In my last post, I laid out a strategy for turning Alaska blue. It’s only fair for me to construct a strategy for the other side of the political spectrum. The obvious answer is to do the opposite. But there are some points worth discussing.
Using the same stereotypes and implications we discussed before, here is the strategy I’d develop for the Republican Party trying to keep Alaska red.
Connect the Public and Private Sectors
If you recall from “How to Turn Alaska Blue”, we did a thought experiment in which the government was not accountable to the public. Because the government was funded by outside money, there would be no connection between the public and private sectors. If the private sector collapsed, the public sector employees would not feel it (remember the COVID shutdown?).
While it sounds enticing to live in a state that has no taxes, the Republican Party has to be careful how that happens. Doing it wrong is a socialist dream and a capitalist nightmare. Imagine having the ability to pass economically disastrous laws without feeling the corresponding negative repercussions. That’s a recipe for punishing private corporations, passing progressive income taxes, shutting down resource development, and controlling the economy through government interventions. In the end, this future sounds like a plutocracy, filled with high paid government workers being supported by low-wage support service workers.
The alternative future is one in which the private and public sectors are dependent on each other. The public sector provides the infrastructure and oversight, which allows the private sector to flourish. The private sector keeps the government in check by opposing higher taxes to pay for things it doesn’t support. This is the normal relationship in a well functioning society.
What this implies is that keeping Alaska red likely requires us to accept a future in which there are taxes. That does not imply that part of the strategy is to accept this fate and pass taxes now. Taking money out of the economy is detrimental to the private sector. So tying the public and private sectors requires a slow and deliberate transition.
One approach to arrive at a place in which Alaska’s private and public sectors rely on each other involves maintaining the tie it’s had for decades. This means that the economy must offsets loses of oil sector employment with gains in other private sector employment (not government employment). These new private sector businesses and workers would have to replace oil taxes with some other form of tax.
But, it’s important to note that the winning tactic is to threaten raising taxes, which gets the people’s attention and puts downward pressure on government growth. Actually imposing taxes while growing the budget is a losing strategy if keeping Alaska red is the objective.
Avoid Excess Savings Growth
The goal is for the public to pay attention, opposing taxes to grow government. That includes growing the State’s saving accounts. A bigger balance generates greater earnings, which supports a bigger government in the future.
It sounds enticing to replace oil revenues with investment earnings, but not having to pay taxes is a double-edged sword. It avoids the pain of the government taking your money, and also removes the incentive to keep the people interested in what its government does. That’s a dangerous path if you want to keep Alaska red.
Every time the Permanent Fund earns more money than the government spends or distributes, the fund gets larger and supports even more government spending. As the state’s investment accounts grow, the State shifts further and further to the left.
In just the last 10 years, Alaska’s legislature allowed the Permanent Fund to grow from $40 billion to $76 billion. That is a $36 billion surplus during the last decade — an average of $3.6 billion per year of excess revenue beyond the $4.8 billion operating budget. Recall, this happened while reducing the only connection most people currently have to the government — the PFD.
According to the Alaska Permanent Fund Corporation, the expected earnings rate on the fund balance is 7.05%. The current fund balance of $76 billion would generate $5.4 billion per year. If the actual future is closer to the long term average returns, the current balance would spin off $6.8 billion per year.
In other words, the fund is already large enough to fully fund the government without oil revenue. If Alaska continues to grow its investment accounts even further, the path is more likely to turn Alaska blue than to keep it red.
Limit Government Growth
Keeping all this in mind, the key to keeping Alaska red is to ensure that the private and public sectors stay in proportion to each other. That means growing the private sector while resisting growth in government. The current path, which includes allowing the public sector to grow while the private sector shrinks, is the strategy we discussed to turn Alaska blue.
There are two ways to limit government growth. The first is by making residents pay for the government services they want. If the population is fiscally conservative, they will resist taxes through who they vote into office. This places a natural check on government spending.
However, there is a danger to this approach. If the voting population is amenable to taxes (or doesn’t have to pay them), they will allow the government to grow. Growing government attracts more people that favor growing government, which in turn increases taxes further. So, taxes alone won’t always keep government growth in check. Just compare places like New York and California to places like Texas and North Dakota.
A more direct way to limit government growth is to place an upper bound on government spending as a proportion of the economic activity in the state. To accomplish this, Alaska could simply write such a limit into its constitution. All it requires is a change to the current constitutional spending limit, turning it into a percentage of the overall economic activity in the state.
With such a limit in place, excess earnings from the Permanent Fund could not be used to grow government. This reduces the problem of over saving, as the excess earnings simply generate money that can’t be spent. Consequently, there would be no reason to save excess funds.
While such a spending cap does create a connection between the private and public sectors, the tie is loose. The government would have an incentive to consider the economic impacts of its policy choices. But, if there is a spending limit without taxes, there is no reason for the people to care what the government does. That’s still a recipe for poor policy. There must be additional action.
Encourage Economic Diversity and Growth
It’s not enough to limit government growth through a spending cap. The Republican Party must also ensure the private sector is healthy. This is especially true of the oil and gas industry. It’s not a coincidence that Alaska turned red right after oil started flowing.
The massive influx of people moving to Alaska in the 1980s was mostly driven by oil field workers coming up from places like Texas. This surge of conservative minded people overwhelmed the relatively small population, which tipped the political leaning to the right. Keeping Alaska red requires maintaining a place for those conservative minded voters to work.
Contrast that with growing the urban-centrist population in Anchorage, which acts like a Lower 48 big city. Consequently, it must deal with big city problems like crime, homelessness, transportation, and bureaucracy. These problems are more visible in a large city and they require community level solutions. This is why the politics of people living close together tend to be more community oriented.
You can see that how you grow the economy matters. To keep Alaska red, the goal must be focused on attracting a retaining conservative minded voters. Doing so is more likely to occur through resource development and economic diversity throughout the state. It can’t be accomplished simply by growing the government or the population of Anchorage.
So, here is the recap. If you want to keep Alaska red, you should focus on the following policies:
1. Implement a spending cap tied directly to the economy
The current constitutional amendment being debated in the legislature appears to be a good vehicle to accomplish this.
2. Promote resource development
The oil industry is the primary reason Alaska is a red state. Holding onto those oil workers is the key to keeping it that way.
3 Stop growing the Permanent Fund
The fund is already large enough to break the connection between the public and private sectors. Keeping Alaska red requires an assurance that the public sector will shrink if the private sector falters. Even holding government spending flat while the oil industry departs would turn Alaska blue.
4. Grow the private sector
Replaces oil revenue with investment earnings is a dangerous policy choice for conservatives. Instead, those revenues must be replaced with another connection to the private sector to keep Alaska red. The first preference would be to maintain the oil industry for as long as possible. But, growing the private sector is the way to avoid the resource curse. It’s likely that taxing this strong economy will be required at some point in the future, but not while growing government or savings.