Economic Stimulus – An Island Perspective

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:

1. 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.
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3. 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.
   
   
4. 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.
   
   
5. 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.
   
   
6. 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.

Written by James Koshiba and first published at Kanu Hawaii. Kanu Hawaii is a movement working to make Hawaii a model of environmental sustainability, compassionate community, and economic resilience. By practicing island style activism, Kanu members lead by example.