Road Map to Prosperity

From Grassroot Institute, November 22, 2019

True or false?

• State economies are growing all across the United States, but none as slowly as Hawaii's, which is virtually stagnant.
• Hawaii is one of the lowest-ranked among all 50 states in terms of economic freedom.
• The Aloha State has shown negative population growth for two years in a row and is poised to make that three. 

The answers, of course, are all, “True.”

Do you think these three facts might be related? If not, it’s time to remove your rose-tinted glasses.

The reports of Hawaii’s slow-moving economy aren’t exactly new, given that economists from the University of Hawaii have been writing on the issue for months. However, the newest figures from the U.S. Bureau of Economic Analysis put the issue in simple black and white: While real gross domestic product increased in every state and the District of Columbia during the second quarter of 2019, Hawaii was dead last with the lowest percentage of growth in the nation.

Hawaii had a paltry 0.5% GDP growth in the period, followed by Maine at 0.6% and New Jersey at 0.7%. The bureau stated that a decline in wholesale trade contributed to the slow growth of the three states.

At the other end of the spectrum, several states saw more than 4% GDP growth, including Texas, 4.7%; Wyoming, 4.2%; and Alaska, 4.1%. The high growth in those states was partially due to a 23.5% growth in the mining sector, followed by strong growth in real estate; government; and professional, scientific and technical services. 

So why is Hawaii falling behind? 

To answer that, we need to consider the most recent report on the Economic Freedom of North America, published annually by Canada’s Fraser Institute. The report looks at the individual states and provinces of Canada, the United States and Mexico and ranks them in terms of how economically free they are, focusing specifically on government spending, taxes and labor market freedom. The index consistently finds that greater economic freedom is generally associated with higher economic growth and greater entrepreneurial activity.

Given Hawaii’s poor performance in economic growth, it shouldn’t be a surprise to learn that our beloved state scored poorly on the economic freedom index. In 2019, Hawaii ranked 40th in economic freedom, a decline from 37th the previous year.

Especially notable was the state’s poor rating in the taxation category, ranking 49th overall. The only state with a higher top marginal income tax rate is California, while Hawaii’s general excise tax continues to be rated as the worst in the nation when it comes to “sales tax as a percentage of income.” 

The state also performed poorly in labor market freedom, ranking 47th overall. This includes not only minimum-wage legislation and government employment, but also “union density” — another category in which Hawaii is among the worst in the nation.

So what do these figures have to do with the number of people leaving Hawaii? Simple. Our state’s economic stagnation and high prices are tied directly to our policies affecting economic freedom. As our “Why We Left Hawaii” series has demonstrated, our distressing economic conditions are why so many of our family, friends and neighbors have been leaving, seeking lower costs and better opportunities elsewhere. 

In other words, to keep people in Hawaii, we need to pursue strategies that will lower the cost of living and foster economic opportunity. That means embracing the policies that the more prosperous states in our country have adopted, including lower taxes, reduced government spending, and fewer regulations on labor and employment.

This is the roadmap to greater prosperity — and to a Hawaii that is affordable for everyone.

E hana kakou! (Let's work together!)  

Keli'i Akina, Ph.D.
President/CEO