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Economic Currents

Keep up to date with the latest UHERO news.

Q & A: Unemployment Numbers

Posted April 20, 2012 | Categories: Q&A
1.Hawaii’s unemployment rate seems to always be below the US unemployment rate. How long has this been going on?

Since the mid-1970s. It’s below the US rate in good time and in bad times.Consider the February 2012 unemployment rates for Hawaii and the US:

Hawaii: 6.4%

US: 8.3%.

A difference of 1.9%..

2. So what’s responsible for the big difference?

It’s not because Hawaii has a better job market than the U.S. Finding a job in Hawaii requires significant search. Limited market for numerous professional jobs due to the small population and specialized industries. The MAIN reason for the difference is Hawaii’s health insurance law: The Pre-Paid Health Care Act. It requires that employers provide health insurance to any employee who works more than 20 hours per week. The law is one of the reasons why Hawaii is among the top three US states in terms of the percentage of the population with health insurance. But it also provides incentives to employers to break full-time jobs into two part-time jobs to avoid the requirement of providing costly health insurance. This tends to increase the number of jobs and lowers the unemployment rate.

3. OK, but what happens to full-time jobs?

That’s the negative side effect of the state’s health insurance law: Fewer full-time jobs. More people have part-time jobs who really want full-time jobs. One way to verify this is to look at an alternative measure of the unemployment rate known as U-6. This measure counts people who have part-time jobs and want full-time jobs as unemployed. When we look at this measure the unemployment gap between Hawaii and the US becomes much smaller:

Hawaii: 15.4%

US: 16.2%

Just .8% difference.

4. So is Hawaii’s health insurance law good for the State?

Yes, it’s helped to insurance over 90% of the population. And providing health insurance for its population is something that every wealthy society should do. Even better, however, would be if Hawaii and all the other states decoupled the provision of health insurance from the job market. The linkage is the source of many of the problems in the US health care market.

-- Carl Bonham



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Q & A: The Fight Over Cycling Bike Lanes

Posted April 17, 2012 | Categories: Q&A
1. Honolulu has seen controversies recently over establishing or expanding dedicated bicycle lanes. Should the City be expanding Honolulu’s bike lanes?

Yes. And for several very good reasons. First, given the current obesity epidemic, the City ought to be encouraging activities that provide residents with more opportunities to exercise. Bicycling lanes provide such opportunities.

Second, bicycling lanes centered around Waikiki should improve the attractiveness of the destination. Tourists are increasingly looking for “green” destinations. More tourists using bicycles in the Waikiki/Kahala/Kaimuki/Manoa/Moiliili/McCully areas could reduce traffic congestion in these areas due to reduced use of rental cars.

Third, bicycling lanes can offer alternative commuting opportunities where people live close to work, high schools, or universities. Honolulu has the weather to allow commuting over 300 days per year by bicycle!


2. So why the controversy?

Bicycle lanes can lead to less parking and sometimes to fewer lanes for drivers.

Businesses on Waialae Ave in Kaimuki have opposed bike lanes because they could eliminate parking on one side of the street if bike lanes are installed. There is, however, a parking lot in the restaurant row district between 9th and 12th Ave that could be redeveloped to provide more parking. Bicycle lanes could also bring more tourists from Waikiki and surrounding neighborhood to enjoy the Kaimuki restaurants. They might also facilitate redevelopment of some side street blocks as café streets.


3. Will the controversy go away?

No, it won’t. Even if expansion of biking infrastructure leads to social gains, there will be some losers—for example those East Honolulu residents who use Waialae Ave as a commuting freeway. Losers are often quite vocal, organize and engage in political action to stop such ventures.

Expansion of biking paths has worked elsewhere—just look at Manhattan’s introduction of bike lanes—and can work here. The key is to place them in selected areas where there are big groups of people –students, commuters going only a few miles, and exercisers—who are ready to use them!





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Q & A: Hawaii’s Green Energy Bank

Posted March 24, 2012 | Categories: Q&A
1. Hawaii’s state legislators have been considering a proposal to establish a state-run bank to fund clean energy projects. How is this bank supposed to work.

House bill 1033 would establish a clean energy bank. The bill has been approved by the Senate’s Energy and Environment Committee.

The state-run bank would make low-interest loans to clean energy projects.

Hawaii has $13 million in unspent federal stimulus funds for energy projects, and the bill provides for these funds to provide seed money for the bank.


2. What are the reasons for a state-run bank? Why can’t privately owned banks make clean energy loans?

Private banks already make clean energy loans. The argument is that they make too few of these loans because neither the banks nor the clean energy providers taking the loan consider the benefits to society from reduced carbon emissions or the national and state security benefits from importing less oil. Because these social benefits are not taken into account, there is likely to be too little lending for clean energy projects.

A state-bank would potentially remedy this by making additional loans to this sector.


3. Is there opposition to the establishment of a clean energy bank?

Yes, the state’s private banks and credit unions are opposed, arguing that the state has little experience in running a bank and that it would be poorly run. Of course, they might also be worried that some of their business would be diverted to the new bank.
Others argue that the bank would be captured by powerful interest groups and would lend primarily to politically connected borrowers.

Kalbert Young, the State Budget Director, has testified that the Bank might harm the State’s credit rating and that the Bank might ultimately have to draw on state general funds.


4. So is a clean energy bank a good idea for Hawaii?

It’s hard to say.

First, public development banks can be very effective when they are properly targeted to a particular task, are sufficiently independent, and are incentivized to minimize costs.

Second, this proposal has not been extensively studied.

Third, there are other policy tools available to address these problems.

A state tax on carbon emissions would be a much better tool for dealing with problems of energy independence and carbon emissions, as it would provide direct incentives for clean energy providers to expand and for private banks to lend to them.

Additional state subsidies for clean energy are also possible, but often prove to be very expensive and subject to fraudulent claims.

Before the state commits to a clean energy development bank, it needs to look more carefully as to how the bank’s lending would be targeted; how the bank would be run without undue political interference; how managers would be incentivized to minimize costs; and whether alternative policy tools might be a more effective way to reap social benefits from reduced carbon emissions and greater energy independence.



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Q & A: Construction Edging Toward Recovery

Posted March 16, 2012 | Categories: Q&A
1.UHERO released its Annual Construction Report this morning. This is a sector that has been hard hit by the great recession isn't it.

That's correct, from a peak of just under 40,000 construction jobs in February of 2008, the industry has shed 12,000 jobs, and continued to loose jobs during 2011. And, total inflation adjusted spending on construction projects fell 33% from 2008 to 2011.

2. So is there any good news in the report?

Construction has not yet turned the corner in Hawaii, but a pickup is now more clearly in sight. There is still very little in the way of construction of single family homes. New high-rise condos, retail, and resort-related development are likely to boost activity, and assuming that the Honolulu rail project proceeds as planned, that too will add to construction spending and jobs. Overall, we expect real construction spending to increase by nearly 10% this year and almost 15% in 2013.

3. That sounds pretty good, why so much growth?

Building activity always goes through large cycles. After a statewide building boom in 2004-2008, building activity fell to record lows in the past three years. As the overall economy begins to grow we will start to an see an increase in household formation and demand for housing. But, we are building almost no housing, so the increased demand will eventually outstrip supply leading to rising prices. And, rising prices will set the stage for an increase in supply, in other words more building activity. Even with our somewhat optimistic forecast for growth over the next three years, in 2014 the statewide construction job count will still be nearly 13% below its 2007 peak.


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Q & A: Da Budget, Compromise and Policy Failures

Posted February 16, 2012 | Categories: Q&A, Blog
1.Another busy week with lot to discuss. On Monday the President released his budget proposal, by Wednesday had plenty of evidence of continued Euro-Area Policy failures, and by Thursday the House Republicans appeared to have compromised on the payroll tax extension. So much news so little time! lets start with the budget.

The President's budget is interesting as a preview of his election year strategy. We saw early glimpses of the strategy in his State of the Union speech where he is trying to frame the election as choice between his priorities of stimulating the economy and closing the deficit through a combination of spending cuts and tax increases on the wealthiest Americans vs the Republican agenda of large cuts in government spending with no new taxes. The President proposed additional spending in targeted areas such as job-training, research, and infrastructure spending, to be paid for by raising taxes on the wealthiest tax payers and closing corporate tax breaks. One of the surprises was the call to tax dividends at the same rate as regular income for tax payers earning more than $250,000; the same way they were taxed before the Bush tax cuts—set to expire at the end of the year. Overall, he expects the plan would cut the deficit to 3% of GDP by 2017, based in part on somewhat optimistic growth forecasts. Republican's had trashed the proposal before it was even released, so plans for additional stimulus and targeted spending will be dead on arrival.

2. What was the Euro-area policy failure.

In a nutshell, the Euro-Area economy contracted in the fourth quarter of 2011, largely the result of major cuts in government spending throughout the periphery— Spain, Portugal, Italy, Greece, etc. The austerity programs that are being touted as a solution to the debt problems of mostly Southern Europe are contributing to rapid decline in these economies. You can't cut your way into prosperity and growth, and no where is that more evident than in Greece. So the aim of the policies to reduce these countries Debt to GDP ratios is failing and contributing to the continued fears of default in Greece and contagion elsewhere. The troika (EU, ECB, and IMF) is imposing such severe restrictions on Greece that the country will remain in economic decline and chaos for the foreseeable future.

3. There must be some good news?

Well the good news is that the potential for an election year backlash has led to a compromise deal to extend the payroll-tax cut as well as unemployment benefits. These were set to expire at the end of this month. Both are crucial to maintaining the momentum the US economy is beginning to demonstrate. The deal should be voted on this week and will extend the 2-percentage-point cut in the payroll tax through Dec. 31, 2012 without requiring that spending be cut elsewhere in the budget or that taxes be increased to cover the estimated $94 billion cost. In addition, unemployment benefits would be extended but the maximum number of weeks that can be collected would gradually decline. This is very important given that there are still more than 5.5 million workers who have been unemployed for more than six months. One interesting twist in the deal is that the unemployment benefit extension is supposed to be paid for from future sales of publicly owned airwaves currently used for television broadcasts. The auction will allow for an increase in wireless internet systems as well as a nationwide communications network for emergency workers.



-- Carl Bonham



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