Recently we’ve been hearing how much money Alaska has as a result of abnormally high oil prices. And Governor Palin likes to flaunt her increased oil tax revenues before they are realized. But remember it was only five years ago, at the end of the Tony Knowles administration, that we were headed for real budget trouble as a result of decreasing oil revenues.

Part of Governor Murkowski’s initial plunge in popularity was the result of some emergency budget cutting to make ends meet. Still, we have continued to spend state money like drunken Democrats (not my term, but I like it.) During the lean years we took the liberty of drawing down our rainy day account, the Constitutional Budget Reserve, while continuing to increase spending.

Today, with oil prices hovering near $100 per barrel we’re in fat city. But we rely on an oil price of over $61 per barrel to support our lavish spending. It’s likely oil prices will stay high, but there is no guarantee, and the volume of oil we produce is only about 1/3 of peak production years. Our best bet for the future is to keep oil in the pipeline (i.e. drill in ANWR,) build the gas line, or both.

When dealing with this issue the Palin administration needs to keep in mind two basic economic truths:

1. The ideal tax rate for an industry might be something less than the rate above which a business or industry decides to go invest somewhere else. We cannot tax our way to prosperity. A strong economy is created by strong private industry. That’s where wealth is created. That’s where we get more jobs, income, money to spend and in the long run, more taxes. Government needs to create a favorable business environment to allow this to happen.
2. Economic benefits of a gas pipeline start with pipeline construction. It may take years before gas revenues start coming in, but the day construction begins  we will start seeing jobs, income, money and tax income as a result of private business investment here in Alaska.

Governor Palin is extremely popular, which translates to politically powerful. And she looks wonderful on the cover of Alaska Magazine. But in the end her success will be measured by whether she was able to sit down with the oil and gas producers and make the gas pipeline a reality.