Stefann, your causality is screwy, creating a false dilemma between government and monopoly. You’re like the atheist that points at war and says: “religion”. Government and trade are both foundational premises of civilization . Things that are also foundational premises are war and religion. I defy you to find a civilization without these elements.

            .

            So using your formulation we could also defeat monopoly by eliminating any key element of civilization. Without war, trade, religion or governance it would be impossible to have a monopoly (because you’d be living in raw anarchy).

        • And look at GDP chart — Chile was mired in poverty during the reign of the Chicago boys and their experiments with “free” market capitalism.
          .
          Only when the Chicago school boys were removed and the state tried good old fashioned Keynesianism did the country start to improve and the economy took off when it elected a social democratic (socialist) government.
          .
          Not trolling — but you are correct, my point that the “free” in free market doesn’t mean freedom for people. Chile was a capitalist dictatorship — whatever his motivation, it makes the point that democracy and free market capitalism don’t go hand in hand. Likewise, Singapore is economically “free” but it’s a highly oppressive state. Incidentally, it’s not very homogeneous but it takes the “melting pot” idea very seriously and has very strict rules against homogeneous neighborhoods.

          • Chile was mired in poverty before Friedman’s involvement. I don’t know how you can implicate the Chicago school of economics (a Fabian socialist establishment) and the gdp chart shows steep growth after implementing capitalism. You have got to do some research. ANY research would drastically change your world view I guarantee it. For instance, you say Singapore is a melting pot….a melting pot of Chinese people maybe. 75% CHINESE, 10% MALAY-CHINESE. (Citation: YouTube: Masaman) I’m sorry, you obviously have bad information and are an ideologue not interested in truth or facts. It would do you good to do some reading. I recommend anything written by John Taylor Gatto, “The Creature From Jekyll Island” G. Edward Griffin and “Tragedy and Hope” by Caroll Quigley. I wish you luck.

        • So if Dostum is “the state” — because Weber — and thus you won’t accept any example of a failed state / warlordism / gang controlled areas. Perhaps you could provide me with a real life of example of an anarcho-capitalist state?
          .
          Otherwise you are saying “this has never happened in this place I’m imagining” which I’ll give you — free market capitalism looks pretty good in your imagination.
          .
          Capitalism requires a state — otherwise people take the stuff the capitalists have (remember you can’t go Ayn Rand and talk about private security services because, well, Weber)

          • Or should say anarcho-capitalist place and/or time

        • What? You know that Pinochet left in 1990, right? That’s when things started to improve.
          .
          I think you missed the Indian, Tamil and the various ethnic groups that make up “Chinese”
          .
          The “melting pot” policies are classic citations by people who believe we should have similar policies in the U.S. Singapore enforces integrated neighborhoods.
          .
          Back to insults — not the most gracious way to admit that you are out of ideas but I’ll accept it. See ya.

  • My apologies. A Laffer Curve could be applied to oil investment. If you do not also take market forces and discoveries like the Bakken formation into account you will be wildly misguided by the likes of Mr. Art Laffer. (And I think that’s the whole point).

  • While his Commissioner of Revenue is meeting with credit rating agencies and engaged in forensic activities not likely to yield genuine progress, the Governor might profitability work cooperatively with the legislature to enact a resolution calling for a constitutional amendment that distributes an annual Permanent Fund Dividend according to the POMV concept based on a 5 year rolling average of the PF POMV using a 4% metric and splitting the yield as follows: 49% for the PFD, 49% into the General Fund for use by the legislature via appropriations and 2% allocated into the Constitutional Budget Reserve Account to build up emergency reserves and commence repayment of an existing constitutional debt.

  • BT …. Great informative article. Next Steps: Start opening up more opportunities for O&G Co’s to develop more crude at a lower cost and minimize regulations, accelerate Donlan ‘and’ Pebble Mine development projects. Basically, develop the resources we’re Blessed with to ensure ‘private sector’ opportunities thrive and flourish inAK, ultimately providing jobs and economic commerce for all to experience.
    Hang-in there, don’t listen to all the negative snipping, stay the course!

  • Some musing on the article and some comments.

    Start with a flawed basic premise and support with partial statistics – you may come to a biased conclusion! Or you may not.

    As for what drives economies – where would the USA be w/o Dwight Eisenhower’s Interstate Highway System or John Kennedy’s man on the moon escapade? (Someone please give an estimate of the total fraction of current US GDP derived from innovation created in the space program.) Economies are driven by technological innovation. Innovation is driven by basic research which is usually not a profit generator. Private sector innovators often end up bankrupt and it is the second and later generations which pick up the residue for pennies on the dollar and then make it economically. Government funded innovation can’t go bankrupt but the payoff is often slow in coming and less visible.

    If Alaska abandons universal public education and leaves its next generations’ learning to the private sector it will be bankrupted building prisons or paying the bill presented by certain private prison interests. We need to “fix” the public education system or reap the rewards.

    • Sorry sir, this is a comment thread. There is no possible way to hash out the complexities of ANY area of economics. My whole point is that nobody should be trying to manage an economy. It’s too complex. So, thank you for reiterating my point. To answer your question of “where would we be?” Probably colonizing Mars. The roads were already being built. Eisenhower just hurried things along, and simultaneously turned our children’s children into debt slaves. Please read “The Creature from Jekyll Island” and “Weapons of Mass Instruction” for many citations and references. I use both of these books as reference indexes. They are reputable and verifiable.

  • Bruce your summation should simply be this :
    “Make no mistake, Alaska does not have the expertise or balance sheet to develop these resources. We will continue to rely on private sector investment to get our resources to market.” Supply & Demand Rules by the people & for the people not government for the government!

  • I find the musings above to be laughable, (pun intended), Sowell notwithstanding the reality of Alaska Economic’s is this. VAST INFUSIONS OF OUTSIDE CAPITAL, in order to develop infrastructure and develop and market resources to the world.

    The current model on display is to prop up Native Corporations with sole source contracts for Government Services. These services have no value in the world market unlike say, oil ,gold or gasp… Coal! Real Wealth is something you can market.

    Joe Geldof, I agree with you!

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