We all have a stake in the "economic stimulus" proposals being considered by our leaders, locally and nationally. Yet the economy is something so abstract, so complicated, it's hard even to grasp what it is, much less how to fix it.
With issues as urgent and confusing as these, it's helpful to get back to basics. First, let's remember that the global crisis now affecting Hawai'i was created by a combination of three things: 1) over-borrowing to fund excessive spending, 2) under-regulating key industries (particularly financial firms), and 3) over-depending on foreign imports, especially cheap oil. It makes sense that our response to the crisis should address these underlying causes of our pain.
We should also remind ourselves of longstanding local economic priorities – things like diversifying Hawai'i's economy, creating living wage careers, and making the cost of living here more affordable. And, we should recall the fundamental lesson of recessions past: Don't panic – don't sacrifice long-term recovery for short-term relief. History tells us that those who panic always lose biggest in a downturn.
With these basics in mind, it's easier to evaluate the local stimulus proposals currently being considered by Hawai'i's lawmakers. The package heavily emphasizes quick construction projects (roads and building renovations), deregulating business and development, increasing State spending on tourism marketing, raiding special funds and across-the-board cuts to balance the budget.
Some of the proposals are good, and even necessary. But as a package, they leave something to be desired. Taken together, they seem to emphasize short-term relief and leave out investments that address root causes and big-picture goals.
Some policies that might strike a better balance between relief and recovery include these five things:
Invest in our renewable energy infrastructure (rather than only roads and renovations) to set us up for long-term growth. Putting people to work building a 'smarter' electrical grid, adding green features to buildings, and constructing renewable energy projects would create jobs and unleash clean industries that promote long term priorities like diversifying the economy, reducing dependence, and keeping the cost of energy affordable in the long run.
Remove welfare requirements that punish families for saving. These requirements make families ineligible for public assistance (e.g., Foodstamps, Medicaid, or Temporary Assistance to Needy Families) if their savings exceed thresholds ranging from $2,000 to $5,000. Lifting them might seem a strange addition to a stimulus package, but it would let Hawai'i use federal welfare dollars to fuller effect, and temporarily put more money into the hands of those that need it most. Most importantly, it would stop punishing saving at a time when we should all be getting back in the habit.
Defend good regulations and investments. We need to steer clear of trying to stimulate the economy by removing requirements for environmental review or reducing taxes on real estate that fund conservation of natural areas and Native Hawaiian lands . When we instituted these efforts years ago, they were hailed as landmark steps in our ongoing effort to balance development with environmental and cultural priorities. Casting them aside now is a panicked response we will later regret.
Targeted tax increases for those who can afford it. We are required by Constitution to keep a balanced budget. Economic research shows that balancing a budget by raising taxes is a quicker path to recovery than cutting spending. In fact, cutting spending weakens an already ailing economy. If we want to target tax increases to those that can most afford it, one option is a State inheritance tax. Hawai'i's inheritance tax used to generate $25 million or more in revenues, but it was recently phased out, so we currently have none. Other options include eliminating the mortgage interest State tax deduction for pricey, sprawling homes or raising taxes on time shares to be consistent with hotel taxes.
Create a barrel tax on oil. A barrel tax on oil would keep all of us from rushing back to buy a new SUV, and keep momentum behind high-growth clean energy industries even when oil prices temporarily dip. It could be crafted to create a "floor price" on oil, and to stop applying if oil prices skyrocket to extraordinary heights (say back above $100 per barrel). A barrel tax of $10 would increase gas prices by $0.25 per gallon and generate more than $400 million in revenue that could be used, in part, to offset the impact on struggling folks who spend more of their incomes on gas and electricity than the rest of us.
These ideas might seem complicated and disparate (we'll discuss them more fully in upcoming posts). But before we get lost in the detail, let's remember the basics.
They are aligned with Hawai'i's economic aspirations like a more diversified economy; a reasonable cost of living with stable prices; industries that fit with our environmental and cultural priorities; jobs with dignity and decent wages.
They begin to address the fundamental causes of our current crisis: encouraging savings, reducing import dependence, and avoiding common recession-time pitfalls like panicked spending cuts, and sloppy deregulation.
They have the added benefit of being closely aligned with the economic, environmental, and anti-poverty proposals of our new President. That positions Hawai'i to leverage federal funds and help keep State and Local budgets balanced.
Moreover, they are consistent with the most basic principles of island economics: resources are limited and demand careful stewardship; it pays to invest in self reliance when you're isolated; we cannot afford to defend narrow self-interest or think short term in a community as tight-knit as this one.
These ideas aren't a comprehensive stimulus package, but they do add something to the current slate of proposals. They draw on the common-sense lessons of an island economy. If we can assert this island wisdom in the face of hard times, we might get relief that speaks to root causes of crisis, and stimulus that honors our longstanding economic aspirations.
How do we create the awareness, enable the understanding and facilitate the action that's needed to further these ideas? I believe that the (potentially, likely?) unpopular solutions of changing our economics (from short-term to long-term, from individual to collective) is needed. Create the conditions to make our decisions to do the right things, easier, rather than harder. I.e., make it more expensive to use oil-generated power, and more rewards for investing in alternative energy sources.
"Economic research shows that balancing a budget by raising taxes is a quicker path to recovery than cutting spending." Curious to know the source of this research.
Hey Patrick, the most notable source on raising taxes vs. cutting spending is Nobel prize winning economist Joseph Stiglitz. The basic rationale is that cutting spending by $1.00 takes a full $1.00 out of the local economy, while increasing taxes by $1.00 takes only part of that $1.00 out of the economy, since some of it would have been saved or spent out-of-state by the taxpayer. This briefing paper has more detail: http://www.cbpp.org/1-8-08sfp.htm. Hope that helps clarify.
It also depends on who is taxed. People in lower-income brackets are more likely to use their money for consumption so if you took that $1 from a family, say at $50K per year or at the self sufficiency line, you very well may be taking $1 out of the local economy, so you don't want to touch their taxes (in fact, you may want to cut some people's taxes). But for people with high incomes, it's a lot more likely that the $1 or most of it would not have been circulated anyway.
I think we are often led to believe that government spending cuts are what's good for the economy. That's not necessarily true. Spending cuts ARE good for balancing the state budget, but the state budget is not the same as the state economy. A state spending cut is very often equivalent to reduced spending of money in the local economy (in some cases, even the loss of local jobs and corresponding salaries). It's obvious that few politicians want to talk about raising taxes, but its too bad that this option is considered to be Kryptonite by so many. This leaves cuts and borrowing as the only options to balance the budget and stimulate spending. From an economic standpoint, we may be fighting with one hand tied behind our backs... or worse, cutting off our own nose by prolonging our recession and saddling future generations with more debt than necessary.
BTW - James, saving $1.00 doesn't take $1 out of the economy unless you keep it as cash in your bed or something. Savings at a bank or other institution is used to make other investments (hopefully not really bad, over-leveraged real estate). So either the whole banking industry is lying, or Dr. Stiglitz left that out. I do agree like his paper though and agree with it.
If you can't split hairs on an Internet Forum, where can you ;)
Good point, Russel. Maybe what the economists mean is that for purposes of immediate "stimulus" during a recession, if you raise taxes, in the short run, less than $1.00 gets taken out of circulation b/c of savings and out of state spending.
Response to your article; If economic stimulus were the ultimate goal, it might make sense to increase taxes and avoid spending cuts. But I have so little faith in the government to make effective and efficient use of money. Privatization is my favorite solution. (See Wholman Rink in NYC. It's ancient but still my favorite example.) When Obama said, don't ask if government is too big, ask if it is working, I think he should include a few more Q's such as, is it efficient and define the meaning of "working"? But these questions, although important could spur costly efficiency studies. This could defeat defeat what I fantasize was the original purpose - cut spending. There are dozens of web sites aimed at consolidating consumer reviews but I don't think I've seen one that consolidates the consumer review websites. We need one-stop shopping. A great deal of free and valuable information about products and services is floating around untapped. The solicitation and consolidation of this data can can go a long way towards answering the questions; what is working and which private company should take over the job if it isn't. 2. You didn't mention it but bailouts are a really strange concept. If the government has to bail someone out, then I'd prefer to see the funds invested in companies that meet criteria such as, "Is the product they produce harmful or beneficial to the environment?" In other words, kick the auto industry and their crippling unions off the list of recipients and replace with environmentally correct companies and entities such as farmers who practice organic, diversified agriculture, and etc.
I completely agree with the need to invest in renewable energy projects. Right now, we are sending $7 billion a year out of the state to pay for oil. To get some perspective on this amount, our entire tourism industry accounts for visitor spending of roughly $12 billion a year. It’s not unreasonable to think as oil prices go back up and if tourism number go down, our oil costs could be greater than tourism spending. Even replacing 10% of our imported oil would mean $700 million dollars kept in our state, year after year, to provide wonderful green jobs opportunities. Also, I agree with you that our policies that punish savings for families in need is not akamai. On one end, our needy families get punished at ridiculously low levels of savings. On the other end, our less needy families can deduct 100% of mortgage interest for buying a home for $1,000,000. In the first year of a million dollar mortgage, that family would be able to reduce their taxable income by about $60,000.
I agree totally with item #1. The state should install solar water heaters on all state buildings that use hot water and have an appropriate are for mounting, paying for that with bonds based on the electricity savings. This would provide an overall economic stimulus without raising taxes, but would also help build the renewable energy industry locally. Solar water heaters use mature technology with a short payback time, so there is very little risk involved.
Similarly, bonds should be used to pay for the installation of PV and small windmills (perhaps like the one at Saunders Hall UH and Jay Leno's garage) panels on suitable state buildings.
Hey James, I e-mailed your post to my friend and thought that you might appreciate her response: -----------------------------------------
Feb. 4, 2009
Thanks for the article. It's not often that you find an article that actually explains clearly what is happening in our present ecomomy. I definitely learned a thing or two from this piece. I agree with eliminating the welfare requirement. I didn't know there was such rule that punishes those who save money. That's a bit odd when the government should encourage those in need to be independent and rely on themselves again as oppose to limiting their savings so they must rely on the goverment. I always thought that welfare should be a short term solution while helping those in need to get back on their feet being the lifelong solution. There are those who take advantage of the system and there should be regulations on that. Hmmm getting a bit off track here, but yes, if this helps stimuluate the economy that would be beneficial especially since the program itself may reach more people who need the assistance.
I think overall each of the ideas this author presents create jobs in some form or another, if these ideas are executed the goverment will definitely need the manpower to put these ideas into action.
As California is facing bankruptcy in the goverment, supposedly we will/are in the red this month, the goverment had mention cutting the budget in education to save other areas. Just today I heard on the news that schools and the local community in Contra Costa county are fighting to save their schools from shutting down. It's sad to see that the school environment that nuture and development young minds, our future, are facing closures due to our economy crisis.
It is depressing and heart wrenching to read the news thesedays when all the reports are which companies are laying off, which stores are going bankrupt, having massive liquidation sale. These liquidation sales are great bargains but in a way we are preying on others' misery. Behind the sales are the employees who eventually become unemployed when these stores close for good.
They say that things have to become bad, hit rock bottom, before things become good again. Ibelieve things will get better, but if this is rock bottom, it's the waiting that makes the exprience miserable and depressing.
With issues as urgent and confusing as these, it's helpful to get back to basics. First, let's remember that the global crisis now affecting Hawai'i was created by a combination of three things: 1) over-borrowing to fund excessive spending, 2) under-regulating key industries (particularly financial firms), and 3) over-depending on foreign imports, especially cheap oil. It makes sense that our response to the crisis should address these underlying causes of our pain.
Aloha
Energy
Food
James,
These ideas are simple and smart.
I would love to hear why they are complicated and not smart.
So the question is how do we get all 7,000 Kanu members to agree and voice their opinion online, thru media, and to their politicians?
This is the real inconvenient question.
How do we create the awareness, enable the understanding and facilitate the action that's needed to further these ideas? I believe that the (potentially, likely?) unpopular solutions of changing our economics (from short-term to long-term, from individual to collective) is needed. Create the conditions to make our decisions to do the right things, easier, rather than harder. I.e., make it more expensive to use oil-generated power, and more rewards for investing in alternative energy sources.
"Economic research shows that balancing a budget by raising taxes is a quicker path to recovery than cutting spending." Curious to know the source of this research.
Hey Patrick, the most notable source on raising taxes vs. cutting spending is Nobel prize winning economist Joseph Stiglitz. The basic rationale is that cutting spending by $1.00 takes a full $1.00 out of the local economy, while increasing taxes by $1.00 takes only part of that $1.00 out of the economy, since some of it would have been saved or spent out-of-state by the taxpayer. This briefing paper has more detail: http://www.cbpp.org/1-8-08sfp.htm. Hope that helps clarify.
It also depends on who is taxed. People in lower-income brackets are more likely to use their money for consumption so if you took that $1 from a family, say at $50K per year or at the self sufficiency line, you very well may be taking $1 out of the local economy, so you don't want to touch their taxes (in fact, you may want to cut some people's taxes). But for people with high incomes, it's a lot more likely that the $1 or most of it would not have been circulated anyway.
I think we are often led to believe that government spending cuts are what's good for the economy. That's not necessarily true. Spending cuts ARE good for balancing the state budget, but the state budget is not the same as the state economy. A state spending cut is very often equivalent to reduced spending of money in the local economy (in some cases, even the loss of local jobs and corresponding salaries). It's obvious that few politicians want to talk about raising taxes, but its too bad that this option is considered to be Kryptonite by so many. This leaves cuts and borrowing as the only options to balance the budget and stimulate spending. From an economic standpoint, we may be fighting with one hand tied behind our backs... or worse, cutting off our own nose by prolonging our recession and saddling future generations with more debt than necessary.
I'm going to pass this around to my friends...
This is certainly a proposal I could get behind.
BTW - James, saving $1.00 doesn't take $1 out of the economy unless you keep it as cash in your bed or something. Savings at a bank or other institution is used to make other investments (hopefully not really bad, over-leveraged real estate). So either the whole banking industry is lying, or Dr. Stiglitz left that out. I do agree like his paper though and agree with it.
If you can't split hairs on an Internet Forum, where can you ;)
Good point, Russel. Maybe what the economists mean is that for purposes of immediate "stimulus" during a recession, if you raise taxes, in the short run, less than $1.00 gets taken out of circulation b/c of savings and out of state spending.
Response to your article;
If economic stimulus were the ultimate goal, it might make sense to increase taxes and avoid spending cuts. But I have so little faith in the government to make effective and efficient use of money. Privatization is my favorite solution. (See Wholman Rink in NYC. It's ancient but still my favorite example.) When Obama said, don't ask if government is too big, ask if it is working, I think he should include a few more Q's such as, is it efficient and define the meaning of "working"? But these questions, although important could spur costly efficiency studies. This could defeat defeat what I fantasize was the original purpose - cut spending. There are dozens of web sites aimed at consolidating consumer reviews but I don't think I've seen one that consolidates the consumer review websites. We need one-stop shopping. A great deal of free and valuable information about products and services is floating around untapped. The solicitation and consolidation of this data can can go a long way towards answering the questions; what is working and which private company should take over the job if it isn't.
2. You didn't mention it but bailouts are a really strange concept. If the government has to bail someone out, then I'd prefer to see the funds invested in companies that meet criteria such as, "Is the product they produce harmful or beneficial to the environment?" In other words, kick the auto industry and their crippling unions off the list of recipients and replace with environmentally correct companies and entities such as farmers who practice organic, diversified agriculture, and etc.
I completely agree with the need to invest in renewable energy projects. Right now, we are sending $7 billion a year out of the state to pay for oil. To get some perspective on this amount, our entire tourism industry accounts for visitor spending of roughly $12 billion a year. It’s not unreasonable to think as oil prices go back up and if tourism number go down, our oil costs could be greater than tourism spending. Even replacing 10% of our imported oil would mean $700 million dollars kept in our state, year after year, to provide wonderful green jobs opportunities. Also, I agree with you that our policies that punish savings for families in need is not akamai. On one end, our needy families get punished at ridiculously low levels of savings. On the other end, our less needy families can deduct 100% of mortgage interest for buying a home for $1,000,000. In the first year of a million dollar mortgage, that family would be able to reduce their taxable income by about $60,000.
I agree totally with item #1. The state should install solar water heaters on all state buildings that use hot water and have an appropriate are for mounting, paying for that with bonds based on the electricity savings. This would provide an overall economic stimulus without raising taxes, but would also help build the renewable energy industry locally. Solar water heaters use mature technology with a short payback time, so there is very little risk involved.
Similarly, bonds should be used to pay for the installation of PV and small windmills (perhaps like the one at Saunders Hall UH and Jay Leno's garage) panels on suitable state buildings.
Hey James, I e-mailed your post to my friend and thought that you might appreciate her response:
-----------------------------------------
Feb. 4, 2009
Thanks for the article. It's not often that you find an article that actually explains clearly what is happening in our present ecomomy. I definitely learned a thing or two from this piece. I agree with eliminating the welfare requirement. I didn't know there was such rule that punishes those who save money. That's a bit odd when the government should encourage those in need to be independent and rely on themselves again as oppose to limiting their savings so they must rely on the goverment. I always thought that welfare should be a short term solution while helping those in need to get back on their feet being the lifelong solution. There are those who take advantage of the system and there should be regulations on that. Hmmm getting a bit off track here, but yes, if this helps stimuluate the economy that would be beneficial especially since the program itself may reach more people who need the assistance.
I think overall each of the ideas this author presents create jobs in some form or another, if these ideas are executed the goverment will definitely need the manpower to put these ideas into action.
As California is facing bankruptcy in the goverment, supposedly we will/are in the red this month, the goverment had mention cutting the budget in education to save other areas. Just today I heard on the news that schools and the local community in Contra Costa county are fighting to save their schools from shutting down. It's sad to see that the school environment that nuture and development young minds, our future, are facing closures due to our economy crisis.
It is depressing and heart wrenching to read the news thesedays when all the reports are which companies are laying off, which stores are going bankrupt, having massive liquidation sale. These liquidation sales are great bargains but in a way we are preying on others' misery. Behind the sales are the employees who eventually become unemployed when these stores close for good.
They say that things have to become bad, hit rock bottom, before things become good again. Ibelieve things will get better, but if this is rock bottom, it's the waiting that makes the exprience miserable and depressing.