|
Web posted
That is the prediction, at least, Robert Reich gave in Anchorage in January while speaking to members of the Anchorage Economic Development Corp. Reich is a noted economist, commentator and author. A professor of public policy at the University of California at Berkeley, Reich has served in three national-level administrations, most recently as President Bill Clinton's secretary of labor.
But $70-a-barrel oil? Less than 10 years ago, when oil was around $10 a barrel, such a thought would have been ludicrous.
Worldwide demand for oil and the products made from it are growing, and the stability in the nations that provide it weakens almost daily, Reich said. That will keep prices up.
"Oil prices will probably not go below $60 a barrel any time soon," he said. "China and India will continue to demand huge amounts of oil, meanwhile the oil supply is limited. Many places around the globe that sit on oil fields are experiencing political unrest."
Despite Reich's prediction, the price for West Texas crude did dip into the high $50 range for a few days in mid-February, before bouncing back into the $60 realm.
Big oil-producing countries, like those in the Middle East, Venezuela and Nigeria, are all in a state of civil unrest or flat-out war, Reich said. In such an environment, stable oil- and natural gas-producing economies - such as Alaska - could do very well.
With that news, many Alaskans don't know whether to dance a jig or sing the blues.
Alaskans have a sort of love-hate relationship with high oil prices. The state is both a supplier of oil and natural gas, but its residents demand their fair share, too.
On the one hand, expensive oil means larger oil revenues paid to the state. More revenues bring more money to spend on infrastructure and improving the overall quality of life for Alaskans.
Thanks to record-high prices throughout 2005, the state found itself with a budget surplus of $1.2 billion. Gov. Frank Murkowski has proposed to use much of the money to invest in a natural gas pipeline, to improve roads and build two controversial bridges, among other things.
Alaska just completed its 17th consecutive year of job growth, and things are looking good for the trend to continue into 2006. The economy is strong, the housing market is hot, and nearly $7 billion in construction projects are planned for the year.
But on the other hand, expensive oil means higher personal expenses, including gasoline for vehicles, and electricity and heat for homes. That means less disposable income on the consumer level.
Businesses too are hit with higher heating and fuel costs. And when they have goods shipped to the state, hefty fuel surcharges are tacked onto the bill, an added fee that often gets passed to the consumer.
The question is: Will the supply-side benefits outweigh the demand-side pain?
Two local economists say that, on balance, higher prices outweigh higher payouts.
Higher oil prices, as well as natural gas prices, not only mean higher reserve taxes to the state, but entices producers to spend more in exploration and production into previously uneconomic fields, said both state economist Neal Fried and Lee Husky, chair of the economic department at the University of Alaska Anchorage.
Strong prices have also prompted producers to enter into discussions with the state to build a $20 billion natural gas pipeline, a project that was deemed too expensive in previous years.
And on a nationwide level, all businesses are getting hit equally hard, Fried said.
"It puts everyone in a similar disadvantage," he said.
But both economists acknowledged that high prices are a vulnerable factor, one that could eventually slow economic growth and possibly put the nation in a recession.
"There is the potential for these prices to discourage other economic development," Fried said. Businesses could hold off on construction projects or wait to fill open positions, or fishermen could decide fuel would cost more than their catch would bring in.
Lower-income and rural Alaskans are the hardest hit on a personal level, Fried said. "Energy is a bigger piece of their budgets, and they have smaller budgets to spend."
The signs of the effects of high oil prices are already popping up on the national level, Reich said.
While the unemployment rate is improving, the numbers are not strong. Some economists believe many people have stopped looking for work, essentially dropping themselves out of the statistical unemployment radar.
Also, median wages nationally continue to decline when adjusted for inflation, Reich said, adding that working families are worse off today than in 2001, when the nation fell into a recession resulting from the Sept. 11, 2001, terrorist attacks.
Consumers, he said, are reaching the end of the road, and high oil prices are helping to drag them down.
"The biggest threat is consumers, whose paychecks are shrinking, who pay a lot more for health insurance," Reich said. "They save nothing, they are deep in debt, and they can no longer get money from home equity loans because the housing market is softening."
The new danger is the old idea of stagflation, where energy and health care costs result in inflation, while the economy becomes stagnant.
But so far, the world, national and state economies seem to be holding steady.
"It's surprising how the national and world economies are doing well with these prices," Fried said. "If you would have put these prices in front of economists a few years ago, they would have said a recession is coming. I don't know, maybe we're learning to live with it."
Melissa Campbell can be reached at melissa.campbell@alaska
journal.com.
|
