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Many political leaders in Alaska falsely believe that state income taxes and cutting the Permanent Fund dividend are solutions to our fiscal policy problem. Understanding some of the basic principles and current problems in monetary policy identifies a state bank solution not being considered by the advocates of taking money from Alaskans.
Keep in mind that fiscal policy is taxation and spending by government and monetary policy is control of the money supply and interest rates.
In our current economic system, new loans create deposits. New loans do not simply come from lending out deposits, do not come from reserves, nor do they multiply central bank money. New loans actually create new money.
Most new money comes from the loan origination mechanism of double-entry bookkeeping in banking systems and deficit spending by sovereign federal governments.
The root of the world’s economic problem for the past several decades has been the deregulation of banking creating a speculative predatory bubble, causing an expanding and unstable international debt pyramid that is crushing new, productive investments. This financial bubble will continue to plague the world economy with a series of future devaluations, some as severe as those that occurred in 2008.
Many private interests are attempting to pay down debts leftover from the last major devaluation and are borrowing at insufficient levels for new productive investments.
At the same time, most sovereign governments are failing to compensate for the lack of private borrowing, thus not allowing for an increase in the volume of money circulating for physical production — which is one of the primary factors of economic development and living standards.
Today, speculative transactions dominate finance, and there is a continuing global deficit in both public and private low-interest lending and grants for agriculture, industry, infrastructure, education, small business, health care, science and technology.
In the near future, there will be another rapid devaluation similar to the economic calamity that began in the year 2008. The question is whether governments have learned from their population-punishing mistakes of 2008 and will begin creating the financial mechanisms necessary to prepare for the next major devaluation.
In Alaska, the solution is to create a state development bank that leverages credit with our local banks and credit unions for physical production and productivity, puts a check on predatory gambling, facilitates federal asset purchases of Alaska investments, and protects Alaska from rapid financial devaluations.
The legislation to create the Alaska State Bank using these criteria was sponsored by Reps. Chris Tuck and Scott Kawasaki and passed through its first House committee as House Bill 376 by the 30th Alaska Legislature (2017-2018).
State income taxes are not the solution to our budgetary problem for the same reasons that cutting the Permanent Fund dividend is a bad idea. Income taxes and PFD cuts suppress the volume of money circulating in Alaska’s economy, do not address the root of our economic problem and do not prepare us for the next financial crisis.
Understanding some of the basics of monetary policy opens up the discussion to include new workable solutions that shift many investments that are currently in the state budget to the more efficient loan leveraging and loan origination potential of a state bank.
A few errors still need to be corrected in the Alaska State Bank legislation, but we have already begun a statewide conversation about creating a public bank in Alaska. Let us work together to prepare for the financial survival of Alaskans during the next economic crisis while building toward the future prosperity of our state and nation.
To learn more and participate in some of the discussions, go to the Alaska State Bank Advocate page on Facebook.
Charles E. Duncan is a former researcher for the Alaska Legislature and author of the 10-part series “Alaska Emergency Employment Mobilization.” His collected works are titled “The American System of Political Economy in Establishing Alaska’s Industrial Science Policy.”
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