Without new federal aid, Alaska’s pandemic-driven economic woes could become a long-term nightmare

Alaska saw far fewer foreclosures and bankruptcies though August of this pandemic-ravaged year than it had seen in the pandemic-free 2019, a state economist told the Legislature earlier this month. The 55 fewer bankruptcies and 127 fewer foreclosures seen this year highlighted the effectiveness, he said, of federal assistance and underlined the need for continued help.

“A big question,” said Department of Revenue Chief Economist Dan Stickel, “is what these indicators look like over the rest of the fall with federal support and limitations on foreclosures and bankruptcies tapering off. If there isn’t further federal stimulus, it’s possible these indicators could start to look really bad and Alaskans could be looking to the state for help.”

Three weeks later and we still don’t have any clarity on when or what—if any—federal stimulus will be reaching Alaska as Congress remains gridlocked over the issue while Democrats push for an expansive relief package and Republicans balk at the price tag and focus their efforts, instead, on confirming a conservative U.S. Supreme Court Justice.

This week, we talked with respected Alaska Institute of Social and Economic Research economist Mouhcine Guettabi about the situation, what he’s concerned about and what it could mean for Alaska. Alaska is in a precarious position where federal aid has largely helped prop up Alaska while the pandemic erased the tourism season and put parts of the oil industry on hold, he said, and as that help expires, it could leave long-term scars on Alaska’s economy.

“The first round of stimulus was obviously very, very large and it raised the economic floor of activity meaning that it makes things seem a lot better than they actually are,” he said. “At least initially we had a very bad jobs shock, but we did not have an income shock because of the generosity of the federal aid. Now, of course, that’s expired, the unemployment insurance payments expired, the economic impact payments were received months ago so we’re in that weird place where a lot of money has come to Alaska and every other state and a lot of people’s finances, at least in the short run, were doing OK.”

He said judging the health of the economy can be tricky when there are so many different metrics to consider. He doesn’t put much weight to the stock market but instead looks at data—like unemployment claims, foot traffic, wages and even how much money banks are setting aside in case loans default—available through tools like tracktherecovery.org.

He noted that unemployment claims jumped last week with 6,000 new claims. It’s down from the start of the pandemic, but it’s starting to trend upward again, suggesting that Alaska’s economy is still weak. What he’s particularly concerned about are long-term problems for the economy, like bankruptcies, closing businesses and long-term unemployment.

“Eventually, if you don’t have either the economy on its own recovering or more aid, you’re going to have the health of the consumer start to get impacted in a way that’s really hard to fix,” he said. “Some of these issues are much easier to fix in real-time than to fix an issue like having 20% of businesses go under or having 20,000 Alaskans be long-term unemployed. Once you have these long-term issues, talks about the recovery become really complicated.”

Simply put: It’s easier and ultimately cheaper to keep existing businesses open than it is to usher in new businesses, easier to keep people in their homes than it is to help the homeless get back on their feet and easier for the economy to recover when it’s not bogged down by bankruptcies.

And, he said, the sooner we address that the better.

“I think that time is of the essence,” he said. “It’s important to try and mitigate and minimize the damage right now as opposed to looking six months from now and asking what we can do now that so much damage has been done.”

As for whatever stimulus is eventually agreed upon by Congress, Guettabi said he hopes that aid is delivered to where it’s needed most and, ideally, in a way that’s tied to the reality of the pandemic and not artificial deadlines.

“Aid that is directed at places and industries that have been the most affected and it needs to be tied to some sort of economic metric. The problem we’ve had thus far is the aid has had these artificial endpoints and, obviously, the virus is determining the path of this economic recovery,” he said. “I’d rather there be more money than less of it floating around in terms of the economic recovery.”