TANSTAFL Revisited

Back at the end of September, 2013, WC introduced his readers to the idea of TANSTAFL, an acronym for “There Ain’t No Such Thing As a Free Lunch.” TANSTAFL, as economists interpret it, means that everything we receive comes at a cost. Some of the costs are obvious; some are hidden.

The State of Alaska received an object lesson in the obvious costs this past year. The price of oil collapsed, and with it the tax structure that supports Alaska’s government. Alaska derives some 90% of its tax revenue from the oil industry. As a result, we have no state income tax. We have no state sales tax. We have no state property tax. License fees are quite moderate. Because we clip coupons from each barrel of oil that goes down the Trans-Alaska Pipeline.

Now the combination of declining oil production and the collapse of oil prices have greatly reduced revenues from oil. The seemingly unending First Session of the 29th Alaska Legislature was a by-product of TANSTAFL coming home to roost.

Since 1977, it seemed like Alaska was getting that free lunch. It was an illusion. What we have been doing is burning through a valuable non-renewable resource. The big, easy fields are all used up now. Instead of transforming the non-renewable resource into a renewable resource by saving the value, we blew it on failed mega-projects and an extended, spendy lunch. More prudent oil-producing countries have placed the revenue from oil production into a fund and then used the earnings of the fund. Investing the revenue transforms a non-renewable resource into a renewable resource, one that lasts a very long time.

Norway is the exemplar of this approach. Its Permanent Fund – called the Government Pension Fund – is valued at $870 billion. The Alaska Permanent Fund is about $45 billion. Norway has done  much better job at preserving the value of its non-renewable resources; almost 20 times as good a job, in fact.

The direct consequence of the collapse of our existing tax structure is a need to implement a better tax system. We need to do it before we waste all of our reserves. WC is inclined to a progressive state income tax because it is the least unfair of the alternatives.

But that’s just the direct cost of Alaska’s protracted free lunch. The indirect costs are even higher. Every barrel of petroleum tht goes down the pipeline is burned. Each barrel burned releases another .43 metric tons of CO2 to the atmosphere. That CO2 contributes to get more climate change. And that climate change impacts Alaska first and hardest. If we continue to enable global warming, we will melt Alaska’s permafrost and destroy much of our infrastructure. And oil is a comparatively “clean” source of CO2. Don’t get WC started on coal, Alaska’s most abundant source of still more CO2.

TANSTAFL, folks. We’re paying for 27 years for free lunches. We can solve the state revenue problem by acting like grownups and paying taxes for government. And do so before the Legislature spends down all of our carefully saved money. We can’t solve the CO2 problem by ourselves, but we can have an impact by weaning the state economy off oil.

WC and Mrs. WC have Boreal Owl boxes at a few places around Interior Alaska. Boreal Owls are cavity nesters. But a nesting pair of Boreal Owls and their kids render an owl box uninhabitable after a season. Even if you replace the layer of moss at the bottom – an eye-watering, sinus-reamingly smelly business – it’s usually a few years before the owls will nest in that box again. The accumulated owl urine, owlet poop, pieces of uneaten animals and owl pellets (coughed up bits of indigestible prey) make the nest unusable. No doubt parasite-infested, too.

WC would like to think we are smarter than Boreal Owls. WC would like to believe that humankind knows not to make the only planet we have uninhabitable. The case is still open.

TANSTAFL, folks.