Watching the Legislature Trigger a Recession

Senator Pete Kelly: Economic Ignoramus or Political Coward?

Senator Pete Kelly: Economic Ignoramus or Political Coward?

WC must be the only one in the room who remembers the middle 1980s in Alaska. Half the financial institutions in the state failed. Businesses departed and never returned. WC, who represented banks back then, would go to the courthouse and conduct half a dozen nonjudicial foreclosures each day. Condominiums were given as door prizes. Some of Fairbanks’ best known businessmen wound up in bankruptcy.

No sensible person wants to go back there. Except, apparently the Republican coalition controlling the Alaska Legislature.

The economy of the State of Alaska is heavily dependent on the state budget. Like it or not, state spending plays a major role in the health of many parts of the gross state product. The multipliers – the number of times a dollar circulates through the economy – are much higher for state spending than, say, the oil industry, where a significant part of the wages paid leave Alaska every two weeks.

For example, if a state-spent dollar goes through the economy three times before heading outside, then a dollar cut from the state budget cuts three dollars from the state gross product. A dollar cut from an out-of-state oil field worker’s wages who lives in Oklahoma when not working on the North Slope might only go through the economy one third of a time, making it a 33% loss.

So when the state senate finance committee proposes to cut 7% of the state education funds, after already whacking the school bond reimbursement program, embarrassments like Senator Pete Kelly (R, Ignorance) are really cutting $150-200 million from the state gross product. That’s hundreds of jobs lost. That’s possible departures from Alaska by folks we really need to have stay.

What Senator Kelly and his buddy, Senator Mike Dunleavy (R, Wasilla, of course) are doing is knocking the state economy down and then kicking it a couple of times. A perpetually frail economy like Alaska’s can’t take that kind of abuse; there’s a clear and present danger that the state will spiral into another 1980s-era recession.

Of course, it’s also incredibly short-sighted on the education front. The result will be more students in each classroom, larger class sizes and the very well known impact on the quality of education delivered. Understand that fewer teachers means higher drop out rates, lower achievement scores and a permanent lowering of the performance of Alaska’s kids.

The Republican caucus has decided, in effect, that it will sacrifice the voters’ home equity, the voters’ jobs, the voters’ kids’ education, the state’s infrastructure and public safety, rather than adopt a sensible tax policy. Cowards, all of them.1

A Legislature with the moral courage of a moldy sponge might recognize that trying to balance the budget a serious risk to the state’s economy and the long-term well being of it kids might be a bad idea. But we’re talking about the Alaska Legislature here, and WC should not be slandering moldy sponges.

Does anyone know how to get the smell of moldy sponges of your hands?


  1. WC excuses from this rant Rep. Paul Seaton, R-Homer, who has introduced a bill that would impose a new income tax. And a double-damns Rep. Lance Pruitt (R, Cowardice), who when asked what he thought of Rep. Seaton’s bill, laughed. and said he didn’t want to take the “easy way out” of the state’s fiscal predicament 

9 thoughts on “Watching the Legislature Trigger a Recession

  1. Wait, let’s address the actual problem first.

    Before instituting an income tax, we have to remove the current crop of legislators.

    If that isn’t done first, the current legislators will only take any revenue gained from an income tax and hand it over to their corporate handlers.

    I’m guessing the corporations controlling this legislature love them some talk of an income tax, (not their income taxed, your income taxed), a personal income tax would only provide them with yet another funding source to augment their corporate welfare schemes.

    Before we start backing a personal income tax, think realistically whether that would actually solve the problem we face.

    The problem isn’t that we need to give the current legislature even more money to hand over to their corporate masters.

    The problem is, we have no representation. The problem is corruption, incompetence and malfeasance.

    Handing this bunch a new revenue stream won’t solve the problem.

  2. 1) …Cut off hands.
    2) Pass ceremonial bill requiring legislators to recite velocity of money equation each morning:
    V_T =\frac{PT}{M}, (relates to multipliers), those who wish to abstain may click their heels together and repeat, “I wanna go home”
    3) Test the limits of Alaska’s generous conservatorship statutes…

  3. Yes, I remember the recession of the eighties well. I had to settle for eight dollars an hour bending nails. I rented out my house for three hundred dollars a month to pay the mortgage and moved into a little shack. My point is I did not run up my credit card and MORTGAGE MY CHILDREN’S FUTURE for short term prosperity the way you are suggesting. Oil dropped by half, we no longer can afford some very desirable benefits. Income tax is good. Maybe with some skin in the game we will all start paying more attention to the budget.

    • Because your ability to earn income ends when you die, you are unable to expand your personal line of income indefinitely, on the other hand, because businesses, and governments alike are generally considered immortal, (technically they continue into perpetuity) they have the opportunity to increase their net worth, over time, at a greater rate than the interest accrues on their debt. This is how countries like Japan or Germany were able to carry 200 to 400% debt to GDP and still have abs of steel. Just saying.

  4. I testified directly to Kelly and the committee on unnecessary hard times being the likely outcome of their extreme spending cuts. I suggested they put any hard slashing in the operating budget off for this fiscal year. As if they were listening.
    (I also prefaced my testimony with “Isn’t it great we have all of these savings to draw from thanks to ACES?”)
    But this action goes back to my long-held belief that Parnell and the Republican legislature were and are out to break Alaska financially in order to make us further subject to the whims of the Big 3 oil companies and further extractive industry players such as those proposing so many egregious large scale mining plans.
    These are the people professing Christianity loudest yet they only know how to show their true fealty to Mammon and the Golden Calf.

  5. Has anyone brought up the idea of an employment tax that is dedicated to education. We had that in the 70’s. $100. tax taken out of everyone’s first paycheck to go for education. That was the out-of-state workers contributed something to Alaska’s economy.

  6. Well said W.C.—–I don’t buy into the argument that additional revenues will promote continued overspending. I would if there was the remotest of chances that those revenues would be all that significant. For instance:

    Restoration of the income tax rate we were accustomed to back in the late 1970s will probably bring in at the most 1.2 billion. With deficits beyond 3.5 billion this revenue certainly will not encourage renewed runaway spending. Rather, it just might help prevent the general economy from going into a flat out tailspin, as you indicate here, as well as spread revenue enhancement across all realms of employment up here for a change, i.e. “No more free rides for carpetbaggers”.

    Back to Governor Jay, again, who foresaw all of this. To wit:

    Hammond: “Don’t repeal it [State Income tax] or you’ll cut the one string connecting the citizen’s pocketbook to the government purse, and see state spending soar. If people no longer feel it’s their tax dollars “those idiots in Juneau are spending” a major restraint on government growth and spending will be lost. ONCE REPEALED, WE’LL NEVER GET IT BACK UNTIL WE’VE RAIDED ALL OTHER REVENUE SOURCES AND TRAUMATICALLY CUT EVEN CRUCIAL STATE PROGRAMS.”

    He also metioned: “The use of Permanent Fund earnings for government spending instead of for dividends has precisely the same effect as levying a head tax on every Alaskan while leaving transient workers completely untaxed.”

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