What Does The Future Look Like

In Sunday’s Anchorage Daily News, Paul Jenkins wrote an editorial entitled “Quality of Life Will Dry UP If Aces Not Fixed”.  Mr. Jenkins draws us a picture of what life in Alaska would be like if oil stops flowing down the pipeline.  To quote Mr. Jenkins, “Imagine a thicket of weathered ‘For Sale’ signs crowding the streets in your neighborhood, touting empty homes nobody can afford, their owners long ago U-Hauling south, fleeing as the state’s economy belly flopped.” Unless our legislature is able to work things our with the oil companies, that is exactly what could happen.

Corporations are all about the bottom line.  If it is financially feasible for them to operate in Alaska they will.  The moment that drilling in Alaska doesn’t make financial sense any longer, they will close up shop and move elsewhere.

My wife and I moved to Alaska in 1986.  For a teacher new to Alaska, that was not a good time to be making such a move.  The problem wasn’t a lack of oil production (production hadn’t reached its peak yet) but a drop in oil prices.  The price of a barrel of oil in 1986 had fallen to below $10 a barrel and unemployment had risen to 9.4%.  Teachers and other public employees were being laid off.  Foreclosures were up and businesses were closing their doors.  Do we really want to return to the economy of the mid 1980’s?  At least then there was the hope that oil prices would rise and the economy would recover.  If the pipeline were to shut down, would oil ever flow through it again.

Surely, there is a solution that would be acceptable to all of the parties involved. 

Dave Donk

Ignorance in Alaska

           As I sit here contemplating on what to write my blog about, I keep going back to the fact that there are Alaskans (specifically myself) that don't know about the future of our state.  As a third generation Alaskan, I pride myself on the fact that I am from Alaska.  But how can I, the daughter of a teacher, and the granddaughter of and Anchorage Pioneer, not know about Alaska and where it is going.
           I mean, don't get me wrong, I watch the news.  I hear words thrown out like "Oil reserves, gas exploration, and ACES."  I have heard that the oil production is declining, but it didn't mean anything to me.  Unfortunately for me, now it does.  I guess if you knew me, you would know that I am a worrier.  Now my eyes are open and I am worried about my future as well as the future of my family.  But I am also worried about the future of our state. How can we keep spending $13,500 per capita?  When the oil is gone, who is going to pay?   Or more importantly, when the money runs out, what is getting cut?
           When I used to think about Alaska, I thought about gold, oil, and money.  Sure our state has some budget issues, but the bottom line is that we have liquid gold flowing down from the slope.  That oil will be there to fix all of our financial problems. But, I am slowly learning that that is not the case.
           So what is the problem?  Is it our production taxes?  Is that what is limiting the oil and gas exploration? If so, how do we change that?  In Juneau, that is what they are looking at right now.  So is HB 110 the answer?  I don't know.  What I do know is that something has to give.  To me, it seems as though our state is burning the candle at both ends.  We are using up our oil supply and at the same time we are constantly stalling on the gas line. So without oil and gas, where is our money coming from?
           So, is being ignorant about Alaska's future better than knowing the truth?  I don't think so.  I may stress more about it, but it also helps to put a fire under me.  It helps me see that I need to be an active participant in our government, that if I want things to change, I have to help make that change.

Aimee Campbell

The Sky is Falling, the Sky is Falling- In Alaska?!

Throughout the country we are experiencing tough economic times . We see at the gas pump everyday ; will l I  see 5.00 a gallon for gas by June ?. There are indeed a large  number of families who  are struggling to stay ahead of their bills,  facing possible foreclosures issues, and or possibly relocating to other areas of the  country (i.e.  Alaska , North Dakota) where there may be better opportunities for a more productive and happy life. In the general job market many companies are consolidating their work force by laying off personnel, offering early retirements,  and eliminating departments to meet their "bottom line". Lets take a look at how this economic downturn has effected the teaching profession. States such as Ca., Hi, NY, and Tx are try ing to stay afloat by having teachers work a 4 day week instead of the usual 5 to save money and hopefully save jobs. How much of this economic down turn is effecting life in Alaska...

The stories and statistics are there but in the overall picture Alaskans are being effected by these problems but near to level of the rest of the country ... not even close. I tend to look at the fact that our unemployment rate  is a point lower than the rest of the country. Our state  budget is balanced. We have almost $12 billion in the state savings account. How many states who are experiencing severe economic problems even have those types of numbers in a savings account !  Or even have  savings account? I think were doing fine ; no massive lay -offs, no enormous number of foreclosures noted , and I haven't heard of any large forced furlough days applied to personnel in our public sector jobs either. Oh I forgot to mention to everyone : make sure you fill out your PFD form by March 31...

Tim Lynch

“21st Century Bubble Gum Wont Stick!”

I’ve been brainstorming all of the possible microeconomic subjects that I could blog about, and I’ve come to one conclusion… There is way too much to content to write about any microeconomic issue with any meaningful impact.  Most of the advancements in economic studies have come from the macroeconomic cause and effect relationships. Fore example, Vernon Smiths experiment with producer and consumer price equilibrium convergence over time.  This experiment is relevant and a useful discovery.  Without the resources, or the time to run a full economic experiment, combined with the fact that the good lord hasn’t gifted me with any brain blasting epiphanies regarding insight into the enormous army of cause and effect relationships that go into mass group economics, I have chosen to take a more philosophical look at economics, and human nature as a whole.  I do believe I have a hold of an Elephant trunk. If it is not an Elephant?... Then I do not want to know what I have a hold of.

Why recently, and I mean recently in the historical context, are we exhibiting a fundamental divergence from the concept of natural selection?  This force applied to economics is even more amplified and poignant, and may I say more easily provable, than when it is applied to the biological sciences.  Just as sports are “life amplified”, so too economics could be seen as natural selection amplified. It seems to me that all economic phenomena could be associated with the conformity or opposition to natural economic selection. 

 Political interference into economic issues in the form of policies and laws predominantly are manifested from the origin of political self-interest and survival. In my opinion, 99% of the time these policies are counter to economic natural selection. 

I can’t help but think that these economic bubbles that we been seeing in the last 10 to 15 years have something to do with the policies implemented to help sustain economic ideas that were rooted good intended but faulty economic thought. We are seeing possibly the end of Social Security within the next 30 years, and our health care system is expanding out of control, and infringing on our constitutional rights. Both of these entitlements were developed counter to the common sense of natural economic selection. Natural economic selection says that there must be a number of failures, or if you go more biologically, you might say a number of deaths. Life has been difficult from the beginning of time.  One thing I have noticed in my short time on this planet, is that when prosperity, and expansion approaches it’s end, there seems to be a massive increase in the collective personal ego in an attempt to compensate for the reality of a life less decadent. Take for example the sociology of the Roman Empire before the fall. 

There will be periods of prosperity, and periods of despair. In my opinion, we need the former just as much as the latter. Without the downturn in economics we forgo the refinement needed to sustain the next period of economic prosperity. The more we try to tweak the system to our advantage, to prolong our prosperity, the deeper and more dynamic the freefall will be. This is life in a bubble… POP!

By: Michael Victors

Withitness

Out of all the articles I have read so far during this class, the one I understood the most was out of The New Yorker, Most Likely to Succeed, by Malcolm Gladwell, dated December 15, 2008. The article is based on the single question: How do we hire when we can’t tell who’s right for the job? Mr. Gladwell says there are certain jobs where almost nothing you learn about candidates before they start predicts how they’ll do once they’re hired. In recent years, a number of fields have begun to wrestle with this problem, but none with such profound social consequences as the profession of teaching. He talks a great deal about predicting success in football with success in teaching through several stories.

Mr. Gladwell states one of the most important tools in contemporary educational research is “value added” analysis. It uses standardized test scores to look at how much the academic performance of students in a given teacher’s classroom changes between the beginning and the end of the school year. Just today we received the scores for our fifth grade students from the Terra Nova standardized tests taken earlier in the year, so this article hits even closer to home for me.

The story goes on to say suppose teacher A and teacher B both teach a classroom of third graders who score in the 50^th percentile on reading and math tests on the first day of school. When these same students are retested, at the end of the year, teacher A’s class scores at the 70^th percentile, while teacher B’s students have fallen to the 40^th percentile. That change in the students’ rankings, value-added theory says, is a meaningful indicator of how much more effective teacher A is as a teacher that teacher B. I disagree with this theory.

Malcolm states, “It’s only a crude measure, of course.” He believes a teacher is not solely responsible for how much is learned in a classroom, and not everything of value that a teacher imparts to his or her students can be captured on a standardized test. There are so many other factors involved when it comes down to how much is learned in a classroom in this day and age.

Eric Hanushek, an economist at Stanford, estimates that the students of a very bad teacher will learn, on average, half a year’s worth of material in one school year. The students in the class of a very good teacher will learn a year and a half’s worth of material. That difference amounts to a year’s worth of learning in a single year. My question is who decides what a “very bad” or a “very good” teacher looks like?

Another educational researcher, Jacob Kounin, once did an analysis of “desist” events, in which a teacher has to stop some kind of misbehavior. He talks about a few different events, and concludes with how a teacher desists – her tone of voice, her attitudes, her choice of words, appears to make no difference at all in maintaining an orderly classroom. After reviewing the videotape of a chain of misbehavior, he noticed what was really significant was not how the teacher stopped the deviancy at the end of the chain but whether she was able to stop the chain before it started. Kounin called that ability “withitness,” which can be defined as “a teacher’s communicating to the children by her actual behavior (rather than by verbally announcing: “I know what you are doing”) that she knows what the children are doing, or has the proverbial “eyes in the back of her head.”

It stands to reason that to be a great teacher you have to have withitness. 

Trish Lacey

If I Were King of Alaska

 In order to do the things I am going to advocate I would have to be king, because with the compromises necessary in a representative form of government the radical measures I propose would probably never be taken. Also important to this scenario (though not nearly as difficult as imagining me be king) is recognizing that the king must still deal with the federal government and the oil companies in the forms we know them now.
   First off, let me say the king has been convinced by,  Bob Heinrick and Kevin Dow of the ConocoPhillips Alaska oil company, that the "ACES" oil tax structure put in place by the last king (a queen actually, Queen Sarah) is much too costly to oil companies  for them to risk investment in drilling new wells.  Also the pipeline we have in place is in danger of having a shorter life span because of how little oil is traveling through it.
   With these things in mind I would revise the tax structure from the "ACES" program in place now to the proposed legislation HB 110 being discussed in the legislature.  Not only would I adopt HB110, but I would put in place a one time deal that any oil produced from a new well, drilled within two years of the date of my offering of said deal, will pay no state taxes for the first two years of production.  I believe this would generate a lot of new exploration and production.  After the two year tax moratorium all wells would be taxed under the new HB110 tax structure.
   Another area that needs immediate attention is access to the National Petroleum Reserve-Alaska.  For oil companies to access this area they need a bridge across the Coleville River.  The federal government has been slow to approve permits and such for the building of the bridge.  As king I would allow construction of the bridge to begin immediately and not ask for permission from the federal government.  It seems to me that Washington has plenty of matters to busy themselves with already without bothering about a bridge in northern Alaska. I think the former King Hickle would have done it this way.
   In closing, I would say that the king understands that our economy is like a three legged stool.   At least one of these legs is in trouble.  I believe the measures I propose would firm up that leg and be good for the kingdom.  Thank you very much.


                                                                                                                                                                                                                           Gary Cox

Energy Costs in the Last Frontier and The Tragedy of the Commons

         Lee Huskey made a fine point of describing for us the fact that in Alaska, as in other peripheral regions of the world, economic remoteness may only be overcome by means of the "Iron Law of Resource Development," whereby the expected received price of a resource or commodity must exceed the opportunity cost of producing it.  Additionally, the transport cost (transportation tax) of getting the produced item to market, being deducted from the world price, must then be factored in such that the received price will generate an acceptable level of profit.  For this reason, and due to our remoteness, Alaska's economy has always been reliant upon the discovery and development of bonanza resources.  Furs, whaling, salmon, gold, copper, oil - all have sustained us through the years as other regions of the country, and the world, have suffered through repeated cycles of depression and recession.  And yet, it seems to me that the common man, lest he or she be a spirited  entrepreneur who is able to capitalize on the moment, has not so much benefited from these bonanzas as have the corporate interests who have developed them and then shipped the profits elsewhere.  It may be true, as the Jack London Hypothesis bears out, that the infrastructure and economic development which has swelled in the wake of these bonanzas has served to provide us with jobs and relative economic stability over the years, but at what cost?


            As an example to illustrate the "opportunity cost" of living in Alaska, and how the "Tragedy of the Commons" seems to follow along with the development of bonanza resources in a remote economy, I speak to the price of gasoline in Alaska.  Here I find an ironic and contradictory situation which seems to defy logic.   One the one hand we have a bonanza resource, crude oil, which is not only abundant but which lies in relative proximity to the population centers of the state.  And yet on the other hand we have a price for the refined result of that resource, gasoline, which dramatically exceeds the price for that same product several thousand miles away.  Is there yet a third hand, that which is invisible, which causes this?

            Correct me if I'm wrong, but it seems that if you deduct the greater portion of the transportation tax, since the resource must travel only a relatively short distance to market, that the remoteness factor has thus been primarily overcome, and the price should then be lower, not higher, than in markets farther removed.  Even when you factor in the higher costs of production, and the limited market, you should still end up with an end price that is at least comparable to, if not lower than, the remote market price.  Should this not be true?  I don't get it!

             For those of us who have lived up here for a number of years, it is not hard to remember a time when we enjoyed gas prices lower than in most continental US cities.  What happened?  If one is to say that it's because the price of gasoline in Alaska is tied to the market price on the west coast, then I must respond with how can that be fair or right in light of the difference in transportation costs?  Who sets this mysterious and arbitrary baseline price anyway?  That's right, the "invisible hand!"  The Tragedy of the Commons indeed!

Tony Schmidt

Should I let my Husband Retire?

With the declining of oil in Alaska and the lower 48 still recovering from the recession, which thank goodness hasn’t impacted Alaska as much as it has in the lower 48, my economic quandary is should I let my husband retire or not.

This might seem an easy question, but with the future of Alaska’s economy unknown and health care still on the rise, it is very difficult.  The question should be, when will we be able to retire and where should we retire.  Once retirement was easy to figure out, you bought a house, worked X number of years, got your gold watch, and then walked into the sun set.  But today it is much different.  One needs to look at everything before deciding to retire.  For example, with Anchorage’s economy based largely on property taxes, will we be able to afford to retire here in Anchorage or will we have to find a “cheaper” place to retire?  With a reduced income everything needs to be looked out.  With the current increase of fuel, utilities, and food, this is defiantly impacting our retirement date. 

Quality of life plays an import part of the retirement question.  Quality of life is dependent on Alaska’s economic stability.  Are oil companies going to keep investing in Alaska to help stimulate the economy or will they go elsewhere?  Is Alaska going to diversify or are we able to diversify?  As we learned throughout this class, we have many resources that haven’t been tapped into yet.  All of these questions affect the quality of life in Alaska and in Anchorage.    

My bottom line is that if you are not planning your “exit” strategy from you current job, you better start.  This includes planning all known expenses, kids in college, home paid off, unexpected medical costs.  If you follow your retirement plan, hopefully whatever the local economy is doing won’t affect your retirement date but it could ultimately impact your quality of life in your golden years.

So to answer my question, should I let my husband retire, I don’t think so.  Not right now, maybe in a few years.  I want to wait and see where Alaska / Anchorage goes with the current decline in oil revenue and will the natural gas line every happen.  And he doesn’t know this, but he will have to at least work until the kids are out of college not his current plan of retiring while the kids are still in high school. 

Laurie Keene

Should I sell my house? You decide.

Kyle Hampton is teaching us that Alaska's economic outlook is bleak.  An invisible hand is at work on the products of Alaska trying to create an equilibrium between supply and demand until a competitive equilibrium is reached.  Our supply (of oil) does not seem to be keeping up with the demand.  Lee Huskey defines our economy as remote.  Our geography and institutions have created this.  Huskey's Iron Law Of Resource Development says that the price received for our oil and other resources must exceed the opportunity costs of their production.  As the bonanza of Prudhoe Bay fizzles it seems that the oil industry is reassessing their opportunity costs.  Ethan Berkowitz sees wind and geothermal energy as the wave of the future and if houses in Anchorage just would have been built to look like mountains, everything would be better.  However, Alaska can't implement these alternative sources of energy because he thinks the rules in setting up these industries are unclear.  Diane Hirshberg believes education can be the salvation of a struggling economy.  It has immediate, long term, and non-quantifying benefits.  Yet communities must have a feeling of ownership in their school for the school to be successful and funding must be increased.  Finally, Conoco Phillips had  profits of $1.54 billion in 2010 in Alaska (which makes up 30% of its world wide profits), however its new  low tax sweetheart is North Dakota.  The lifeline of Alaska (T.A.P.S.) is at less than half its capacity of 1988. At a continued 6% decrease each year, the pipeline will have a flow problem within five years further increasing transportation costs.

So, I want one of you Bloggers out there to prove Kyle wrong.  Write a response that solves all of these problems.  Write a Cinderella ending for the tale of The Last Frontier.  If you don't, all will be lost.  Oil production will cease, the pipeline will sit idle, government spending will decrease, in-state energy costs will soar, the PFD will be spent  subsidizing the state for a few years, the population will decrease, and the equity and value of my home will evaporate. What should I do?

“ACES” Friend Or Foe

In the last forty-five years I have witnessed massive change here in the great state of Alaska.  For the most part the change has been for the good.  With development on the North Slope, strong markets for other natural resource development, a massive population infusion because of job creation, and a booming real-estate market, we witnessed the creation of a dynamite economy.

Barring any huge set backs in your life, being a financially successful human being was not rocket science.  All you had to do was get a job, purchase a home, and watch your salary and property values soar.

So the big question today is will “ACES” make or break Alaska’s economy.

Today we are witnessing a decline in oil production.  Oil makes up 80% - 90% of Alaska’s tax base, so this will obviously have ill effects on our state’s financial well being.

Fifteen to twenty years ago half the students in my class had parents employed by the oil companies.  Today, it is one or two.  This informal survey indicates that there has been a trend to downsize the oil companies’ roll in Alaska.

We know production is down to a dangerously low level.  If this trend continues the pipeline will be forced to shut down putting Alaska in a perilous downward spiral.

Exploration has come to a standstill which strongly indicates that oil development in Alaska is not a priority when there are cheaper markets in which the oil companies can invest.

Will cutting back the “ACES” tax structure offer the incentives needed to lure the oil companies back to our state, particularly the progressivity factor that cuts all profit to the oil companies once oil hits the $136 dollar mark?  Oil companies are all about making a dime, if adjusting “ACES” would allow that to occur, as it does in other parts of the world, I think Alaska may once again become the solid state that it once was.  Cash is an incentive that motivates business.  Oil is business, and we know that incentives matter.  Is this the right incentive to save our state?

Take a close look at the north slope.  In the very near future, it may indeed be a barren desolate land void of infrastructure, development, and prosperity.  Can we afford not to forfeit some profit, so that our kids can enjoy the experience of living in the “Alaska” that we did?

Rick Farrell

Establishing Market Price Simulation

For the past several years I have run a simulation in my Consumer Econ class that is very similar to the activity we did at the beginning of Econ 551 - Establishing Market Price.  It is a fun, interactive activity that my kids always enjoy and miraculously it has always worked.  I was a bit nervous running the game yesterday as I have very small classes this semester (15 & 8) and I wasn't sure it would work.   My first class of 15 went pretty smooth - we went through the 3 rounds of exchanges and the kids all agreed on a "fair" market price - it was slightly lower than the values predicted (only $.10).  My theory is that the buyers were some pretty assertive and savvy players and they basically "beat" the sellers for the extra ten cents.  I was really interested to see if it would work for my small class - only 7 kids showed up.  It Worked!  One of the sellers had it figured out at the beginning of round two, had set his price and essentially quit any negotiations - it was his price (which was $.10 higher than simulation equilibrium price) or no deal.  By the third round all deals were made within a $.20 window near the equilibrium price, with the exception of 3 deals that were way below the established price.  I quickly learned why - one of the buyers used her pretty smile to dupe an awkward seller - so the simulation always works except when teenage hormones come into play.

Levi Hahn