The dynamic World War II leader, Gen. George S. Patton, once observed that “If everyone is thinking alike, then somebody isn’t thinking.” Nowhere is that warning more applicable than in the way policymakers here in Hawaii have been approaching the future of our economy.
We know this because even though leaders at the State Capitol purport to be bracing for economic hits from coronavirus, the kinds of proposals and mandates that are advancing through the Legislature are written as if taxpayers will always be rich enough to tax more and businesses can always handle more overhead.
Moving forward at the Capitol are measures that raise income taxes, hike costs of energy production and impose UN objectives on Hawaii, just to name a few, even though we are barely figuring out how to make the pieces fit for our complex bureaucracy. This does not even include the heavy price tag that Honolulu residents will already be paying at the county level for governance and rail.
These kinds of policies might be justifiable if Hawaii was a booming state with a strong economy, prospering population, and an existing infrastructure that supported growth. But the Aloha State is running close to red line.
Even before the emergence of the coronavirus and its spooking effects on markets, both Hawaii and the national economy were already precariously hanging at the edge of a cliff. According to Expatistan’s March survey of prices, the cost of living in Honolulu was more expensive than 90% of cities in the United States, and the estimated monthly cost for a family of four was a whopping $5,464 a month.
The Bureau of Labor Statistics also revealed that prices in January of this year were up 1.7% overall in Honolulu from last year, with some of the highest prices rising in gasoline (+16%) and the costs of clothing (+12.4%).
If Hawaii’s economy was doing great, we wouldn’t need to force an increase in the minimum wage; companies would already be paying competitively to recruit and retain labor, and people’s money would have the purchasing power to buy whatever they needed.
Nationally, the Federal Reserve’s “emergency rate cut” last week was supposedly to combat market worries over the coronavirus, but President Donald Trump for months had already been haranguing the Fed to lower its rates or even adopt negative interest rates. This perhaps reveals the real state of our national economy, which appears completely dependent on massive injections of artificial credit to prop up overvalued stock prices and unprofitable businesses.
What should worry Hawaii locals is the fact that lowering interest rates ultimately causes housing prices to rise over time, which has the counterintuitive effect of making it harder for struggling residents to buy a home, while outside investors who already have the purchasing power now can exploit the new rates to buy more Hawaii property, adding to our housing scarcity problem.
Lower interest rates also increases the nation’s total money supply, which sends more money chasing after the same amount of goods, which means Hawaii residents will eventually pay the price in the form of inflation.
Right now, Hawaii residents need to be saving every penny they can spare for an uncertain future.
Who typically benefits the most from lower rates are not average people, but large corporations and wealthy borrowers, who get the money first and then profit before inflation affects them. Said another way, central bank injections of credit give money to those who already have money rather than consumers, which means they sharpen, not lessen, wealth inequality.
This is a recipe for disaster that sooner or later will catch up with us.
Right now, Hawaii residents need to be saving every penny they can spare for an uncertain future. Pie-in-the-sky, big ideas by local elected leaders to save the planet and build a future utopia may look great as campaign bullet points on a mailer, but the more the government plans, the less the people are able to plan.
If I were Gov. David Ige or one of our legislators, I would be extremely worried about the perfect storm that is brewing economically around us. Between rising prices, an outflow of Hawaii residents for the mainland, higher compliance costs to doing business, uncertainty over big government projects like rail, and now the coronavirus, to believe that we can keep on as we are doing is foolish.
Our legislators who want to legislate as if Hawaii were California or New York need to realize the difference between us and those states is that those locations have businesses, pre-existing infrastructure and no shortage of affluent individuals to subsidize grandiose government and weather economic storms.
Hawaii doesn’t have a Silicon Valley or a Wall Street to pay the tab for the kinds of policies our elected officials want, and even if we did, we’d probably drive them out of town anyway. We need to dial things down a notch in the Big Square Building and at least wait to see how 2020 turns out before we start disrupting the economy any further.
I for one think the Trump economy is purely overvalued paper and is destined to collapse, and when (not if) that happens, Hawaii’s economy will go down with it. Crisis has a way of sneaking up on you when you’re not prepared, but we can take steps now to soften the blow.