Since the Great Depression, democrats have lauded the economic theory first introduced by John Menard Keynes known as Keynesian Economics. His theory is rather simple and for the most part it makes sense. When an economy is in recession, government can speed recovery by reducing taxes and increasing spending through borrowing. The thrust of Keynes’ argument is that government can deficit spend during difficult economic times, but then capture excess revenue during good economic times to pay off the debt. In theory, Keynesian economics works great if government exercises restraint during periods of economic expansion and prudence during difficult economic times.
Democrats (and some progressive republicans) love Keynesian economics. At the national level, the theory gives elected representatives an excuse to spend money, grow government, and garner favor from economically illiterate voters. Progressive advocates of Keynesian economic policies are responsible for the 20 trillion-dollar national debt and over 130 trillion dollars of unfunded liabilities. Federal politicians rarely have an appetite for cutting government (progressives accuse them of starving the elderly and children when they do) so there has not been a reduction in the size of government for decades. Instead, taxpayers are constantly presented with a false narrative that gives us the choices of increasing taxes or borrowing to pay for a government that grows at an exponential rate. In effect, intentionally or unintentionally, most politicians have chosen to pursue only one part of Keynesian economics, government spending and borrowing.
Until recently, Alaskan democrats and progressive republicans have been big fans of Keynesian economics. However, this legislative session, every known modern economic theory, including Keynesian economics, has been completely abandoned. The proposed solutions by the house majority and Governor Walker to the “fiscal crisis” defies any semblance of economic reason and demonstrates a complete lack of understanding of how economic systems work.
Alaska currently has the second highest unemployment rate in the country and projected economic growth is dismal. Last year the private sector economy lost approximately 6,500 jobs and that number is projected to increase this year. Private sector wages have remained flat or fallen and total household incomes have decreased by more than just Governor Walker’s veto of the PFD last year. It is clear to anyone paying attention that our state is in a recession.
Despite these current economic conditions, the house majority and governor’s proposal for solving our fiscal woes is an all-out assault on the private sector. They want to reduce the payout of the permanent fund dividend by 700 million dollars this year. They are also proposing that another 600 to 800 million dollars be extracted from the private economy with a new income tax, increased motor fuel tax, and increases in several already established taxes.
Representative Gara has warned that if we don’t take 1.5 billion dollars out of the private economy, “…we will send the state into a 10-year recession.” Representative Gara might be a brilliant lawyer, but Keynes would find his economic analysis to be seriously lacking. He, and the majority to which he belongs, are ignorant about how an economic system works and wrongly believe that government, not the private sector, produces wealth and creates jobs. Unfortunately, whether this promotion of flawed economic policy is born out of vote-seeking from the economically illiterate and public sector union employees, or a lack in understanding of how wealth and income are created in an economy, these proposed policies, if enacted, will be what causes a prolonged recession in our state.
There are very few (if any) economists alive or dead who agree with the flawed budget proposed by the house majority and Governor Walker. Any money taken out of an economy during a recession will have a devastating impact on its ability to recovery. Keynes must feel very betrayed by Alaskan democrats. (And sadly some republicans in the senate as well.) Keynes would wonder why anyone would propose taking 1.5 billion dollars out of the private economy when our state has over 15 billion dollars in saving. Not only have the democrats and governor declared by their proposed policies that they are no longer Keynesians, but they have dug up his body and kicked it repeatedly on the house floor. If the soul of Keynes is observing the rhetoric and proposals in this year’s session, he must be shaking his head and muttering a revision to his famous quote, “In the short run we are all dead!”
Todd Smoldon lives in Willow, Alaska and has been a resident of the state for 30 years. He earned his BA in economics and Master’s degree in teaching from the University of Alaska-Anchorage, and has been teaching high school economics for almost 20 years.
