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Carl Bonham

One of Hawaii's leading economic researchers is cautiously upbeat about the future

By Mark Coleman

POSTED:
LAST UPDATED: 02:23 p.m. HST, Aug 05, 2011

Carl Bonham is an associate professor of economics at the University of Hawaii and executive director of UHERO, which he co-founded in 1998 to help business and political leaders "make better decision

Carl Bonham had a choice to make after receiving his doctorate in economics from the University of Texas at Austin in 1989: Accept an assistant professorship at the University of Hawaii at Manoa or go with one of the offers from mainland universities.

The deciding factor? "I'm a windsurfer," he said.

These days, Bonham teaches economics at UH and also is executive director of the University of Hawaii Economic Research Organization (UHERO), which he founded in 1998 with UH colleagues

One impetus for forming the group was the recent closures of the economic research divisions at Bank of Hawaii and First Hawaiian Bank, which were often referenced for their economic forecasts.

From its humble beginnings as a part-time affair, UHERO now has a staff of "three-and-a-half" faculty (as of Aug. 1), three full-time administrative staffers, and a dozen or more graduate assistants and undergraduate interns. Financial support is about 50-50 between the university and grants and contracts.

Now an associate professor at UH who hopes to go up for a full professorship in the next year or so, Bonham also is a member of the state Council on Revenues, created by law to estimate future state tax revenues so legislators and the governor can shape their spending plans.

Still a windsurfer and now also a standup paddler, Bonham, 51, lives with his wife and daughter in Kaimuki.

***

Question: So, everyone wants to know, what's up with the Hawaii economy?

Answer: Good question. Basically, we're not that different than the rest of the country. Things are improving -- just not nearly as fast as you'd like.

Q: The rest of the country is improving?

A: Oh sure -- just not very fast. I mean, we're not going backwards, let's put it that way. ... The country as a whole has added an average of about a hundred thousand jobs a month for about the last six months.

Q: What else is a little better?

A: Well, if you take the broad picture for the state, then you would say that, on average, the whole economy is improving.

Even if you look at tax collections, ... they have actually been going up on a month-to-month and quarter-to-quarter basis.

And same kind of picture for jobs, for income. As I said, it's just not very rapid.

So, through the first five months of this year, jobs growth is about 1.3 percent. I think our forecast for the whole year was 1.6 percent. I'm not convinced we're going to get there now, because things seem to be sort of plateauing. I mean, we saw the visitor arrivals return, and daily census and other measures of visitor spending bounced back quite quickly, but they've sort of flattened out over the last, say, four or five months.

Q: Was the resurgence of tourism due to people going out and having fun one last time, and now they're going to go back to being Scrooges with their money?

A: There were a number of things going on. One of them was a return of airline lift. Air seats just fell off a cliff when we lost ATA and Aloha Airlines back in May of 2008. Now, we're back to about half of where we were before. This is your Hawaiian Air, your Alaska Air, rushing to take up some of that capacity that was lost when ATA and Aloha went out. It was competition to get into that Hawaii market -- because we know it's not gone forever, right? ... They were also doing it at very aggressive prices, and introducing new advertising.

The other thing is people had been through a year-and-a-half of economic misery, and those who could have afforded to travel in '08 and '09 chose to stay home, because of a little bit of fear ... I mean, they weren't sure if they were going to have a job. Well, come the middle of late '09, they say, "Oh, OK. I got through this. I still have a job. My house is worth 20 percent less, but I'm OK. I survived. I haven't vacationed in almost two years. I deserve a vacation. I'm going."

So you have this combination of pent-up demand and a realization that we're still here, we're going to make it. Prices were really good. Air fares were good. Hotel room rates were good. You could get a room easily. "OK, I'm going." So we got that boost, and we've basically plateaued from that. In fact, domestic-scheduled air seats are actually down from a year ago.

Another thing that happened is that the international market has done really well for Hawaii. We've seen continued strong growth from Canada, from Korea ... Going forward, the growth is going to be in Asia -- the super growth, if you will. And we're positioned to take advantage of that.

Q: What do you think are the major strengths of the Hawaii economy?

A: One of the things that has in some ways made it weather the downturn a little bit better ... is that Hawaii benefits from federal dollars. For example, if the military housing renovations weren't still going on over the last three years ... the losses in construction would have been greater. So that's been a key stabilizer.

And while the visitor industry was hit very severely by the downturn, it's obviously still the No. 1 industry. It's a strength. We're still considered to be -- and will be for a long period of time -- a premier destination.

So those are the two biggest building blocks for the economy.

And our location in the middle of the Pacific is going to be an important issue, even as federal spending diminishes, and as presumably military spending is cut as well. We should still continue to get a much bigger chunk of the pie, so to speak, than we otherwise would.

Q: What would be Hawaii's major weakness?

A: (Long pause) ... Let's see if I can say this diplomatically ... (Another long pause) Our major weakness seems to be our inability to tackle big problems, big issues -- everything from education to land-use issues, transportation issues. ...

Our inability to effectively deal with land use is huge. I mean, if you look at the high cost of housing, we don't build houses, at least not on Oahu. We're building almost nothing right now, and if you don't allow people to build homes, you can't expect them to be affordable.

Q: What do you think needs to be done to improve the climate for job-creating businesses?

A: I guess one of the things economists tend to focus on is government not trying to create the jobs, and not trying to solve problems it shouldn't be trying to solve.

To give you an example, we ... at UHERO have written a few papers on Act 221, regarding the high-tech tax credits. The state has given away a significant amount of money in those tax credits. And if you look back, almost every time the Tax Review Commission is convened and does a report, they suggest not using tax credits as heavily. One of the reasons is that you tend not to get the budget scrutiny that you would if they were spending the money. ...

Q: On the flip side, supposedly you are generating tax revenues through the jobs that are created.

A: Yes, it happens. But the basic idea behind business incentives and tax credits is that somehow we're going to diversify the economy, and the first question we have to ask is, how do we know that that's the way we should be diversifying the economy? And if these businesses need a 100 percent tax credit in order for them survive, why would we want to diversify in that way? It's just kind of the basic issue of picking the winners.

The Pizza Hut down the street would love to have a 100 percent tax credit to put in new ovens and new tables and so forth, but they won't get it.

Q: What's been the track record of UHERO predicting trends in the local economy?

A: I've done some back-of-the-envelope analysis. ... It's not rigorous or scientific ...

Q: But you're happy with your performance?

A: Yeah, at times. I mean, we've missed big moves in visitors, which is not a surprise. But if you looked at the job-growth numbers, I know we were doing better, on average, than some of the other forecasters in town over about a five- or 10-year period.

It's actually something that's on our to-do list (to document UHERO's track record). It's not an easy thing to do.

Actually, it would be a really interesting thing to do for the Council on Revenues also. ... Five or six years ago I collected all the old council forecasts, and hopefully I'll get to that someday.

Q: Consider this an inspiration to help you get that off the ground.

A: Yeah. Well, it's important for us also because we'd like to use the analysis to help us improve our tools. Our models are always a work in progress.

Q: UHERO seems to get great media coverage for its work. Why do you think that is?

A: (Laughter) Because we work at it pretty hard. It took us a while to figure it out.

Part of it is being accessible. That's one of the things I do as a director. When someone from the media calls, I call them back. And to some extent, there aren't many people doing what we're doing.

The other thing is that it comes and goes. During the crisis, we were probably in the news every two days or every day. But, as I've discussed with the group of researchers and faculty and staff that we have, as the economy sort of stabilizes, the interest in forecasts and things is going to wane.

We're going to become a lot more boring, with any luck.






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