Dr. Mouhcine Guettabi, Associate Professor of Economics at ISER and the College of Business and Public Policy, gave a presentation this week on “The State and the Stimulus,” in which he highlighted observations and analysis of the current state of Alaska’s economy and the impacts of federal aid.
Guettabi warned that the $1 billion in federal stimulus that Alaska is set to receive under the American Rescue Plan will not solve the structural budget problems that Alaska is experiencing.
Alaska had been very slowly emerging from the oil-driven recession that started in 2015, he noted. Although there was growth in 2019 before the pandemic, it was anemic, with the majority of sectors still below 2015 levels. “The pandemic and the size of the shock that the Alaska economy has experienced has made a lot of people forget that we were in a recession for three years between 2015 and 2018, and that the depth of that recession has been dwarfed by the shock that we’re currently experiencing.”
There should be the same level of urgency to fix the budget that the state had in 2019, said Guettabi. At that point, oil prices were around $65 a barrel, “and we said the sky is falling.” Oil prices are at those same levels today. Although the oil price forecast is optimistic, “we still have a deficit if you want to pay the statutory dividend and pay the current level of government.”
Additional highlights
Employment
There are only two sectors nearing the 2015: “Education and healthcare” and “Construction.” Others are significantly decreased. For example, the mining/logging sector is at 60% of its 2015 levels. “It’s important to acknowledge the weakness in the labor market that existed, and shape the conversation around what should we do in order to build this Alaska 2.0, because there was no organic growth.”
New unemployment claims are at about four times the pre-pandemic numbers, and continuing claims are about twice what we had pre-pandemic, and we are looking at missing out on another summer season. There are negative consequences to having a lot of people unemployed for an extended period of time because getting them reattached to an employer becomes difficult the longer somebody is unemployed. “It makes sense to start thinking about allocating money towards trying to play matchmaker in the labor market and encourage employers to take on workers as this recovery goes on,” said Guettabi.
Personal Income
Personal income has gone up nationwide as a result of how aggressive the federal government was with its aid. “We don’t know what would have happened in the absence of the aid, but I’m fairly comfortable saying that things would have been uglier,” said Guettabi. Alaska’s increase in personal income was actually one of the smallest in the country.
GDP
Guettabi noted that GDP recovery typically precedes employment recovery, and that GDP growth was very small even before the pandemic. “Those economic drivers that we’ve historically relied on are struggling, and it’s tough to see what the catalyst will be going forward. I do anticipate GDP is going to recover, but it’s going to be growing from a low base.”
Federal Stimulus
Guettabi presented a slide showing that a family of four would have received a little more than $14,000 over the span of the last year if eligible for all stimulus payments as well as the Permanent Fund Dividend. That adds up to about $2.5 billion that has been injected into the economy. Those with more means are saving the money. Those in lower income brackets are spending it on expenses. Going forward, targeted aid makes the most sense given the variation in economic pain across income groups, regions, and sectors.
Child Tax Credit
One item that could be a big boost to the economy is the new Child Tax Credit, a temporary benefit that hasn’t gotten a lot of attention. Eligible households could receive advance payments of about $250 per child from June to December 2021. “This is a massive improvement over what we previously had,” said Guettabi. In 2018, around 90,000 tax returns from Alaska included child tax credits, giving us a sense of how many households could benefit from these advance payments.
For full context of all these points and more, including graphs and links to original data sources, watch the full presentation and reference the presentation slides.
