As those who keep current with our daily posts know, we recently have been having some “conversations” with popular artificial intelligence (AI) chatbot Chat GPT about Alaska fiscal policy. To be honest, we have been surprised at how much it “knows” about the issue.
During the past couple of weeks, we’ve posted a few of the responses it has given to questions we have asked as part of our conversation. Here is an example.
Us: Who benefits most from cuts in the Alaska PFD?
A. It is difficult to identify a single group of people who benefit the most from cuts in the Alaska Permanent Fund Dividend (PFD). However, it is likely that those who stand to benefit the most are individuals and groups who do not rely on the PFD as a significant source of income, such as higher-income Alaskans, out-of-state residents, and businesses.
Cutting the PFD could potentially benefit higher-income Alaskans by enabling the state to avoid implementing other forms of taxation that could impact them more significantly, such as an income or sales tax. Additionally, out-of-state residents who own property in Alaska but do not receive the PFD could potentially benefit from cuts to the dividend.
Businesses could also potentially benefit from cuts to the PFD, as it could enable the state to avoid implementing taxes or other measures that could impact business operations. However, it is important to note that businesses also rely on the spending power of Alaskans, and reducing the PFD could potentially impact consumer spending and economic activity in the state.
Overall, while it is difficult to identify a single group that benefits the most from cuts to the PFD, it is important to carefully consider the potential impacts on all Alaskans before making a decision.
Us: Is the Alaska PFD socialism?
A. No, the Alaska Permanent Fund Dividend (PFD) is not socialism. Socialism is a political and economic system in which the means of production, distribution, and exchange are owned and controlled by the state or by the community as a whole, with the goal of creating a more equal distribution of wealth and resources.
The PFD is a program that distributes a portion of the state’s oil revenue directly to Alaskan residents, with the goal of providing financial support and economic stability to individuals and communities in the state. The program is funded by the Alaska Permanent Fund, which is a constitutionally created sovereign wealth fund.
While the PFD may be seen as a form of social welfare or government assistance, it does not constitute socialism. The program does not involve the government taking control of the means of production or distribution, and it does not seek to fundamentally transform the economic system of the state or country. Instead, it is a targeted program designed to provide financial support and economic stability to Alaskan residents.
Given that level of engagement, as we thought about the subject for this week’s column, we thought we would ask Chat GPT that as well. Here’s the exchange:
Us: What type of chart best explains Alaska’s current fiscal situation?
A. There are several types of charts that could be used to explain Alaska’s current fiscal situation, depending on the specific data and information that are being presented. Here are a few possibilities:
- Line chart: A line chart could be used to show the trend in Alaska’s revenue and spending over time. This type of chart could illustrate how revenue has decreased in recent years, while spending has remained relatively flat, resulting in large budget deficits.
- Bar chart: A bar chart could be used to show the breakdown of Alaska’s revenue and spending by category. This type of chart could illustrate how Alaska’s revenue is largely derived from oil production, while spending is dominated by areas such as education and healthcare.
- Pie chart: A pie chart could be used to show the proportion of Alaska’s budget that is made up of different categories of spending. This type of chart could illustrate how a large portion of Alaska’s budget is dedicated to areas such as education and healthcare, while smaller portions are allocated to areas such as transportation and public safety.
Ultimately, the best type of chart to explain Alaska’s fiscal situation will depend on the specific data and information that are being presented, as well as the audience and purpose of the presentation.
We’ve done most of these in various forms in past columns but never collected them in one place. If they are the ones that Chat GPT thinks “best explains Alaska’s current fiscal situation,” we thought it would be worth the effort. So, here they are.
1. Line chart: A line chart could be used to show the trend in Alaska’s revenue and spending over time. This type of chart could illustrate how revenue has decreased in recent years, while spending has remained relatively flat, resulting in large budget deficits.
We actually did this one a couple of weeks ago as part of our explanation about why we view the deficit expressed as a percent of Alaska adjusted gross income (Alaska AGI) as an important fiscal measure. Here is the chart again. Revenues are in blue, spending in red and deficit levels are the pink-shaded area in between.
The historic period from FY2010 through FY2023 is on the left, while recent projections for FY2024 through FY2032 are on the right. As those who have used it will know, one of the current limitations of Chat GPT is that it has “limited knowledge of world and events after 2021” (the middle of FY2022).
As Chat GPT anticipated, this chart “illustrate(s) how (as of 2021) revenue has decreased in recent years, while spending has remained relatively flat, resulting in large budget deficits.” While oil prices – and thus, revenues – temporarily spiked after that point, deficits have persisted nevertheless, with the projection, based on current information and the state’s current approach, that they will continue unabated over the next decade as well.
2. Bar chart: A bar chart could be used to show the breakdown of Alaska’s revenue and spending by category. This type of chart could illustrate how Alaska’s revenue is largely derived from oil production, while spending is dominated by areas such as education and healthcare.
We did a version of the revenue bar chart back in January, showing the source of revenues averaged over the period from FY2017 – 2023. Here’s the result:
While revenues derived from oil production certainly are the largest single source of revenue, of some surprise even to us was that tax revenues in the form of PFD cuts (what ISER Professor Dr. Matthew Berman calls the “most regressive tax ever”) rank second, exceeding even the portion of the percent of market value (POMV) draw remaining for government under current law (after deducting the current law amounts designated for the PFD).
Some dispute the classification of PFD cuts as revenue, arguing that the diversion of a portion of the PFD to government should be considered as reductions in spending rather than revenue.
So, we asked Chat GPT what it thought. Here’s its answer.
Q. Are diversions of a portion of the Alaska PFD to state government cuts to spending or revenue to government?
A. Diversions of a portion of the Alaska Permanent Fund Dividend (PFD) to state government are considered a form of revenue to the government, rather than a cut to spending.
When the state government diverts a portion of the PFD, it is essentially taking a share of the revenue that would otherwise have been distributed to Alaskan residents. This revenue can then be used to fund various programs and services provided by the state government.
On the other hand, if the state government were to cut spending in order to balance its budget, this would involve reducing the amount of money allocated to specific programs and services. This could result in a reduction in the quality or availability of those programs and services.
So, while both diversions of the PFD and spending cuts can be used as tools to address budget deficits, they represent different approaches and have different impacts on government revenue and spending.
On the spending side, the Legislative Finance Division (LFD) annually does what it refers to as a “swoop” graph, breaking down spending by category in the form of a bar chart. Here is the page from LFD’s FY2024 “Overview of the Governor’s [Budget] Request” that sets out this year’s swoop graph:
Reflecting its statutory designation, prior to 2017, the LFD classified the PFD as either “other” or “designated general funds.” Beginning that year, however, LFD unilaterally began treating the PFD instead as the largest category of “unrestricted general fund spending” (UGF).
As we explained in a previous column, that treatment is a politically motivated “budget gimmick,” which violates even LFD’s own budget classifications.
Setting the treatment of the PFD aside, the bar chart does exactly as Chat GPT predicts, showing that “spending is dominated by areas such as education and healthcare,” with capital spending and statewide items occasionally contributing significantly as well.
3. Pie chart: A pie chart could be used to show the proportion of Alaska’s budget that is made up of different categories of spending. This type of chart could illustrate how a large portion of Alaska’s budget is dedicated to areas such as education and healthcare, while smaller portions are allocated to areas such as transportation and public safety.
This recommendation seems simply to convert what was demonstrated in the bar charts above into pie charts.
Here is the result on the revenue side:
Here is the result on the spending side for the FY2023 Management Plan for the categories that meet the LFD definition of UGF.
As anticipated by Chat GPT, the pie chart demonstrates “how a large portion of Alaska’s budget is dedicated to areas such as education and healthcare, while smaller portions are allocated to areas such as transportation and public safety.”
As we did earlier this week, we intend to continue our conversation with Chat GPT, posting a representative Q & A each Tuesday morning as part of our regular, early morning “7:35 am” series. We welcome those interested to follow along.
As have we, you might be surprised how much better it understands the state’s fiscal situation than many Alaskans.
Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies. You can follow the work of the project on its website, at @AK4SB on Twitter, on its Facebook page or by subscribing to its weekly podcast on Substack.