by Senator Robb Myers
As we’ve been sliding into this new paradigm of using the Permanent Fund as the primary source of revenue for our government, one of the most worrying parts is that we’re doing it without thinking about the long-term implications to our government and our economy. The pattern that we’re on gives us no spending cap, no guaranteed PFD of any size, no new taxes of any meaningful size, and no budget cuts. With all of the truths that we’ve been talking about, let’s examine what that means moving forward.
Let’s run through those truths again. Resource wealth grows an economy much faster when the proceeds go to individuals. The Permanent Fund grows roughly 50% faster than our economy. That means that our government can grow 50% faster than our economy. There is immense public pressure to spend because so many people and businesses depend on the government for their livelihood. As a result, the government will spend every dollar available. As oil goes up and the Permanent Fund grows, the budget will grow with them. At the same time, government has no incentive to help the private economy grow and actually has an incentive to prevent growth outside of the oil sector.
So let’s think about what all of this means. First, government will grow as the size of the Permanent Fund grows. We can increase the size of welfare programs and create new ones. There will likely be new regulations on businesses because the state has the resources to enforce them and no reason to make things easier for small businesses. The private sector will shrink from neglect and more interference from government. Eventually, either oil will crash again, the stock market will crash, or both. In the last forty years, we’ve seen four oil price crashes (1986, 1999, 2015, and 2020) and two stock market crashes (2001 and 2008). The stock market is already shaky right now, and we know oil prices will drop soon.
What will the state do when it starts to run out of money again? The public pressure will be against cuts. The state will be looking for a new revenue source again. The dividend will be gone. The only options will be either to overdraw the Permanent Fund or increase taxes. Since people who depend on government spending won't like the idea of killing the goose laying the golden egg, they will turn to taxes. It could be higher oil taxes or a new sales or income tax. So for those people who are willing to give up the dividend in order to avoid a tax, it only delayed the imposition of a tax.
I'll say it again: if you gave up the dividend in order to avoid taxes, the only thing that was accomplished was delaying taxes. They will still happen. My guess is that it’ll be a decade at most until we have another budget crisis and a new tax.
In order to prevent this scenario, we have to do four things. First, we have to create a new spending cap to stop government from growing faster than the economy. Second, we have to put the PFD into the constitution to both ensure that we get our resources into the hands of individuals and get the Permanent Fund money out of the hands of the government. Third, we have to give our residents a financial incentive to get government to spend less money. If we don’t, the spending cap won’t last. The legislature is too good at finding ways around spending limits. Fourth, we have to give the government a reason to care about the private economy. We’ve spent too long with the government only caring about what happened to oil and not the rest. Now we’re about to lose that.
If we can fix the structural problems in our government and economy, our best days are still ahead of us. If not, they are likely behind us.