Alaska and the United States in 2045.

• Author: Roy, Ashok K.
• Position: SPECIAL SECTION: Economic Outlook

"I never think of the future--it comes soon enough."

--Albert Einstein

"For time and the world do not stand still. Change is the law of life. And those who look only to the past or the present are certain to miss the future."

--John F. Kennedy

Thirty years from now, in 2045, some key challenges that Alaska and the United States will face relate to growth, which will become increasingly dependent on knowledge and technology while the economic costs of environmental damages will mount. The rising economic importance of knowledge will likely lead to further increases in income inequalities. There will also be policy challenges from rising trade integration, substantial fiscal pressures, burgeoning population growth, and addressing rising climate change costs. My goal is not omniscience but preparedness by pro viding broad outlooks for Alaska and the United States.

Diversify State Revenue Base

Readers might recall that in my October 2012 article titled "Strategies to Prepare Alaska for the Economic Marathon" I recommended that Alaska needs to diversify its revenue base as early as possible as almost 90 percent of its general fund revenues come from oil (production tax, petroleum property tax, corporate income tax, royalties from state-owned lands) and more than 50 percent of today's jobs and income in Alaska can be traced back to petroleum. Alternative fuels and technologies are likely to substitute petroleum in the coming decades. The markets will ensure that money/investments go wherever there is opportunity.

The biggest shift in global energy markets is that the United States is producing an unprecedented amount of oil now with geopolitical fallout. Apart from crude oil prices, alternative fuels, higher efficiency vehicles, natural gas, shale oil deposits, biofuels, and stagnation of world economies all cumulatively point to great vulnerability ahead due to Alaska's over-dependence on oil revenues.

It needs to be emphasized that it is not a question of volatility of "prices" but that of "demand" for petroleum. It is a distinction with a difference.

Minerals, fish, wildlife, or timber cannot replace or make up the difference in revenue declines from petroleum to sustain Alaska's economic future. And, this, in turn, will have ripple effects on the University of Alaska (currently receives approximately 46 percent of its revenues from the state); housing (which is driven by jobs and income, and, in turn, the local banks who finance housing)...