Economics and economists have a huge impact today on the thinking of politicians, businesspeople, philanthropists and other decision-makers around the world, including Hawai‘i.

“Economics is the mother tongue of public policy, the language of public life and the mindset that shapes society,” writes English economist Kate Raworth.

She says economic thinking has come to dominate the way we make sense of the world and take action. Policymakers often speak in the language of economists, using terms like cost and benefit, incentives and externalities. Measures of economic performance like gross domestic product, unemployment and inflation are major topics in public debates, especially in a crisis like the COVID-19 pandemic.

“When you’re in a crisis, the appetite for information and analysis grows,” says Carl Bonham, one of Hawai‘i’s best-known and most influential economists. “I told my wife that I haven’t worked this hard since my first year in grad school.”

Hawaii Business Magazine spoke with local economists to better understand the way they think, their groundbreaking work and the value of economic analysis now and in planning the way ahead for Hawai‘i.

 

Growing Interest

Record attendance at the Hawaii Economic Association’s recent lunch webinars is one indicator of the increased local interest in economics. HEA’s annual conference in October attracted more attendees on Zoom than recent in-person conferences.

“When we started planning in the spring and early summer, there was this tremendous energy thinking about the economy post-COVID,” says John Knox, an HEA board member and principal at research and consulting firm John M. Knox & Associates.

“There has been this kind of interesting tendency to view the crisis as an opportunity. … That became our focus of this event,” he says. The first day of the conference focused on tourism; the second day on economic diversification.

HEA brings together trained economists, people who work adjacent to economics and those simply interested in economics, says Knox. “HEA is an attempt to be an interface between economists and the members of the general public who are interested in how economists think and what their conclusions are.”

Economists can be influential, but usually within limits, he says. “Economists rarely spark changes in one dramatic publication.” Instead, their work contributes to existing movements for policy change.

“When there’s a certain current flowing, then economists might be invited to hop aboard their surfboard and paddle on that current. They can have a great impact, as long as that movement is actually there to begin with,” Knox says.

 

Data Warehouse

READ – the Research and Economic Analysis Division of the Hawai‘i Department of Business, Economic Development and Tourism – is responsible for producing the data that informs most economic analysis in the state. Eugene Tian heads the division, which includes eight economists, four statisticians and two clerical staff.

Tian says READ has been more productive during the pandemic despite employees working from home. They’ve created new data dashboards, including daily passenger counts and weekly unemployment statistics. They’re also using census data to monitor the economic recovery. 

Economists, policymakers and businesspeople throughout the state rely on data provided by READ, including through its annual Data Book and its quarterly forecasts. And when the state floats bonds, Tian provides analysis to bond rating agencies.

“Eugene and his team at DBEDT represent the largest repository of economic knowledge in the state,” says Seth Colby, a tax research and planning officer with the Hawai‘i Department of Taxation. “They provide vital information that assists decision-makers and economists trying to understand the state’s economy.”

Mike McCartney, director of DBEDT, gives an example of the value of READ’s data: Before the pandemic, 30,000 people in Hawai‘i were exporting services around the world while teleworking from home in Hawai‘i. That information helps inform decisions about whether and how to provide training and support for telework, says McCartney.

“We want to be data-driven, knowledge-based, results-oriented.”

One reason READ’s data and DBEDT’s economic reports are so important is there are almost no local alternatives for the public. Paul Brewbaker, who was chief economist of Bank of Hawaii from 1995 to 2009 and now runs TZ Economics, says Bank of Hawaii and First Hawaiian Bank used to produce public economic reports and data but the analysis became too costly to create. Today, the primary research institutions in the state for the public are READ/DBEDT and UHERO, UH’s Economic Research Organization, led by Bonham.

Data-Driven Decisions

Though the READ data is vital for trained economists, it can confuse the casual reader. The Hawaii Data Collaborative is trying to change that.

HDC began as a project of the Pierre Omidyar-sponsored Hawai‘i Leadership Forum in July 2019, following an earlier project intended to produce an index of well-being in Hawai‘i, says HDC executive director Nick Redding. “In the process, we found there were lots of existing data sources, primarily government data sources, that were underutilized.”

HDC expanded its work to include finding, standardizing and making data accessible and more user-friendly for nontechnical users. This includes data on the economy, housing, health and other indexes related to well-being, says Redding.

“We don’t aim to be content experts. We’re more process experts. We’re focused on what it takes to make data available to help decision-making.”

“Data helps us understand what is,” he says. “It also can start to suggest what could be.” For example, HDC partnered with the Hawai‘i Community Foundation for its CHANGE Initiative, helping to provide data about the major issues facing Hawai‘i.

“Our challenge is we don’t have the data we need to make the decisions we need to make,” says Redding. In some parts of state and city government, data is shared only when necessary, but he says data sharing should be regular. Aging IT infrastructure and limited staff capacity play a role in the lack of data availability, he says, but the primary culprit is complacency. “It’s not a priority because it’s not expected.”

Redding says the COVID-19 pandemic has exposed issues with the state government’s data-averse culture. He wonders whether policymakers would have made different decisions in March and April and whether those decisions would have produced better outcomes if more data was available then. Without data, decision-makers “don’t have much to work with other than their intuition,” he says.

“There’s no such thing as a decision made or a problem solved or a challenge overcome – because society is fluid. With the data, we’re able to have nuance and revise our strategies and approaches accordingly.”

 

Which Data Gets Collected?

Redding and his team at HDC caution that data is not neutral.

“Our values as a society are revealed in the curation of economic indicators,” writes Kendrick Leong, a research specialist at HDC. “We implicitly prioritize certain metrics by elevating them to a position within a dashboard or index.”

In September, Leong published an article called “Metrics Maketh Man: The economic indicators we track define us” on the HDC website. He wrote that though economic indicators may seem objective, we need to be careful about which economic indicators we focus on, especially as we define “economic recovery.”

“We should be thoughtful in curating what data sources influence where we see ourselves to be, and advocate for new economic data sources that align with where we want to go.”

Some economic impacts can’t be quantified, and these impacts sometimes escape the notice of economists and others who rely on quantitative economic analysis to make decisions.

Khara Jabola-Carolus, executive director of the Hawai‘i State Commission on the Status of Women, says she was concerned as she saw governments around the world abandon transparency and public participation as they responded to the pandemic. As she read the UHERO economic recovery plan, she saw a need for greater attention to how the pandemic disproportionately affects women.

“We’ve neglected to use a gender filter on the work we’re doing, especially in economics.” —Khara Jabola-Carolus, Executive director, Hawai‘i State Commission on the Status of Women

In April, the Commission on the Status of Women released “Building Bridges, Not Walking on Backs: A Feminist Economic Recovery Plan for COVID-19.” The report recommended that policymakers consider gender as they respond to the pandemic, avoid austerity to maintain social services, and diversify the economy to reduce reliance on tourism.

“The way women are viewed and the roles that are expected of women place them on the front line of the COVID-19 response. It also places them as the primary child and elder care providers in our families,” Jabola-Carolus says. The impacts of policy on unpaid care providers are difficult to quantify, but important to consider.

As schools have closed, she says, day care centers have increased their fees, forcing some women to give up their jobs to take care of their kids. “We’re not really educated to think about gender because of the culture we’re born into. We have a workplace that’s built around men, and the coronavirus exposed that,” she says.

Moreover, Jabola-Carolus says, the impacts of the economic crisis are falling harder on women because “women are overrepresented in service positions, in the hotel industry.”

“We’ve neglected to use a gender filter on the work we’re doing, especially in economics,” says Jabola-Carolus, and this neglect of gender extends beyond economic analysis to workplace policies. For this reason, she says, the Commission on the Status of Women is working on a bill to make Hawai‘i the first state to mandate gender-based awareness training across all levels of government. In the meantime, she says, there are simple policy changes that can make a big difference.

“One thing we could do is integrate and normalize telework, which would be incredibly helpful for moms now,” says Jabola-Carolus. One way to do that would be for the state to revise its policies that explicitly forbid state workers from caregiving while teleworking.

“The main takeaway is that whatever economic planning we’re doing, we need to put a gender filter on it. It’s not just about human rights or compassion. It’s also about the sustainability of our economy.”

 

Studying Trade-offs

“If you think about economics in its broad sense, as the study of trade-offs, there are few things that don’t fit into it,” says economist Makena Coffman, director of the Institute for Sustainability and Resilience and a professor in the Department of Urban and Regional Planning at UH Mānoa. Her research focuses on renewable energy policy, electric vehicles and transportation policy, and the impacts of climate change.

Coffman and Bonham wrote a report called “A New Perspective on Hawai‘i’s Economy: Understanding the role of clusters” in September 2017. Coffman says the key to the report is understanding the difference between traded clusters – which produce goods and services for sale nationally or globally – and local clusters which produce primarily for local consumption.

“In the long run, a local cluster cannot grow faster than your population. If you want to talk about growth opportunities, you have to talk about traded clusters,” she says.

Because of declining visitor spending, she says, “We’re experiencing the negatives of more people with fewer benefits.” The decision to limit tourism comes with trade-offs, she says. For example, “If Hawai‘i chooses policies that restrict tourism, there will be benefits to congestion and there may be fewer jobs.”

Coffman says that working on the report was “sobering,” and that most of our growth opportunities still rely on our natural advantages such as climate and location. However, she’s interested in revisiting the project with new data: The report tracked data through 2014; new data is available through 2019, so it’s a good time for an update.

Coffman isn’t keen on speculating about the impact of the pandemic on cluster development. She says it’s too early to tell if recent trends, such as the widespread adoption of telework, will alter the fundamentals of doing business in Hawai‘i. “There’s so much uncertainty right now,” she says. “It’s hard to believe the power of place could go away so quickly.”

 

Forecasting the Future

Other economists are in the business of predicting the future, like Peter Fuleky, an associate professor in UH Mānoa’s Department of Economics who researches forecasting and applied econometrics. In November last year, he edited “Macroeconomic Forecasting in the Era of Big Data: Theory and Practice,” a 716-page tome.

Fuleky says traditional macroeconomic forecasts tended to focus on quarterly indicators such as GDP, income and jobs. In Hawai‘i, a traditional forecast model might be augmented with data on tourism activity ranging from arrivals to occupancy to spending.

“Many of these quarterly indicators come out with a fairly long lag. In situations like this, the post-COVID economic crisis, we need information much faster,” he says.

Developments in statistics now allow the incorporation of high frequency trends into economic forecasting models, he says, and high frequency data is more accessible than ever before. At UHERO, forecasters rely on monthly, weekly and daily indicators.

“If you think about economics in its broad sense, as the study of trade-offs, there are few things that don’t fit into it.” —Makena Coffman, Director, Institute for Sustainability and Resilience at UH Mānoa

High frequency data like unemployment claims and passenger counts were already available, says Fuleky, but in response to the pandemic, private companies have released information previously unavailable to forecasters. For example, data from payroll processing companies are an indicator of the labor market, and data from restaurant reservation services provide insight into the hospitality industry.

“One of the challenges is that these are basically experimental models because this is the first time we’ve had available data,” he says, cautioning that the models should improve over time, as their predictive performance is measured against real-world results.

Bonham says that a comparison can be made between economic forecasting and hurricane forecasting, where the final forecast is an aggregate of multiple models. The weight given to each model changes as the storm moves, favoring the models that correctly predicted the last few steps. “There isn’t one perfect model,” he says, “so weighting and averaging the results of multiple models is a tool that people use to manage that uncertainty.”

However, Bonham cautions, it’s harder to forecast economic movement in real time because forecasters can only guess at the current state of the economy, while meteorologists have more real-time data. “They know where they’re starting from because they have satellite data. With economic data, we never know where we’re starting from.”

A model incorporating high frequency data can give economists a better idea of where we are now – information that’s vital for business and policy planning, Fuleky says. “In order to make plans for business activity, we need to know where we are right now.”

 

The History of Now

Sumner La Croix is professor emeritus in UH Mānoa’s Department of Economics, a UHERO research fellow and the author of the book “Hawai‘i: Eight Hundred Years of Political and Economic Change.”

“I don’t think modern Hawai‘i can be really well understood unless people also have some understanding of the amazing political, economic and social culture that was ancient Hawai‘i, and even 19th century Hawai‘i,” he says.

While a doctoral student at the University of Washington in the late 1970s, Sumner La Croix studied under Nobel Prize winner Douglass North, an economic historian who helped pioneer new institutional economics, an economic perspective that focused on the role of institutions – the formal legal rules and informal social norms that structure social interactions. La Croix says this perspective informed his work.

“I don’t think that an economics built purely on theoretical modeling can be sufficient to understand historical economies or today’s economies,” he says. “You really need to understand the institutions within which an economy operates.”

That was one of his goals in writing his economic history of Hawai‘i. “I just decided at some point that it was my responsibility to sit down and do it – and that it would be fun. It was a real challenge because the book goes over a full 800 years,” he says.

 

How Much Influence?

La Croix says economists in Hawai‘i are influential in setting the background for policy discussions with their reports and recommendations, but that doesn’t mean they have a lot of influence on policy.

“People in their own field always believe that if people in their field were consulted more, we’d have better policies,” he says. “I think there are places where if more economic analysis was brought to bear that there could be better decision-making,” but, he adds, that doesn’t necessarily mean people would accept or act on that analysis.

“In the real policy arena, the losers and the winners are fighting with each other: the losers trying to prevent losses being inflicted on them; the winners trying to get their way. What often comes out of the legislative process is nothing like what we recommend.”

Bonham is busy in the policy arena as UHERO’s executive director. In September, he was serving on four committees at the state Legislature, including the House Select Committee on COVID-19 Economic and Financial Preparedness. He also serves on the state Council of Revenues, which forecasts tax and other revenue that the state government will receive in the near future. Those estimates help guide budgets.

His workload has increased in many ways amid the pandemic. For instance, the time it takes to complete an economic forecast has doubled, he says. And there’s the added complication of modeling in the effect of new policies like the federal Paycheck Protection Program.

Bonham says UHERO continues to work hard “to support the state and its people because it’s the right thing to do.” However, demand for economic analysis is straining the organization’s capacity, which he and his colleagues are attempting to build up during the crisis. “Even with all the resources we’ve pivoted. … We can’t do enough.

“DBEDT provides an enormous amount of data and information, but one thing that’s unique about UHERO is that we provide information in what’s hopefully an easier to understand framework and we have constant interaction with the press and the community,” he says.

Bonham says UHERO’s stature is, in part, a product of its independence. “The thing that is unique about UHERO is that we are part of the university. That gives us the ability to say whatever we think. We’re not part of state government. The financial support that we receive from the community is very broad, so we’re not beholden to any one group, any one person.”

Fuleky says the respect that economists get from policymakers depends on the quality of their work. “In a crisis, economic analysis becomes more desired and followed more closely by the public. As long as we can continue to produce reliable analysis, and I think we can, economists remain a relevant input for future policymaking,” he says.

HONOLULU, Hawaii (HawaiiNewsNow) — With mass vaccinations and a recovering tourism market, some are feeling that Hawaii‘s economy is finally turning the tide.

“It’s really becoming a much healthier, normal psychological environment,” said Lt. gov. Josh Green.

“There’s still a bit of work to do, probably two months, before we get closer to herd immunity.”

On Friday, the daily attendance reached 24,000. That’s about 75 percent of the 2019 peak and compared to the May 7, 2020 daily number, which was less than 600.

It’s not just the economy that’s driving the optimism.

Hawaii’s vaccination rates are among the highest in the nation. The state hopes to reach its goal of 1 million fully vaccinated residents by June or July, bringing Hawaii closer to what it calls the herd immunity goal.

And with the increased vaccination rates, the community can open up further.

For example, last week schools in Hawaii were able to hold in-person graduation ceremonies for the first time in two years.

And on Sunday families celebrated Mother’s Day meetings – no virtual meetings like last year.

“I think we’re starting to shoot. I think we’re starting to heal as long as everyone keeps getting vaccinated, wearing their mask and social distancing,” said Tina Yamaki, President of Retail Merchants of Hawaii.

But Yamaki said there are still too many sectors – particularly retail and restaurants – that are struggling.

“There are still many companies trying to recover. You are currently in debt. They haven’t paid their commercial rent for almost a year,” she said.

Green says there is hope Hawaii’s economy will continue to improve after Japan lifted its self-imposed 14-day quarantine on travelers. That will likely be after the Tokyo Olympics in August.

Copyright 2021 Hawaii News Now. All rights reserved.

Despite recovering from the worst economic impact of the COVID-19 crisis, Hawaii is facing major problems that existed before the pandemic and are likely to worsen, experts on Hawaii’s economy and demographics say.

Hawaii‘s economy could recover.

“But,” says University of Hawaii economist Carl Bonham, “what are we jumping back to?”

Though tourists may return to Waikiki, Hawaii is in trouble.

Consider Hawaii’s most vulnerable: There are undoubtedly more of them than before the pandemic, and Bonham says they’re almost certainly faring worse, despite federal stimulus money that’s kept many households afloat.

According to a 2020 report by Aloha United Way, 42% of Hawaiian households were just making ends meet and 33% were just above the poverty line. These so-called ALICE families, known as “asset-constrained, income-constrained, employed,” lived essentially paycheck to paycheck with little financial cushion when things went wrong.

Another 2020 study that looked more broadly at household financial health showed that even more people are burdened by the high cost of living in Hawaii. The Financial Health Pulse found that more than two-thirds of households were struggling – many turning to savings or living with extended families to make ends meet – strategies that left little room for maneuver to deal with unexpected crises.

While employees have been able to work from home, others have not been so fortunate. And while some might have been able to save on stimulus checks or use them to pay down debt, the worst had no option.

“There is no doubt that there are more ALICE families than before, they are worse off than before, so we have a lot to do,” Bonham said.

Low unemployment rate hides the problem

Hawaii’s lower unemployment rate has masked another fundamental problem. The state has lost an enormous number of jobs. According to the University of Hawaii Economic Research Association data portal, the civilian workforce had fallen to 608,600 at the peak of the pandemic in September 2020, compared to 667,800 in the same month in 2019.

By February, the most recent month for which data is available, that number had risen to 658,000. While that was an improvement, it was still about 17,700 fewer jobs than the 675,700 job counts reported in February 2020, just before the pandemic began.

Hawaii has lost so many jobs that UHERO’s most optimistic scenario, published in a March outlook titled “Substantial Recovery In Sight,” predicts it will be in 2022 before the number of payroll offices falls below Reached 4% of pre-COVID levels.

The worst case scenario envisages something far more sinister.

“The total number of payroll processing centers would not even reach 2015 levels by 2025,” UHERO reported. “The prolonged period of weakness would inflict significant additional pain on local households and businesses.”

What is certain is that things are not as good as they seem at the moment. For example, Hawaii’s unemployment rate has fallen from about 22% in April 2020 to less than 9% in April this year, which is looking good. But Bonham said a better gauge of what’s really going on is something known as U6 unemployment.

It measures not only unemployed and job-seekers, but also those who are underemployed – for example, people who work part-time but want full-time employment. That number, Bonham said, is closer to 19%.

That’s nearly one in five workers who is still, if not unemployed, then underemployed.

Against this backdrop, Hawaii faces another problem: a brain drain that has resulted in a net loss of population. UHERO forecasts that Hawaii will continue to lose population in 2021 and 2022, which would mean five straight years of net population declines and no real recovery in 2023. The losses are particularly noticeable as births generally outnumber deaths each year, so the population should naturally be growing.

It’s the continuation of a trend that has been going on for decades as Hawaii’s population ages and young people leave the country.

Jenjira Yahirun is a professor of sociology at Bowling Green State University who previously studied Hawaiian demographics as a researcher at the University of Hawaii’s Center on the Family. She said Hawaii’s population loss is a worrying indicator.

“Migrating is a big decision,” she said. “Leaving the state is a big decision.”

Hawaii is highly unusual due to its isolation, high cost of living and prevalence of multigenerational households and the importance of family connections, she said. These factors make it both undesirable and difficult for people to leave the country.

The result, she said, is that those who leave Hawaii are often people with more professional skills and the means to set up households elsewhere. Those with fewer opportunities and less money, she said, are often the ones who stay even when job opportunities are limited.

It’s not new that people who go to college don’t return to Hawaii because of a lack of job prospects, she said. The fallout from the pandemic, she predicted, “would only catapult that further.”

But continued damage to the economy could prompt others to leave in search of better work, particularly to places like Las Vegas, which is a popular landing spot for Hawaiian expats.

And the trend goes far beyond family breakups. It’s also bad for the economy, says Peter Ho, chairman, president and chief executive officer of the Bank of Hawaii.

“Fundamentally, fewer people means less economic output and a greater tax burden on those who stay,” Ho said.

Finally, there is a potentially longer-term problem facing younger people. Those transitioning into young adulthood during the pandemic could face long-term economic problems, says Sumner La Croix, a University of Hawaii economist who has written about the phenomenon known as economic scarring.

In a UHERO blog post co-authored with fellow economist Jim Mak, La Croix pointed to research into the impact of the 1916 polio pandemic, which included 23,000 cases. Officials closed public schools and imposed quarantines. Decades later, a 2017 research paper showed, many high school students nearing graduation chose not to return to school when it reopened.

1940 U.S. Census data collected when these students were 38 to 41 years old showed that they “completed fewer years of education than those who preceded or followed them,” LaCroix and Mak said.

“It could be a lot worse for kids who graduated in May 2020,” La Croix said in an interview.

Affordable housing and economic diversification are essential

The consensus is that there are two things that can be very helpful. The first is housing for low-income people.

“There needs to be more housing, and there needs to be affordable housing,” Yahirun said.

Ho agreed.

“We have to work on both the issue of economic dynamism and the issue of the cost of living,” he said. “In terms of the cost of living, creating better and much cheaper housing is key to better affordability.”

Regarding economic dynamism, the Hawaii Department of Business, Economic Development and Tourism is embarking on a multi-year process to develop a plan called Hawaii 2.0 for diversification. Gov. David Ige will leave it up to the next governor to decide whether to implement Hawaii 2.0 or some other plan.

Meanwhile, a community group called Aina Aloha Economic Futures is also working on a plan separate from Hawaii 2.0. The goal is to take Hawaii in a new direction, said Keoni Lee, one of the group’s founders.

“The status quo has an unrelenting dynamic,” he said in an email. “It doesn’t take much effort or energy (actions) to keep it going. Changing this will require an equally powerful counterforce.”

The group sees industries like creative media, agriculture and renewable energy as potential growth sectors, Lee said.

“It’s not about the cost of living,” Bonham said. “It’s about well-paying jobs that are readily available and are the kind of jobs that people want to make a career out of.”