AJOC EDITORIAL: Real jobs beat theoretical jobs

It wasn’t a surprise that last week’s column drew a response from self-appointed PFD guru Brad Keithley.

Nor was it that he would go back to the well of the Institute of Social and Economic Research study that purports to show the most negative impact on jobs out of the current budget deficit-filling proposals is the one that relies on using Permanent Fund earnings rather than an income tax.

Resorting to the internet version of shouting by going to the all-cap font, Keithley repeated four times that ISER believes using Fund earnings costs more jobs than an income tax.

The oft-cited ISER study ties not a single direct job in the state to the payment of PFDs. Rather it relies on the economic multiplier effect for measuring impacts of using Fund earnings or collecting an income tax. The only scenario in which it can estimate job losses directly is from budget cuts to the state government.

Everything else is theory, although it would be nice to know how many small business owners will be hit by the income tax and how that will affect their ability to hire and grow in the name of preserving an artificial PFD level.

Where the ISER conclusion about jobs and reduced PFD payouts falls short is that it doesn’t match what we’ve actually seen.

In the two years after Alaska has paid out a dividend of $2,000 or more (2008 and 2015), the state lost a combined 12,500 jobs in 2009 and 2016.

ISER has estimated thousands of job losses will result from a reduction of $600 million to $700 million in the PFD payout, again, based on an economic multiplier effect and not on actual, direct jobs tied to dividend spending.

Yet were this actually the case, we should have seen it happen from 2009 to 2010.

The dividend payout shrunk by $450 million from 2008 to 2009.

According to ISER, that $450 million reduction should have cost the state 2,500 to 4,000 jobs, but in the 12 months following that reduction the state gained 7,400 jobs. That’s 10,000 jobs better than the low end of the ISER estimate.

By 2013, the PFD was $900 and the total payout was down another $280 million from its 2008 high.

There was no corresponding job loss.

Jobs were down by a rounding error of 500 a year later, and still up 17,000 overall from the 37 percent cut in the PFD payout from 2008 to 2009.

ISER acknowledges the point that actual job data compared to the size of the PFD doesn’t reflect its conclusions.

“The answer is that we likely would have seen the economy expand (under larger PFDs), if other changes — including significant losses in federal spending and losses in the oil industry — hadn’t been costing the state jobs. At any given time, many factors are affecting the state economy. Positive effects of one factor may be offsetting negative effects of others. That makes it hard to see the effects of both kinds of factors — but it doesn’t mean they aren’t happening.”

In other words, the PFD is not the be-all, end-all of the Alaska economy and it shouldn’t be treated as such.

Yet Keithley keeps using large letters and the ISER study to prop up his argument because the real world results don’t.

Citing Permanent Fund Corp. projections, he asserts the PFD should grow by $1,000 per person over the next 10 years, from an estimated $2,373 this September to $3,338 in 2026. That would have the state paying out more than $2 billion in dividends annually.

It’s baffling that an economist can really believe the PFD will grow unchecked for a decade when we have recent history that tells an opposite story.

The dot-com and housing crashes cratered Fund earnings and impacted dividends for years; just last fiscal year the Fund returned less than 1 percent even while markets did relatively well.

We’ve seen all-time highs in the markets once again, partly fueled by the cheap money policy of the Federal Reserve since the last financial crisis that is only now being tightened. A correction is inevitable, and the Fund and the PFD will be affected.

Claiming otherwise is the sort of irrational exuberance that creates bubbles as well as bad policy.

Policymakers can go with theory, or they can go with reality.

The data show that the state jobs picture over the last 15 years moves independently — and in fact nearly inversely — from the size of the PFD.

No amount of capital letters changes that.

Andrew Jensen can be reached at andrew.jensen@alaskajournal.com.

Updated: 
04/26/2017 - 12:52pm

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