Alaska’s use of its oil wealth could hold the key to alleviating America’s growing rates of poverty and income inequality.
Over the past 30 years the United States has experienced two interconnected equity booms that have generated a vast amount of wealth: the tech and stock market booms. By June 2015 the two largest U.S. stock markets, the NASDAQ and the New York Stock Exchange (NYSE), were worth around $27, trillion according to CNN. For the record, the NYSE was worth $19.7 trillion and the NASDAQ $7.4 trillion.
One of the major engines of stock market growth has been driven by the technology sector, which is steadily replacing Wall Street as America’s center of economic power. The wealth of some of the technology companies is staggering: Apple Inc. (NASDAQ: AAPL) had $41.6 billion in the bank on September 30, 2015, Cisco Systems (NASDAQ: CSCO) reported having $59.11 billion the bank on October 31, 2015, Oracle (NYSE: ORCL) had $52.34 billion in the bank on November 30, 2015, Microsoft (NASDAQ: MSFT) had $99.36 billion in the bank on September 30, 2015, and Alphabet (NASDAQ: GOOGL)—the company formerly known as Google—had $72.77 billion in the bank on September 30, 2015.
Yet average Americans have not shared in this bonanza; only around 52% of Americans say that they own stocks, according to Gallup. Meanwhile, around 90% of Americans that make $75,000 or more a year reported that they owned stocks.
Average Americans Are Getting Poorer
This partially explains why the percentage of middle-class Americans fell from 61% to 50% between 1971 and 2015, according to Pew Social Trends. More disturbingly, the percentages of lower income Americans grew from 25% in 1971 to 29% in 2015. That means nearly 30% of Americans can now be considered lower income, which is a euphemism for poor.
The numbers prove that income inequality and its ugly stepchild, income insecurity—better known as poverty—in the United States are real and growing problems. This inequality is what is driving the growing levels of civil unrest, class warfare, racial strife and political extremism plaguing the United States right now.
Unfortunately, our political leaders have come up with few solutions to these problems. Instead, they keep suggesting fixes to income inequality that could have little or no effect on the underlying problem, such as raising taxes, increasing the minimum wage, expanding union membership and tax cuts. Some of these fixes seem hopelessly outdated, while others look more like soundbites designed to please interest groups rather than solutions.
Alaska’s Possible Solution to Income Inequality and Insecurity
Alaska faced a very similar problem back in the 1970s when its economy and state treasury were flooded with oil money. Faced with that windfall, the state’s people did something interesting; they set up something called the Alaska Permanent Fund.
The state constitution was amended to place at least 25% of the oil profits in the Fund, from which they could be reinvested in stocks, bonds and other instruments. The Fund is currently worth around $52 billion, and it is administered as a state agency.
Each year the fund makes a payment taken from the profits it earned in the past year to each resident of Alaska. This year in October every resident of Alaska received around $2,000 from the Permanent Fund. This makes the Alaska Permanent Fund one of the world’s most ambitious and successful basic or guaranteed income schemes.
Alaska’s experiment in basic income has been successful in alleviating poverty and income inequality. Data from the U.S. Census Bureau indicates that Alaskans are richer and less likely to be poor than other Americans.
The average annual household income in Alaska was $70,760 in 2014, while the average household income in the United States was $53,046 a year in 2014, the Bureau reported. Around 9.9% of Alaska’s population lived below the poverty rate, while 15.4% of Americans lived below the poverty rate in the same period.
Could Alaska’s Basic Income Experiment Work Nationwide?
If Americans are serious about alleviating poverty and income inequality, we need to take a close look at Alaska’s basic income experiment. We should ask ourselves if something like the Alaska Permanent Fund could work on a nationwide basis.
A possible scenario would be to place a tax on wealth or assets, or a national sales tax. Then place all or most of the proceeds of the tax in a permanent income fund that would finance a basic income scheme or a negative income tax—a payment based on a person’s income level. This fund could be augmented by a tax on exported oil since U.S. oil exports are about to resume. The system could make payments to all citizens under a certain level of income or to all Americans.
This is not as farfetched as it seems. America’s existing national basic income program, Social Security, already makes regular payments to around 65 million Americans. That means a nationwide basic income scheme is logistically feasible, and we already have part of the structure for it in place.
The serious weakness with Social Security is that it is financed by a tax on middle-class wages. The middle class is declining; as Pew noted, its funding is slowly disappearing. Serious reform of Social Security will be necessary at some point to keep it viable; a National Permanent Income Fund could do that and expand the program to all who face income insecurity—a percentage of Americans that is steadily growing.
The question Americans need to ask is, do we want to actually do something about income inequality and income insecurity as Alaska has done, or do we want to let these scourges spiral out of control and rip our nation apart?