My turn: State should be ready to deal with deflation

Posted: Thursday, January 29, 2009

Deflation is the issue. Whether you believe it or not, preparing for deflation should be the state's top priority in 2009. Learn from the mistakes of Japan, the $22 billion blunder of the Alaska Permanent Fund, and from Michigan and California. Deflation is here, the winners and losers will be the difference between states and countries that do or don't understand the rules of deflation.

1. Don't tax the private sector to make up for your shortfall. We are in a recession that will force some to close their doors, adding to your unemployment problems.

2. Freeze and cut state employees' wages and benefits as the private sector has had to do.

3. Push hundreds of smaller jobs over one or two larger projects. You'll get a better economic bang for the buck.

4. "Market losses" is a term losers use when they make bad bets. Someone made money, it just wasn't you. This makes the permanent fund recipients the biggest losers in Alaska history. Don't follow in their footsteps, understand deflation dos and don'ts.

5. Don't cut advertising. We need others to come to Alaska.

6. Don't push the gas line if it means the private sector can't build it without guarantees.

7. Don't push more commodities as the only answer to state wealth. It appears we're in deflation and commodities could stay low for decades. Learn from real estate prices and diversify the state.

8. Paying state employees for an extra day off and saying it doesn't cost anything? It costs the private sector, then gives the corporate taxpayer a day off from paying corporate taxes.

9. Freeze utility rates or drop them. Deal with their bloated administration costs.

10. Cut back on overlapping state and city and borough services and combine them. As an example, engineering departments that overlap while the capital budget is cut by 57 percent means you are now faced with the same problem as the private sector. We are forced cut jobs and wages.

11. Develop your lake systems, campgrounds and national and state parks to be more inviting and cheaper to the outside world. They will come if you build it.

12. Recognize that deflation is a worldwide event and educate your employees to this fact.

13. Excess of everything is only solved by lower prices and the low-cost producers wins. Understand we are in a race to the bottom so adjust your thinking. Learn from Japan's mistakes.

14. Board of fisheries allocation appears not to be working. Consider what group gives the biggest economic bang for the fish. This will favor sportsmen in some areas and the fish industry in others areas in a profitable way.

15. Economic parasites. Understand what Jay Hammond meant: When one group, either public or private, receives a larger piece of the economic pie, the other group suffers. Why have state, federal and utility employees' and teachers' salaries and benefits made those dream jobs over the private sector? Teachers and state employees will receive less in Michigan soon. Learn from this and tie wages and benefits to the consumer price index, they are now in a no-lose position. All of us have received a raise by virtue of the index dropping - the rules of deflation apply to everyone.

16. Become ruthless cost-cutters

17. Scrap your asset allocation investment model used by the permanent fund and pensions. It has failed - holding to this model will cost us billions more.

18. Freeze property taxes. You already know home and property prices have declined for everyone.

Education of deflation and it's effects could make Alaska among the winners and will provide an expanding tax base for the government, whereas belief in inflation will burden us with shortsighted government policy that will be doomed to fail. The lessons of deflation are being played out now and Alaska needs to take action or face the crisis which is coming soon.

• Bob Andres is a resident of Wasilla.

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