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Posts Tagged ‘Hawaii’

Back in March, I explained that a spending cap is desirable, but noted that it’s important to set a limit that actually restrains government spending.

I made the same point as part of a recent speech to Hawaii’s Grassroot Institute.

My main point is that the goal of fiscal policy should be to control government spending, ideally by making sure it does not expand faster than the private sector.

That’s my Golden Rule.

The problem in Hawaii is that there’s a spending cap, but it’s set too high. Politicians are allowed to increase spending at the rate of growth of state income.

It’s far better to cap spending so that it increases no faster than population plus inflation.

Like the TABOR rule in Colorado.

But that’s only part of the problem. As I noted in my remarks, Hawaii politicians routinely waive even the overly permissive limit in their state.

At the risk of repeating myself, they should copy Colorado.

I also explained to the audience that a balanced budget is nice, but it shouldn’t be the goal of fiscal policy.

  1. From an economic perspective, the real problem is spending, regardless of whether outlays are financed by taxes or borrowing.
  2. From a practical perspective, balanced budget requirements are unsustainable because revenues rise and fall with the business cycle.
  3. From a political perspective, politicians can opt to comply by increasing the tax burden, particularly during an economic downturn.

I’ll add a fourth point. governments (such as Switzerland) with successful spending caps have a very good track record of budget surpluses. The same can’t be said for European nations that are supposed to comply with anti-deficit rules.

Not that Switzerland’s success should come as a surprise. If you fix the disease of excessive spending, that automatically should solve the symptom of red ink.

P.S. Here’s an explanation of Switzerland’s spending cap.

P.P.S. Here’s how a spending cap could solve the fiscal mess in Washington.

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I just returned from a trip to Hawaii, where I gave a couple of speeches about the desirability of strict annual limits on the growth of government spending.

But regular readers already have seen plenty of columns on the issue of TABOR-style spending caps, so I’m using the trip as an excuse to highlight a couple of Hawaii-specific issues.

Yesterday’s column was about the Hawaii government’s foolish decision to subsidize home building in areas vulnerable to volcanic eruptions (basically, a state version of the federal government’s bone-headed flood insurance program).

Today, let’s investigate the decision to build a rail system in Honolulu.

I’ll start with the observation that governments do a lousy job with infrastructure.

This is true with big projects. This is true with small projects. This is true with foreign projects.

And it is true with projects in the middle of the Pacific Ocean. Here are some details about Hawaii’s boondoggle, as explained by Keli’i Akina of the Grassroot Institute.

…the folks in charge of the Honolulu rail project have been relentlessly sunny in their projections. It was sold to the public on the promise that it would only cost about $4 billion, that it would be completed by 2019 and that the general excise tax surcharge associated with it would end by 2022. By the time the Federal Transit Administration got on board with an agreement to contribute $1.55 billion, the expected cost was $5.12 billion. Now, with the FTA still holding on to $744 million, the projected cost is approximately $12 billion. The last completion date we were given was 2031, and the GET surcharge has been extended to 2030. …my colleague Joe Kent at the Grassroot Institute…said the recovery plan has “overly optimistic assumptions about revenues, ridership and costs, and that this could saddle local taxpayers with unstated liabilities in the future.” He pointed out that, given its track record of ballooning budgets and delays, HART’s projections should be treated with extreme skepticism.

Reading the column, I think Hawaii taxpayers are lucky.

The inevitable cost overrun (at least so far) has “only” pushed the cost from $4 billion to $12 billion.

California taxpayers would be overjoyed at that result.

So why should non-Hawaii residents care? For the simple reason that you’re (unfortunately) paying part of the tab.

Sadly, very few people are drawing the appropriate conclusion.

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I’ve written several times about federally subsidized flood insurance, mostly to complain that it is terrible policy.

People are encouraged to build homes in low-lying areas, which then leads to needless destruction during floods.

The monetary cost is significant, but I get even more upset that responsible people are forced to finance other people’s irresponsible choices.

It’s such a bad policy that even Bernie Sanders favors reform.

And it’s such a bad policy that politicians in Hawaii decided it is worth copying. But they chose to subsidize building homes that are vulnerable to volcanic eruptions.

I’m not joking. Joe Kent of the Grassroot Institute wrote about this foolish system.

…the state originally encouraged the building of homes in this dangerous area by offering lava insurance where no private company would. …In response to the absence of private insurance, the state Legislature created the Hawaii Property Insurance Association (HPIA), whose job is to provide coverage for homes in areas that private insurance won’t touch. The law requires private insurance companies to pool their money to subsidize the expense of offering insurance in high-risk lava zones. …This resulted in a boom in the housing market below the active Kilauea volcano. …The moral hazard of this new insurance program gave a false sense of security to homebuilders in Leilani Estates.

And where, pray tell, can you find Leilani Estates?

In the most dangerous path of the most active volcano in Hawaii.

Given my libertarian sympathies, I think people should have the right to build in dangerous areas.

But I also think that they should bear the risks. Including what happened a few years ago.

…that hazard is very real for families watching their homes be engulfed by magma. What was seen as a “market failure” was really a warning sign to those building in Lava Zones 1 and 2. If the state had stayed out of the situation, probably fewer families would have built in the area, and today there might be less housing destruction.

The obvious moral of the story is that we should not have government-subsidized moral hazard.

That’s not a proper role of the federal government, and it’s not a proper role of state governments.

P.S. The same is true for subsidized terrorism insurance.

P.P.S. For more on government-created moral hazard, click here.

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It may not mean much since the Democratic vote was divided by two candidates, and it is offset by the loss in the Pennsylvania special election, but it must rankle Obama that the GOP won his childhood congressional seat after 20 years of Democratic control. We will see this November whether this is a trend or anomaly:

Djou won with close to 40 percent of the vote in the mail-in special election, beating Democrats Colleen Hanabusa, with 31 percent, and Ed Case, 28 percent. …The applause from Djou’s victory party could be heard six time zones away in Washington, D.C., where national party leaders trumpeted a victory on President Barack Obama’s home turf. “I congratulate Charles Djou for his victory and a successful campaign based on the widely shared values of cutting spending, shrinking government and creating real, permanent American jobs,” said U.S. Rep. Pete Sessions, R-Texas, chairman of the Republican Congressional Campaign Committee.

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