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Economic Currents

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Keeping the money at home!

Posted January 23, 2012 | Categories: Hawaii's Environment, Hawaii's Economy, Blog, Project Environment

Part of the justification for the pursuit of food and energy self-sufficiency in Hawaii is that it allegedly serves to “keep the money at home.”  It just sounds so good as an economic objective, as it has for over 200 years.

But consider that the idea of keeping the money at home is crude, modern day mercantilism (exports are good; imports are bad), an economic policy that was discredited over two centuries ago by Adam Smith (The Wealth of Nations) in favor of international specialization and voluntary exchange.

Consider that Hawaii just served most successfully as U.S. host to the 2011 summit of the Asia-Pacific Economic Cooperation (APEC) forum, a 21-member organization dedicated to advancing international trade and exchange in the Asia-Pacific region.

Consider that taken to its logical conclusion, “keeping the money at home,” if so desirable, should apply, not just to the State of Hawaii, but to individual islands (no cable from Lanai and Molokai to Oahu).  But why stop there? Why not individual communities (no shopping at Ala Moana for Kailua)?

Consider that we’ll all be poorer; the money we keep at home will have much less purchasing power because of higher prices of import substitutes.

Consider that state coffers will be diminished because of subsidies to local producers using energy technology not yet economically competitive without government support.

Consider that with severely constrained state budgets, subsidies to local producers come at significant cost to other Hawaii environmental priorities, like reduced funding for protection of Hawaii’s vulnerable watersheds from invasive species.

And consider that as pure transfers from taxpayers to producers, subsidies distort markets (as do taxes) and generate substantial loss of economic well-being to society, known appropriately as deadweight loss.  Every dollar paid out as a subsidy generates about 25 cents of additional loss that just whirlpools down the state drain. 

There are good reasons to patronize local food and energy markets: the freshness and uniqueness of local produce that can’t be matched by imports; the commercial viability of alternative energy technologies now ready for prime time without subsidy, e.g., geothermal. But as good as it may sound, “keeping the money at home” is not among those reasons, and is not economically sound as a policy objective for Hawaii.

--Lee H. Endress (Ronin Economist)

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