All Good Things, Part 1

August marks the penultimate episode of this blog series. I want to thank my collaborators at APCM and APCM Wealth Management for Individuals. For the past sixty months they’ve provided me with this platform to speak to you and they’ve done so with a light touch, great feedback, no complaints about my pop culture references, and a spirit of partnership. I am in their debt.  

So, what does a column writer do in their last two posts? I’ve been thinking about this challenge for months. I always knew that this opportunity would sunset at some point and that I should be ready for it. Am I prepared to write these final columns? I guess we’re about to find out together. 

Economists are trained to use data to explain the past and to try to predict future conditions and behaviors. We are better at the former than the latter. There’s something about having your head down in backward looking data than can prevent you from seeing things that aren’t contained in that data.  It can be tough to keep your head up. In these columns I’ve tried to look both forward and back and my own assessment is that, like many of my professional peers, I’ve had my share of misses and hits. I believe that big, stochastic events are still challenging to predict, and I believe that the human brain’s tendency towards cognitive biases clouds our ability to accurately see what’s hurtling towards us.  I am frequently asked how I feel about Alaska’s future. My stock response has become, “Predicting the future is hard. Let’s talk about what’s working for us, what’s working against us, and what we need to do to create the future we want.” So, let’s do exactly those things. 

2017 to 2022: The Tide Went Out 

The tide has gone out on Alaska’s economy over the last five years. By most typical measures of our collective economic performance the last five years have been tough to say the least. We are a smaller population (-0.4 percent) and economy (-7.9 percent in real terms). There are fewer filled jobs (-5.8 percent), fewer workers to take those jobs, and the long-time mainstay of the economy (oil production) continues its seemingly inexorable decline (-12 percent). Ooh, to boot we’re older and less fecund. PFD migration data indicate that between 2015 and 2020, 300 more reproductive age (20-40) residents left the state each year, and 1,300 fewer reproductive age potential residents arrived here each year, than between 2010 and 2015.¹ While fewer people are moving here, we’re also making fewer future Alaskan workers. The crude birth rate in the last decade is down from over sixteen per 1,000 population to roughly 13 per 1,000 population; that’s a 19.3 percent decline.  A decade ago, there would have been over 11,100 babies born in Alaska in a year; in 2020 there were less than 9,500. 

Sources: ADWOLD (population and employment), U.S. BEA (GDP), US EIA (oil production). 

Normalcy Bias vs. The World Is Changing 

A cognitive bias is a mental mistake caused by information processing shortcuts, the brain’s limited processing ability, the need to create certainty and find cause, emotional and moral motivations, memory fallibility, and social influences. There are nearly two hundred named biases. One of the most common biases is normalcy bias which is the human tendency to believe that things in life will continue to go on as they have in the past.  

For forty years in Alaska, the economy has followed a predictable pattern of rising and falling with oil prices. If you just waited long enough an increase in oil prices, and related shifts in employment and state revenues, would save the day. In the last decade that pattern has shifted, the price of ANS has averaged above $70 for seven of the last eight months. The best streak since 2014. The associated increase in revenue gave the State the ability to put a bit more money into the budget this year and to pay out larger Permanent Fund Dividends. Unlike a decade ago it couldn’t do those things without using a portion of the earnings of the Permanent Fund to fund basic government services. Our good times are no longer as high are prior peaks. It’s not just the revenue mix that’s shifting; oil’s labor-to-capital ratio has shifted towards investment in capital with less investment in labor. Coming out of the last oil price dip in 2009/2010, Alaska averaged 12,000 to 13,000 Oil & Gas jobs per month. In 2022, we’re averaging just about 7,200 Oil & Gas jobs. Many of those 5,000 jobs lost since 2012 (or the 8,000 O&G jobs lost if you want to count since the 2014 industry peak) are not coming back. Every one of those jobs is valuable to our economy, but Alaska isn’t where the oil industry as a whole is looking for new production and the industry used COVID to become more efficient and automate production worldwide.  There’s a good chance that many traditional oil fields have seen peak employment. 

The paradigms that drove Alaska’s economy during the baby boomers’ working years will echo into the future, but they won’t be the dominant paradigms of the back half of my working years or our children’s working lives. The question is, “How much will we lean into the false comfort of normalcy bias versus realizing that the world is changing and that we need to play to different strengths while developing new ones?”  This question is the defining political economy challenge of our time. 

As usual, I’ve run out of word count for this post. In my final post next month, I’ll pivot from the hard, cold reality of the past to a more positive vision of what we can be if we choose to do the work. 

Jonathan’s Takeaway:  Alaska has experienced nearly a decade of “Who moved my cheese?”  As this critical decade progresses, we’ll need to decide whether we mourn the loss of the old cheese or adapt and find new cheese. 

Jonathan King is a consulting economist and Certified Professional Coach. His firm, Halcyon Consulting, is dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 24 years of social science consulting experience, including 19 years in Alaska. The comments in this blog do not necessarily represent the view of employers and clients past or present and are Jonathan’s alone. Suggested blog topics, constructive feedback, and comments are desired at askjonathan@apcm.net.