Alaska is part of the solution to AGI
AGI economy series - Nr. 7
“Welcome to Alaska - here is a thousand dollars!”
Do you remember that scene from The Simpsons Movie (2007) in which Homer and his family drive through the US-Canadian border to Alaska and a friendly official hands them free money?
In a blog post, Sam Altman, the CEO of OpenAI, has suggested a similar plan for the entire United States. However, whereas the Alaska dividend is funded by oil, the dividend envisioned by Altman would be primarily funded by large tech companies. Altman expects that by 2031 “each of the 250 million adults in America would get about $13’500 every year”.
On the surface this sounds a lot like universal basic income (UBI). However, the Alaska model is better described as a universal basic dividend. Specifically, the Alaska model combines three characteristics:
resource-based revenue
invested into a permanent investment fund
whose returns are distributed to citizens
The intermediary second step which transforms a revenue stream into a permanent fund is missing in most UBI proposals and is important for long-term viability. Furthermore, in contrast to a UBI, a universal basic dividend is not a fixed entitlement to a specific amount of money. The size of the universal basic dividend depends on how the underlying assets perform.
Hence, a universal basic dividend can address some of the timing and financing challenges that a UBI has. Specifically, if the underlying assets correlate with the growth of the machine economy, the fund’s value and payouts will increase in a scenario in which humans run out of new jobs. Furthermore, in contrast to a robot tax it does not slow down the process of innovation.
1. How the Alaska model works
The ‘Alaska dividend’ is not literally handed out to anyone driving into Alaska as in the Simpsons Movie. However, it is very real. In 2024 it was set at $1’702 per resident. Hence, if the Simpsons were residents of Alaska, the family of five would be eligible to receive $8’510 from the state - no strings attached.
The history of the ‘Alaska dividend’ can be summarised in four milestones :
1956: Alaska ratifies a constitution recognizing joint ownership of unoccupied land and natural resources.
1967: North America’s largest oil reserves are discovered on publicly owned land, the Prudhoe Bay Oil Field on Alaska’s north coast.
1976: As the oil exploration moves forward, the Alaskans voted to invest a part of the yearly oil revenues in the Alaska Permanent Fund, a public wealth fund.
1982: The Alaskan government votes to distribute part of the returns from the Alaska Permanent Fund through the Permanent Fund Dividend, an annual payment to residents .
Why a permanent fund?
Oil drilling provides a substantial but temporary windfall. By investing oil profits in a diversified portfolio that includes the stock market, private equity, bonds and real estate, the period in which that windfall can benefit Alaskans is extended. In the words of Jay Hammond, governor of Alaska from 1974 to 1982, “I wanted to transform oil wells pumping oil for a finite period, into money wells pumping money for infinity.” In economics, this is known as Hartwick's Rule. Governments can invest the profits from depleting non-renewable resources, thereby turning them into renewable economic resources.
For contrast, consider Venezuela which also has resource-based revenues from oil and distributed a significant share of this revenue to citizens but without any intermediary sovereign wealth fund. Initiated by its socialist President Hugo Chávez in 1999, the National Mission System or “misiones” are social programs aimed at reducing poverty, improving healthcare, education, and housing. They include heavy subsidies on basic goods, including food and fuel. These programs are pay-as-you-go schemes funded by oil revenues from the state-owned company Petróleos de Venezuela. Consequently, when oil revenues started to collapse around 2014 these programs could no longer be sustained.
What is invested in the permanent fund? Not all oil proceeds in Alaska go to the fund. About 12% of oil revenues are invested into the permanent fund.1 The rest is used for state government spending. Oil represents about 85% of overall Alaskan government revenue.
How is the annual dividend set? The dividend varies from year to year and is primarily based on the performance of the fund smoothed over 5 years.2
The basic argument for the Permanent Fund Dividend is simple: the state’s oil is part of the commons and belongs to all citizens. Yet, if this argument works for oil, could it also be applied to other resources?
2. Universal basic dividends can be backed by anything
There have been many proposals for universal basic dividends, in which all citizens would receive a share of the profits from publicly-owned or publicly-managed assets.
Land: Thinkers such as Thomas Paine (Agrarian Justice, 1797), Joseph Charlier (Territorial Dividend, 1848) and Henry George (Citizen's Dividend, 1885) argued that land is a natural asset belonging to all citizens, and that the profits from the privatisation of land should be shared with the population.
Environment: Environmentalists have argued that natural resources like air and water are common assets that should benefit all. For example, Peter Barnes has proposed a “Sky Trust” financed by carbon credits. The state of Vermont has considered a “Common Assets Trust” with a number of natural assets.
Gambling: Since 2008 Macau, the Las Vegas of China, has established a Wealth Partaking Scheme, which is based on the government fiscal surplus. The surplus is itself largely financed from taxes on casinos.
Stocks: Ideas include a social wealth fund funded by a 0.5-1% tax on the ownership of shares in the top 100 UK-listed companies or a UK Sovereign Wealth Fund that receives a percentage of capital stock from every initial public offering (IPO). The economist Yanis Varoufakis has proposed a similar universal basic dividend based on a share from IPOs.
3. Sam Altman’s American Equity Fund
Sam Altman has long had some concerns about the economic disruption that AGI may cause. He already stated his support for UBI a decade ago, and went on to fund a 3-year long UBI trial through OpenResearch Lab which recently finished.
However, the most concrete public policy proposal which he has put forward in a 2021 blog post is a universal basic dividend rather than a UBI. Specifically, Altman suggests:
taxing companies above a certain valuation 2.5% of their market value each year, payable in shares
taxing 2.5% of the value of all privately-held land, payable in dollars
This is based on the idea that the two dominant sources of wealth in the future will be “companies, particularly ones that make use of AI” as well as “land, which has a fixed supply”. These taxes would go to an American Equity Fund, which in turn makes an annual distribution to all citizens over 18 in dollars and company shares. The investment horizon of the American Equity Fund is left undefined.
Challenges
One key challenge that a national dividend cannot address is global coordination and fairness. The United States has a much greater ability to tax large corporations than other countries. However, even the United States is affected by corporate tax avoidance. To address the global challenge a further mix of measures such as a Windfall Trust and a minimum level of international coordination on the taxation of large corporations may be needed.
Another key challenge to be aware of is that current universal basic dividend projects are complements and not a replacement of labor income. We will examine what it would take for asset-backed non-labor-income to scale to a level where citizens could live off it in an upcoming post.
Exporting the Alaska model
The Alaska model is part of the solution to handle the potential shock of AGI on the economy. It can provide a broad set of people with non-labor income, which can be designed to scale with the machine economy avoiding some of the timing and financing issues of a UBI. In short, more regions and countries should look into the possibility of asset-backed public wealth funds that create dividends for their citizens.
Thanks to
, , and other Roots of Progress blog-building fellows for valuable feedback on a draft of this essay. All opinions and mistakes are mine.The 1976 constitutional amendment stipulates that at least 25% of mineral royalties must go to the Alaska Permanent Fund. However, mineral royalties are only about half of Alaska’s oil revenue. Severance and property taxes paid by oil producers also constitute a large share and they were not mentioned in the constitutional amendment.
This is to ensure that dividends are not interrupted in the occasional years when the fund loses money on its investments. The fund does not pay out its entire earnings. It keeps an earnings reserve to offset the cost of inflation on the principal.