Sunday, January 22, 2017

Today Alaska, Tomorrow Wyoming

I recently compared the Wyoming economy to Alaska, concluding that:

The job losses in Alaska are dwarfed by the losses in Wyoming. 

 Please keep this conclusion in mind, as we listen to what Jonathan King, vice president of Northern Economics, has to say about the economic crisis unfolding in Alaska. From the Alaska Dispatch News, January 20

A leading Alaska economics firm predicts [Alaska's] recession will continue for three more years and foresees no real recovery, just decline and then a future with a smaller economy. Jonathan King, vice president of Northern Economics, ... presented Wednesday to the Senate Labor and Commerce Committee after Mouhcine Guettabi, of the Institute of Social and Economic Research of the University of Alaska Anchorage. The economists' teams worked independently, using different computer models, but they came to strikingly similar conclusions. "This is our great recession. By the time this is over, we expect to lose 6 percent of our jobs," King told the committee. 

Six percent? From October 2014 to October 2016, Wyoming lost eight percent of its private-sector jobs - and our crisis is not over yet. 

A recession is unfolding of similar severity to what the nation endured after the 2008 financial crisis, but with a critical difference, King said. The U.S. economy recovered. He expects Alaska's economy to shrink long term to a smaller base. The projections show job losses bottoming out in 2018 to 2020, but no bounce-back through 2026. 

I make approximately the same prediction for the Wyoming economy. Others disagree, primarily CREG, whose forecasts for Wyoming are intentionally over-optimistic. I have no idea what reasoning goes into their analysis - all I know is that CREG has a history of chronic over-optimism in their reports. Frankly, rather than actually analyzing the Wyoming economy as it is, they appear to prefer reporting what they think legislators and the governor want to hear. 

I, on the other hand, report what they need to hear. This is not a popularity contest.

Back to the Alaska story:

Population predictions are uncertain because they contain more unknowns than job numbers, but Northern Economics projects decline continuing for at least a decade, with net loss of more than 30,000 residents. 

From 2010 to 2014, Wyoming lost a total of 11,000 residents (inflow minus outflow). Alaska's population is 26 percent larger than ours; if we take that difference into account, the 2010-14 outflow equals 13,860 residents. That in turn equals about 46 percent of the expected total population loss in Alaska. 

Unless Colorado keeps saving our state from a consistent population outflow - as they did in 2015 - it is absolutely realistic that Wyoming will lose the same amount of residents in the next 4-5 years as we did in 2010-14. If so, we will match the Alaska population outflow. 

How realistic is this scenario? Just like the outlook is grim for Alaska, we have no reasons to believe in a turnaround in Wyoming. We will see a stabilization, a "new normal", just as they will in Alaska, but that is about the best outlook our state can hope for.

But wait - there is more from the Alaska Dispatch News story:

A flat economy offers few opportunities to attract productive people. Bad schools and unsafe streets drive them away. Added to that, drastic budget cuts like those being discussed in the Alaska Senate would worsen the recession by another 20 percent, according to the modeling. 

The Alaska deficit came as no surprise. It was easy to see it coming already in 2013. Yet it was not until 2015 that legislators began responding, and their first reaction was eerily similar to that which we can see in Cheyenne these days - essentially rewriting the cocktail menu on the M/S Titanic. 

Because Alaska legislators waited far too long, they painted themselves into a corner. When they finally woke up and smelled the coffee, all that was left for them were panic-driven spending cuts: maximize the upfront fiscal value of the cuts, and ignore the long-term consequences. 

Here in Wyoming, we have a legislative leadership and a governor who continue to ignore the writing on the wall (or this blog). The governor pulls his straw to the haystack, built to hide the grim fiscal truth underneath a pile of fiscal smokescreens.   

To solve their runaway fiscal crisis, Alaskans are now talking about how...

Revenues from an income tax ... would hurt less 

than panic-driven spending cuts. 

How far into the future of Wyoming is the choice between a rock (income tax) and a hard place (panic-driven spending cuts)? With a bit of luck we have two years, but I would not be surprised at all if we end up there a year from now. After all, our 19 months of job losses make Alaska's job problems look like a walk in the park.

What to do instead? Here are some ideas:

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