The uniqueness of the Alaska economy is a recurring theme of this blog. The state has been lucky since 2008, when the global economy took a nosedive from which it has yet to recover. We owe this good fortune to high oil prices, as well as federal spending. Can we count on this to continue?
According to a new ISER report by Scott Goldsmith, we cannot. For the last decade, oil production has fallen considerably but prices have risen and remained high. The result has been a buoyant, stable economy with large PFD checks, ample jobs, and generous public spending. This comfortable situation can't last forever, though. Consider the following:
- Of the huge oil reserves on state land, about 80% has already been extracted. The remaining 20% is extremely valuable thanks to strong prices, but quantities are clearly limited.
- Future resource development projects will not be able to equal the economic impact of Prudhoe Bay. Drilling on federal land, if it happens, will not bring large revenues to the state. Nor would a natural gas line, although it would bring jobs.
What can we do about this? Goldsmith urges prudent management of existing assets and development of other resources. I would emphasize the need to diversify the state economy, and especially to promote entrepreneurship. Small businesses have always been major engines of job growth, and Alaska offers numerous opportunities for entrepreneurs. Just take a look at Alaska Forward's list of the states established clusters (drivers of growth) as well as seed clusters (potential drivers) for a few ideas.
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