Bill Walker is becoming the new Sean Parnell …

how-keep-job-recession-e1452010557125Late last week we wrote a column analyzing the state of Alaska’s overall economy and the effect that Governor Walker’s PFD cut was having on it (“Yes, Alaska is now formally in a recession and Bill Walker singlehandedly is making it much worse …,” https://goo.gl/2EMcms).

In response a regular reader offered the observation that, reading the column, they were struck by the irony of what this Administration was doing compared to the last.

Through government overspending the last Administration (and legislatures) created an economic bubble, breaching fundamental economic policy at the high end of a commodity cycle by creating a level of economic activity (and expectation) that was unsustainable over the long term, hyping the then-current government economy at the expense of those to come.

Now that the bubble has burst and the Alaska economy officially has entered a recession, this Administration is responding by similarly breaking fundamental economic policy on the downside of the commodity cycle.  By pulling money out of the overall economy through the PFD cut at the very time the economy needs a steady hand, the Walker Administration is creating a deeper economic hole — a deeper recession in the overall economy — than is required.

Walker’s intended beneficiary?  The same as with the Parnell Administration — the government economy.  By cutting the PFD, Walker is increasing the amount available to be spent by government in future years.

As we have thought about that we have come to realization that Bill Walker effectively has become the new Sean Parnell — a Governor that ignores fundamental economic principles in order to benefit one segment of the state’s economy –the governmental sector — at the expense of the private and overall economies.

True, Walker and Parnell differ in how they have and are hurting the state’s overall economy.  Parnell did it by government overspending, overstimulating then-current economic activity when he should have been saving the surplus (over long-term sustainable spending levels) to offset the conditions we face now.

Walker, on the other hand, is doing it effectively by underspending, pulling money out of the private economy in order to reserve it for future government sector spending at a time when it is needed to offset the effects of a state-wide recession.

But at a fundamental level they are both doing the very same thing — hurting the state’s overall and private economies in order to help the state’s government economy, not coincidentally to the benefit of the politicians, and their patrons, that run it.

If he were to respond we anticipate that Governor Walker would argue that, unlike Parnell, he is not inflicting permanent, long-term damage on the state’s private and overall economies.  Instead, he likely would argue that he is only deferring the needed injection of cash, until it can be redirected to the government economy in ways selected in the upcoming session by him and the legislature.

But that is just another way of doing the same thing.  As the University of Alaska-Anchorage’s Institute of Social and Economic Research pointed out in a report earlier this year, of all the various fiscal options available to the state “the PFD cut … has the largest adverse impact on the economy.” SHORT-RUN ECONOMIC IMPACTS OF ALASKA FISCAL OPTIONS, https://goo.gl/ZxR1Hw at A-15.

As we have discussed in a previous post, https://goo.gl/p8J7He, while alternative ways of injecting the money into the economy through government spending may mitigate the adverse impact to varying degrees, none produce as big a bang for the buck in the overall economy as the PFD.

As a result, while, like Parnell before him, Walker’s action may help the government economy and those tied to it, any action short of paying the PFD as contemplated by the current statutes will hurt the overall economy.

Recently we have heard some argue that is an acceptable outcome, because in their view the government economy in Alaska plays a more significant role than elsewhere and so, favoring the government economy in Alaska is acceptable economic policy.

But to be honest that is just self-serving propaganda, pushed by those in or closely tied to the government economy.   According to federal Bureau of Economic Analysis (BEA) data, while “government” (state and federal combined) does account for a higher percentage of Alaska’s Gross State Product (GSP) than in the US overall (17% v. 13%), the government economy still remains less than 20% of the overall Alaska economy.  https://goo.gl/mU5G0X at 3.

As we have pointed out elsewhere, at that size pushing policies which favor those in or closely tied to the government economy smacks more of “crony capitalism” — “where the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives”– than rational economic policy. https://goo.gl/CmQz5R

The resulting policy benefits the Alaska government economy at the expense of Alaska’s much broader private and overall economies.

Sean Parnell made the mistake and Alaska — and Alaskans — are paying the price for it.  Now, Bill Walker is going down the same road.  If he — and the legislature — continues, the price Alaska — and Alaskans — will be called on to pay in terms of reduced economic activity will rise even further.

One response to “Bill Walker is becoming the new Sean Parnell …

  1. Hits the nail on the head.
    This is not the Bill Walker who promised to cut state gov’t by 800 at will employees his second day in office during his 2010 campaign and to cut state gov’t spending by 10%.
    In 2014, he held to his 2010 plan to cut state gov’t, but increased his promised cutbacks to 16%. Once in office, he did neither.
    Now, the Walker Administration is showing the effects of his ill conceived, Faustian marriage to the Democrats and the unions to detriment of Alaskans.
    Bill Walker and Byron Mallott were a mistake and, as all plainly see that mistake, their Administration will be a one term administration, unless the recall of the Governor collects enough signatures prior to reelection.
    We cannot afford politicians who promise one thing to get elected, and do another once in office.

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