News analysis
Alaska appears to be weathering its current recession much better than the big crash of the 1980s, according to the latest figures from the state Department of Labor, but there could be an energy crisis looming on the future.
A crisis not of oil, gas or electric power, mind you, but of human energy.
The news was easy enough to miss in the State of the State report labor economist Neal Fried delivered to the Alaska Resource Development Council on Wednesday. The report was heavy with the economics of the current recession, which is bad but not as bad as some feared.
The 1.8 percent employment loss of 2016 shrunk to 1.7 percent this year. The state lost another 5,600 jobs in the last fiscal year, about two-thirds of them in the oil industry and construction. But that was expected as a result of low global oil prices.
Jobs disappeared in the oil patch because of the slacking demand for crude; and jobs were lost in construction because Alaska state public-works spending, which is driven by the cash from oil royalties and taxes, plummeted.
The good/bad news – or was it the bad/good news – was a big jump in health care jobs. They were up by 1,800 in part because of Alaska’s aging population.
Youth and enthusiasm
In a telephone interview Thursday, Fried was quick to tamp down the conventional wisdom that the weathered demographic framework of the moment indicates Alaska suffers from a “brain drain.”
For every young Alaskan who flees for better job opportunities elsewhere, he said, one-plus in the 20-to-40 age group migrates north to Alaska. But the plus there isn’t what it used to be.
State demographers are now expecting the population of 20 to 29 year olds to fall 5 percent for the decade between 2015 and 2025. Growth is forecast to remain healthy – 12 percent – in the productive 30 to 39 group, but the shrinking number of younger Alaskans poses problems.
“It may make it hard for some employers to find workers,” Fried said.
A lot of entry-level service jobs are filled by those ages 20 to 29. But the shortage of young people to wait the counter at McDonald’s or drive the bus from the airport to the Westward Hilton isn’t the issue.
An aging workforce isn’t a problem unique to Alaska. Most of the Western world is wrestling with a demographic shift from the young to the old as birth rates fall and lifespans grow. The peak of the bell curve of human life expectancy has steadily moved to the right, and with it, the demographics of average ages.
Alaska has followed that trend. A state with a median age of 23 in 1960 now has a median age of 34.5. That lags behind the national average of 37.6, but it is a long way from where Alaska once was.
The meaning?
This aging of Alaska might not have brought significant economic decay to the 49th state. At least not yet. But one has to wonder about the psychological change.
The propensity for taking risks diminishes as people age, and Alaska history seems to track a state whose citizens have gone from embracing risk to opposing almost any change in the status quo.
An Alaska answer to the failure of American Indian reservations, the Alaska Native Claims Settlement Act driven by then young people like Willie Hensley and Charlie Edwardson dates to 1971. The Alaska Permanent Fund came along in 1980 and though the late Gov. Jay Hammond now gets all the credit, there were then young men like Hugh Malone and Terry Gardiner pushing the proposal hard.
Malone’s efforts started in 1975. A Kenai lawmaker who died early at age 61 in 2001, he was then 37, which qualified him as an elder Alaska statesman. Gardiner, who was first elected to the state House at age 22 and was destined to become the youngest Speaker in Alaska history, was more representative of the times.
Alaska throbbed with youth and energy through the 1970s into the 1980s. The transAlaska Pipeline System was built then, and the Alaska lands battle fought to determine which corners of the 49th state would be forever preserved for parks and refuges and which would be opened for development.
One can fairly wonder if there wasn’t too much youthful enthusiasm.
Alaska charged head on into a major 1980s recession made worse by people taking big financial risks, and afterward nothing was really ever quite the same. Alaska emerged from that recession into a period of unparalleled prosperity and for decades rode comfortably along on oil production that pumped dollars into both the private and public sectors of the economy.
Simply put, Alaskans got fat and comfortable, and the people who in the 1970s wanted to rock the world by changing everything became people who didn’t want to change much of anything.
Today
And here we are in 2017, led by a 66-year-old governor whose economic vision for the state’s future is tied to the now 41-year-old idea of building a gas pipeline from Alaska’s North Slope to tidewater.
He and other old Alaskans, with the notable exception of Central Alaska entrepreneur Bernie Karl, have managed to keep the gas locked in the box of conventional thinking for a generation. Little serious thought has been given to possible other ways gas might be monetized, be that Karl’s idea for metrol, a hydrogen fuel that can be made from natural gas, or the production of carbon fiber, the steel of the future; or for an old ARCO (now Conoco-Phillips) idea to build natural gas power plants on the North Slope to produce electricity to ship south.
Powerlines are considerably cheaper and easier to build than gas lines, and high-efficiency DC power systems are now being used to move electricity over great distances. Norway and the United Kingdom in 2015 agreed on plans to build an undersea powerline linking the two countries.
“The agreement with Norway will save UK households up to £3.5bn ($4.6 billion) over 25 years by importing cheaper electricity, according to an estimate by Britain’s energy regulator Ofgem,” reported The Guardian.
Robert Jacobsen, an astrophysicist who once worked for ARCO, told a 2012 energy conference that ARCO studied the powerline idea, concluded it would be economically viable, and then “canned it” because the state was fixated on a natural gas pipeline, the Anchorage Daily News reported.
That fixation has long stymied consideration of alternative ideas.
Paul Metz, an engineering professor at the University of Alaska Fairbanks, in 2013 suggested that a $5.2 billion investment in extending the Alaska Railroad from Fairbanks to the North Slope, an investment about a tenth of estimated gas pipeline costs, could fundamentally alter the economics of new oil development – putting another 400,000 barrels of oil per day in the pipeline – and pave the way for development of North Slope copper deposits.
With oil at $85 per barrel (a reasonable estimate in 2013 that is now way high), he calculated the state stood to take in $1.6 billion a year in royalties alone. At today’s oil prices, the projected royalty income would be closer to $900 million, but it really doesn’t matter because Metz’s idea never generated any serious consideration anyway even if the boom in electric cars has made copper an increasingly valuable commodity.
Some are viewing it as the “metal of the future.”
But potential non-gasline investments in infrastructure don’t get much serious attention in the 49th state because the state’s political leadership is devoted to trying to protect the capital necessary for a $45- to $65-billion pipeline.
They are old people locked into an old idea, and that appears likely to get worse before it gets better.
Future blue hairs
As an Alaska population now at 740,000 grows toward 805,000 in the year 2025, about two-thirds of the increase of 65,000 is expected to be composed of those over the age of 65.
These Alaskans will, in general (there are always exceptions) take fewer risks than younger Alaskans, produce less and undoubtedly require more public services.
Fried had two words to explain what is going on: “Baby boomers.”
But he admitted there is more to it than that. A lot of young people flocked to Alaska in the 1970s due to a couple of factors. One was a back-to-the-earth groundswell that followed the first Earth Day in 1970 and the other was the start of construction of the oil pipeline which created a lot of jobs in Alaska.
Fried was one of those immigrants. Born in Washington, D.C., he grew up in Austria and arrived in Fairbanks in 1973 to attend the University of Alaska, a school on the outskirts of a struggling community of 15,000 primed to explode with pipeline construction.
Fried never left.
“Alaska is the only place in the United States as a conscious human being I have lived,” he told the King Career Center in a mini-profile. “It has been a wonderful ride, so why would I leave?”
Fried was one of the young who saw adventure and opportunity in Alaska, found a niche here, and has settled in comfortably to begin sucking up some of the bennies available to older Alaskans: free hunting and fishing licenses, reduced taxes, senior discounts and more.
“I feel sorry for the younger generation that will have to support us,” Fried admitted.
One of his kids has already bailed out for the Lower 48 and a tech job, and Fried concedes that the back-to-earth movement that brought north a lot of young people with energy in the 1970s is over. The energy has shifted back to urban areas.
The “Urban Revolution” that author Jeb Brugmann predicted in the 2010 book of the same name, appears to be well underway. Americans now cluster heavily in and around urban areas with Alaska no exception to that new norm.
The Anchorage Metropolitan Area, which the U.S. Census Bureau defines to include the bedroom communities of the Matanuska-Susitna Borough, now contains more than half of the state’s population.
And increasing numbers of these people are starting to age out of the work force, something that concerns both economists and sociologists.
Productivity
They have been nervously watching aging populations in Europe and Japan and carefully tracking this phenomenon in Uruguay.
A small country with just over three million inhabitants, Uruguay has become the focus of a World Bank case study on demographic change and the economic challenges that come with an increasingly older population.
What researchers have found is that “productivity is the main challenge of a country with an aging population,” and that public costs can become troubling.
“If there are no changes in policies, the percentage of gross domestic product (GPD) allocated to basic social services (health and education) and social protection will increase from less than 25% in 2013 to nearly 43% in 2100,” the authors of the world bank study warned Uruguay.
“Not only will there be more people requiring health care services but the relative costs of the services necessary for the older population will also be higher since the typical illnesses of this population demand more complex, costlier treatments. Treating an infection in a child or adolescent is much easier than treating chronic diseases in older adults.”
Alaska is starting to see some of the same issues. The link between a steady increase in Alaska health care jobs and the increasing number of older Alaskans seems obvious.
The World Bank suggested Uruguay needs to head off the oncoming problems of a population skewing old by:
- Building a better educational system to produce quality human capital capable of upping economic productivity; Alaska is failing there. Alaska has an expensive school system cranking out mediocore students. Eight-five percent of 10th graders fail to meet the national standard for math.
- Increasing economic productivity through innovation and adaptation to technological change. Alaska shut down its Science and Technology Foundation more than a decade ago, and seems to be banking its future on a natural gas pipeline that economic markets just don’t seem to want.
- And boosting local savings in order to increase the capital available for local investment. Alaska has long been a loser in that regard. It ships a lot of its wealth south in the form of unprocessed natural resources. The wealth, and the savings that go with it, accumulates elsewhere when those resources are processed. Alaska’s wealth collection has largely come in the form of royalties and taxes on crowd oil, which has made government the source of a lot of investment.
A very red state, Alaska is on many levels also a very socialist one. That’s not a bad thing. Alaska is sitting on a government-controlled Permanent Fund worth $62.5 billion thanks to taxes on oil, but don’t expect Alaskans to start talking about how to use that money to build a new economic future.
The consensus seems to be to hold tight on safe investments and use most of the revenue from that to pay dividends and/or fund public services. Sound like a perfect retirement strategy, doesn’t it?
Grumpy old men
The only good news for Alaska might be that although the number of grumpy old men (and a few women) is steadily growing, things could be a lot worse. Those over 65 will still only represent about 15 percent of all Alaskans by 2025.
Twenty-five percent of the Japanese population is already over age 65 along with more than 16 percent of the Canadian population.
“Japan, in many ways, is now grappling with the same demographic time bomb looming before Canada and much of the industrialized West over the next 10 to 20 years. But Japan’s government, businesses and society are facing these challenges earlier than others, allowing the world to learn and benefit from their stumbles, innovations and experiments,” Canada’s Globe and Mail reported as part of a week-long series on aging in 2015.
This is a demographic octopus with long tentacles.
“In Japan, there are more diapers for adults than babies,” writes Eliane Schwarz at EconLife.
“Meanwhile, retailers have slowed down their escalators. And kitchen appliance makers are making them shorter because, after shrinking a bit, an average Japanese elderly woman is slightly under five feet tall.”
For long-established societies in places with well-developed economies, these are changes that can be accommodated, even economically exploited.
“Prime Minister Shinzo Abe’s administration is concerned about how Japan’s aging and shrinking work force will slow down the national economy,” wrote the Globe’s Iain Marlow. “One piece of Mr. Abe’s so-called Abenomics revival program – which also includes getting more women in the workplace – is an emphasis on new medical technologies, including experimental regenerative medicine and cell therapy. The hope is that with two new acts governing regenerative medicine to help commercialize technologies more quickly, the Japanese government can save money on future health care costs while spurring the creation of a valuable new industry – particularly in bio-medical hubs such as the one in Kobe, which features a gleaming new mini-city of medical buildings, research centres and hospitals on a man-made island near the port city’s airport.”
But that’s easier in Japan with a homogenous culture and diversified economic base than in Alaska with one of the most diverse populations in the U.S. and a resource-centric economic base.
Still, there might be opportunities. Maybe Alaska businesses that market “Alaska Before You Die” to the world’s aging baby boomers could put more seniors to work as tour guides.
Elders are sure to look like they know something even if they don’t, and the tourism business, one of the state’s few growth industries these days, is going to need more bodies going forward. Fried noted Alaska tourism is quickly closing in on 2 million visitors per year, which is a good thing.
If, of course, you’re one of those Alaskans who like an industry that actually brings dollars into the state. On the other hand, you could be one of those who doesn’t like the increasing number of tourists any better than you like any other change, and then those people would clearly be a bad thing.