Where is Hawaii Transportation Headed?

Remarks to the Hawaii Venture Capital Association and ThinkTech Transportation Panel, Plaza Club, February 28, 2013.

Aloha and thank you for the opportunity to present you my take on the future of transportation in Hawaii.

• Honolulu has among the nation's worst quality roads.
• Honolulu has among the worst traffic congestion particularly among peer cities.
• Hawaii has among the highest rates for drunken driving.

To solve all these highway related problems, Honolulu ordered a 5 billion dollar train.

The unquestionable and predictable result is that all these problems will get far worse by the time the train is installed. And by that time Honolulu will be short on transportation funds.

With less funding, there is no doubt that the congestion, maintenance and safety problems will get even worse.

In December 2007 Hawaii got the private Superferry. This was a means to get bulky items, equipment and vehicles between islands in 3 to 6 hours instead of 3 to 6 days. However, Hawaii did its best to preserve its way of moving bulky items, equipment and vehicles between the islands in 3 to 6 days.  A key supporter of the Superferry's execution is now Hawaii’s Representative in Congress.

Hawaii is probably the most oil dependent place on earth. Sure many Greek and other small islands depend on diesel generators to make power but their winter population is usually 1,000 to 10,000 people. Here we have 1.5 million people in the middle of the Pacific and we are about 80% dependent on oil and its volatile pricing.

Instead of investing in solid alternatives like coal, natural gas, trash and geothermal, we are now approaching the waste of one half billion dollars on flaky wind and solar.

Worse yet, we are extremely fuel dependent for land, air and sea transportation. Smart government should have found means to develop gobbles of cheap electricity so that we can extract fuels from algae and biomass to fuel vehicles, boats and airplanes.

But our flaky government is concerned with plastic bags and shortcuts to development, like the PLDC. And we are losing the Tesoro refinery.

The Tesoro plant used to make asphalt, but county and state government wouldn’t commit to a schedule of road repairs. So about 10 years ago Tesoro stopped making cheap asphalt. So now we need to bring it in and store it.

Hawaii government promotes EVs by making expensive, anti-business mandatory parking and charging regulations. At the same time Hawaii offers EV buyers the highest electricity rates in the nation, to punish EVs as much as possible.

The cost of power in Hawaii is three times the US average. So the 90 MPGe Nissan Leaf is 30 MPGe in Hawaii. Do you know how many conventional cars you can buy that deliver 30 mpg or more, and have a much lower price, and require no subsidy like the five grand we dole out for each EV?

And answer me this. Why are we even promoting EVs when 90% of our electricity comes from oil and coal? Each EV that clocks about 50 miles per day consumes as much electricity as a modest house with 4 people. Isn't this a fake and indeed disastrous oil independence policy?

Again thanks to our silly renewable mandates the KWh rates will only go up, so we will get less power, less reliability, and higher rates.

What's the future of transportation in Hawaii you ask?  In the past quarter century, transportation (except for TheBus,) public education and energy performance in Hawaii have ranked in the bottom half in the US or very near the bottom. I expect that this level of poor performance will get worse.

Although there are great alternatives, Hawaii is actively burying its potential for a bright future. Cost-effective decision making, long term sustainability planning, and accountability with stiff penalties are all absent. And so is our chance for improvement.

Mahalo!

Transportation and Economy

This is a 22 minute lecture on the very many facets of Transportation and its effect in the regional, national and world Economy.

It's in the format of a movie for my public access TV show Panos 2050: Sustainable Solutions for Hawaii on Transportation and Economy.

Click the link and wait a few seconds for the movie to load.

Energy from Trash Should Be a Priority for Hawaii

Read the full article in Honolulu Civil Beat. Selected highlights:

The long term economy of Waste to Energy (WtE) plants is very good. There is plenty fuel (trash, waste and biomass). Municipalities pay the WtE plant to take their trash. The utility pays the WtE plant for the mega-watts of electricity it produces. Trash volume reduces 6 to 10 times so landfill demand is minimized.

• Sweden imports waste from other Europe to fuel its WtE program. Maui should install a WtE plant and bring in trash from Big Island, Lanai and Molokai. Oahu should plan for another 100 MW of WtE (about half of it tuned to burn biomass, sludge and manure) and bring in trash from Kauai. Barges return to Honolulu from Kauai practically empty.
• Both Oahu and Maui should consider ordering a sophisticated MRF, or Materials Recovery Facility, to better sort materials such as glass (by color), stones and similar inert materials, and all types of metals out of the trash. This would result in a cleaner burn at the WtE plant and revenue from recyclables, e.g., mixed glass is nearly worthless but glass sorted by color has value. So do sorted metals.
• To make Oahu more sustainable we should revise what we currently trash and what we recycle at home in the BLACK, GREEN and BLUE bins, as detailed in the post below.

Last but not least, The Economist notes that "Energy from waste plants that use trash as a fuel to generate electricity and heat continue to have an image problem. That is unfair, because the technology has advanced considerably and has cleaned up its act." As depicted in the image blow, very large part of modern WtE plants is devoted to pollution control.

Honolulu at the Bottom of Top 300 Cities

Shortly after publishing the post on Honolulu's and Hawaii's "no change" situation of the last three decades, I saw the Global Metro Monitor update of the Brookings Institution (a think tank.) Yet another non-flattering economic statistical outcome for socialist-heavy (Democrat) Honolulu.

Blue cities (Democrat majority) are actually mostly red (weak economy).

Hawaii Over The Past 20 Years: Minimal Change, Minimal Growth. What Should Hawaii Plan For?

Annual U.S. Bureau of the Census data strongly suggest that Hawaii, and Oahu in particular, are stable communities with very mild growth and change particularly after the turn of the millennium.

The data suggests that mega-projects such as rail and "big wind", and mega-developments such as Ho'opili and Koa Ridge are ill conceived and unnecessary.

This slideshow provides both data evidence and brief discussion.

Politicians have engaged in biased or data-free decision making for decades. The mounting debts are sufficient proof that ignoring the trends and serially engaging in unproductive activities simply digs a deeper hole. Both Hawaii and the US are approaching the danger of the hole walls caving in and burying them, much like the PIIGS* and other countries.

What should Hawaii do in the next two decades?  The last slide provides the answer. In three sentences:

• Decline followed by stability will be the trend.
• Send “visions” and mega-projects to the cemetery.
• Maintain, Replace, Modernize should be Priority 1.

(*) Portugal, Ireland, Italy, Greece, Spain

U.S. Titanic

Cox, a former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, is president of Bingham Consulting LLC, and Archer, a former chairman of the House Ways & Means Committee, is a senior policy adviser at PricewaterhouseCoopers LLP.

On November 26, 2012 the Wall Street Journal published their opinion... Why $16 Trillion Only Hints at the True U.S. Debt: Hiding the government's liabilities from the public makes it seem that we can tax our way out of mounting deficits. We can't.

It explains quite well that the cartoon below is quite real.

JONES ACT Hurts Hawaii (Alaska, Guam and Puerto Rico too)

Bloomberg indicates that U.S. islands such as Puerto Rico, Guam and Hawaii, along with the state of Alaska, feel the effects of the Jones Act more than most localities. Some of Hawaii’s political and business leaders have long complained that the restrictions mean all goods shipped from the U.S. mainland must go via the two carriers serving the state. By some estimates, Jones Act makes goods in Hawaii 33% more expensive than they could be.

For island territories the Jones Act is counterproductive and indeed hazardous. "Russian Icebreaker to Make History in Alaska" is an example of how the Jones Act endangered a community in Alaska. Even in a critical situation like this, the Russian ice breaker could not load oil from an Alaska port and take it to Nome, Alaska, but it had to backtrack to Korea to get the oil and back to Nome, Alaska.

Both Presidents George W. Bush and Barack Obama resorted to temporary Jones Act waivers so Foreign-Flag crude tankers could transport the government’s crude oil from the Strategic Petroleum Reserve (SPR) to the refineries because no Jones Act tankers were available.  The Bush waiver occurred in September 2005 following Hurricane Katrina and Obama’s from July through September 2010 in response to the loss of Libyan oil on the world market. (The Jones Act is a Critical Energy Issue)

Prophetically in the same March 2012 article Michael Hansen predicted this: "The Jones Act may now result in the closure of Tesoro’s Hawaii refinery."  It happened less than a year later: "Tesoro Corp.’s Hawaii refinery in Kapolei, the largest of the two oil refineries in the state with a capacity of 94,000 barrels a day, is closing its refining operations in April." (PBN, Jan. 8, 2013)

With this introduction in mind, here is a sample of articles asking to ban or modify Jones Act for Alaska, Guam, Hawaii, Puerto Rico and other U.S. Territories:

• The influential maritime publication Lloyd’s List endorsed an exemption from the U.S. build requirement for Hawaii, Alaska and Puerto Rico. The editorial published on Friday January 4, 2013, was written by Tom Leander, Editor-in-Chief, Asia, Lloyd’s List, based in Hong Kong. Leander writes that "many critics of the Jones Act, including Lloyd’s List, hope that the GAO will provide evidence that can be used to persuade Congress to scuttle the US-built requirement of the Jones Act as it applies to Puerto Rico — and further to Hawaii and Alaska – under a so-called sunset waiver."

• The Secretary of the U.S. Department Homeland Security, Janet Napolitano, issued a Jones Act waiver this morning to allow foreign-flag clean products tankers carry refined petroleum products from domestic coastwise ports to the North East which is suffering from shortages of motor gasoline and diesel fuel due to Hurricane Sandy.  The waiver expires on November 13.

• Hawaii Shippers Council Outlines Jones Act Reform Proposals: The Council's press release observes that "90 years of Jones Act protection has resulted in the near complete collapse of the U.S. deep draft merchant shipbuilding industry, and continuing that protection for the noncontiguous trades will not save it. The Act has generally failed to achieve its intended goal to nurture the U.S. maritime industry, and commercial deep draft commercial shipbuilding in the United States is all but ended."

• Honolulu Star-Advertiser's Guard asea on aged craft reveals Coast Guard issues with aging cutters it cannot afford to replace: “The Coast Guard in Hono­lulu faces a dilemma with its two biggest ships, the aging 378-foot cutters Jarvis and Rush, which the service wants to retire but can't because it has no replacements.” 

• Senator-candiate (at the time) Mazie Hirono provided a container load of untruths to justify her baseless support for the Jones Act: "In Hawaii especially, the maritime industry is an essential economic mover, generating more than $4.7 billion annually into Hawaii’s economy and providing more than $1.1 billion in wages and benefits for our people."

• Sen. Hirono's position is diametrically opposed to Eddie Baza Calvo's, Governor of Guam. He is "Seeking an exemption from the Jones Act to make the price of nearly everything on the island cheaper."

• Sen. Hirono position is diametrically opposed to Representative Pedro Pierluisi's, Puerto Rico member of the U.S. House of Representatives. “I am pleased that the GAO is actively working on my request to determine, once and for all, the economic impact that the cabotage laws have on Puerto Rico. This study should put an end to all of the speculation that surrounds this subject and, if the study concludes that the Jones Act is having a negative impact on our economy, could provide the basis for potential legislative action in Congress,” said Pierluisi. The U.S. Government Accountability Office (GAO) is preparing a report “to provide policymakers with a comprehensive, descriptive summary of information on the Puerto Rican and Caribbean Basin trade markets, and how the Jones Act potentially affects these markets.” 

• Adding to Hawaii's oild dependency woes, Natural gas is cheap, but Jones Act rules it out for Hawaii, says Michael Hansen, President,Hawaii Shippers Council.

• An expanded version of the article above is titled: Jones Act Requirements Could Block Natural Gas Transport to Hawaii

Endnote: These U.S. territories are exempt from the Jones Act: American Samoa, The U.S. Virgin Islands (USVI) and The Commonwealth of the Northern Mariana Islands (CNMI) due to the international treaties associated with their annexation by the U.S.

New 3-Cylinder Ford Engine Delivers 47 mpg!

Alan Mulally is the venerable engineer and project manager of the Boeing 777 and for several years now CEO of Ford Motor Company. Why is he kissing this new engine?

Because this super-efficient, well-balanced and light weight engine can deliver 47 mpg in a Ford Focus compact car without the complexity and price penalty of hybrid technology. Many manufacturers are now turning to 3-cylinder engines for their smaller cars but also prepare editions that match the output of common V6 engines for larger vehicles.

These smaller engines would have huge benefits for the world market, and China in particular, where Volkswagen announced plans to build its 7th plant, just a few days after Ford had said it would build its 5th.

This is good news for mobility and the planet. Smart policies* and smart engineers get the job done: Mini engines with normal performance and mini consumption and air pollution. And fewer resources used to make those engines enhances long term sustainability.

Note (*): America's new emission standards require car manufacturers to achieve a fleet average of 34.1 mpg by 2016 and 54.6 mpg by 2025.

Hawaii's Sudden Economic Tsunami

With the sudden death of US Senator Inouye and the retirement of US Senator Akaka, both in December of 2012, Hawaii instantly finds itself at the center of an unprecedented fiscal tsunami due to the total loss of Congressional seniority. The table below indicates that Hawaii's Congressional Seniority changed overnight from stellar to abysmal.

Although well over half of federal funds are appropriated by formula, a large share of local programs are funded by special appropriations and earmarks which would be very hard to obtain in the coming years.

Recent preliminary research by a group of students at UH placed the annual impact of Senator Inouye to Hawaii between $200 Million and $450 Million per year. The students surmised that the sudden loss of Senator Inouye would be similar to the sudden and complete loss of Hawaiian Airlines.

An expanded discussion by Malia Zimmerman "Hawaii, Like Alaska, Could See Huge Fiscal Impact From Loss of Congressional Seniority" combines multiple sources to provide additional information about the financial impact to Hawaii.

-------- January 11, 2013 Update -------- 

 Within about two years, I guestimate that Sen. Inouye's death combined with Sen. Akaka's retirement and the absence of no reps from Hawaii in an Appropriations Committee to cost:

•     ~ 200 high paying military contract jobs (civilian)
•     ~ 800 normal paying military contract jobs (civilian)
•     ~ 300 high paying UH research jobs
•     And a few dozen other millions in gravy
•     For a total of at least $200 Million per year of taxable income and related economic activity.

After a couple of years, the East-West Center, UH's Kakaako Medical Research Center, Mauna Kea astronomy investments, many small subsidized programs and the Armed Forces may be in jeopardy for major cuts.

Obama Re-elected. Market Drops 2%. So What?

I am sure that my Obama loving friends celebrated well last night. I'm glad they did because it's pretty much downhill from here.  This market reaction is only a tiny harbinger of what's to come.

Nothing personal with the President, but as Margaret Thatcher put it, Socialism lasts only as long as other people's money last. The math is both simple and brutal.

I hope you don’t think that only the top 1% of income earners lost a bit of wealth overnight.  Government and private company retirement funds, individual 401Ks, university endowments and most other savings and investments of the remaining 99% are in the stock market. (And in US bonds and T-bills that pay less than inflation so people's savings diminish with time while pension under-funding is growing.)

Of course Californians voted for added taxation to themselves. The outcome of this will be none other than ... Ross Perot's "giant sucking sound..."

These days the world is running at the speed of the Internet. Trends develop and bubbles burst quickly. So all of us under 75 stand a good chance in finding what Greece is all about where, among other things, unemployment for people under 25 yo is at about 50%.

Celebration will quickly turn into sequestration. The Treasury has quietly informed the President that the debt limit will be reached before the year is out.

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On November 7, the day after the election the DOW dropped from 13,300 to 13,000. Some said that this was a temporary knee-jerk reaction. By November 15 the DOW had slid further to 12,500.

Rail Is Not a Path to Prosperity for Honolulu

ENERGY.  Rail may be electric but 85% of electricity production on Oahu comes from oil and coal. This won't change much with the current intermittent renewable energy schemes. So rail does not reduce our economic dependency to imported fuels but it increases our dependency to imported sole source equipment and parts for which knowledge base is absent throughout Hawaii.

DEVELOPMENT.  Rail is not needed for TODs and other development. To be done successfully, these need a solid business foundation and strong demand. Neither is present for major development. US Census statistics clearly show that Oahu and Hawaii are in prolonged and perhaps permanent "sideways" trends.  See here [link].  How can a place prosper when prime agricultural land is turned into cookie cutter sprawled homes and fake gentleman farms?

JOBS.  It is bad policy to develop transportation solutions in order to provide jobs, particularly by selecting a type of transportation that will take the transit subsidy share of the city budget from 11% to 19%. This is the path to bankruptcy, not the path to prosperity.

TRANSIT SHARE.  It is counterproductive to develop a form of transportation that will take the current mass transit share from 6% to 7.4% at a cost of over $4 billion for the local economy. Unsurprisingly if one looks at the Final EIS, all freeway and main arterial screen-lines are shown to have similar or worse congestion with rail. Congestion chokes our economy. Fake relief will provide fake results.

CONGESTION.  Honolulu has a modest tax base and it clearly cannot support mega-projects such as the proposed rail. Honolulu has relatively severe congestion because it is among the most lane deficient cities in the union.

ECONOMY.  Despite having the best bus system in the nation and very expensive fuel pricing, the demand for independent travel is very strong, partly due to tourism, military and people having multiple jobs. A single rail line does very little for tourists, too little for people with multiple jobs and nothing for the military.

MOBILITY.  A lot of our traffic is school and college based and rail does really nothing for these trips. Over half of the traffic on the roads is pickup trucks and SUVs of plumbers, electricians, distributors, repairmen and soccer moms. Rail does nothing for them too.

PRODUCTIVITY.  Adding a lot of nothing gets us nothing. In fact the FEIS clearly shows that 70,000 daily riders will switch from bus to rail.  Add a few carpoolers and the 1% who may abandon their car and that's how the rail ridership comes about. Where is the productivity in this?  Even of rail had no construction cost, one would be hard pressed to come up with positive productivity for it.

GUT TheBus.  Last but not least, the rail will dismantle the No.1 system in the nation. All TheBus routes listed below (copied from the rail FEIS) will be terminated at the nearest train station or eliminated altogether: B, C, E, 3, 9, 11, 20, 43, 53, 73, 81, 90, 91, 92, 93, 94, 96, 97, 98A, 101, 102, 103, 201, 202.

An abbreviated TV editorial of this article appeared on Hawaii News Now on October 29 and 30.  Mahalo to Rick Blangiardi, General Manager of KGMB and KHNL for this opportunity.

What Year Is It In Economic Times?

In the recent article Lost Economic Time, The Economist argues that the economic clock went back several years in terms of the economy for several developed countries.

While few would argue with the economic back-tracking of Greece, Ireland, Portugal and Spain, many would be reluctant to admit that the US economy has gone substantially backward. Yet The Economist data show that US is third worst.


This prodded me to do some basic analysis of my economic situation relative to the cost of living. I was further surprised to realize that this was also true for me!

I thought I was doing quite well in my professional and professorial career, but a reduction in my university salary, a drop in consulting (I wonder why nobody hires me to do work for the rail...) and the ever advancing Consumer Price Index or CPI have taken their toll. Indeed my CPI adjusted income average for the last three years took me back to ... 2001.



Time to redouble our efforts and claw ourselves out of our economic 9-11.

Notes: (1) The income trend in the graph is based on my federal tax adjusted gross income or AGI at the bottom of the first page of my annual tax return. (2) The CPI trend is from the annual average tabulated by the U.S. Bureau of Labor Statistics. (3) Both trends are normalized to start at 100 in 1994.

Hawaii Jobs: Outlook for Jobs in Education, Government, Military and Tourism

There are basically four main industries in Hawaii: Education, Government, Military and Tourism. And a fifth large one serving these four is Services. In round numbers, education (DOE, UH system and private) employed 63,000 people in 2010, civilian federal, state and county government employed 77,000 people, the hospitality industry including entertainment, restaurants and bars employed 90,000 people, the armed forces employed 50,000 people, and professional, business and other services employed 100,000 people. These five types of industries employ 60% of Hawaii's people.

While we have been inundated about a need for "construction jobs," the construction industry typically employs less than 5% of the workforce as the detailed breakdown below indicates.(1)


This article presents a brief analysis of Hawaii’s four main industries and assesses their growth potential.

Education
At roughly $15,000 per pupil, the annual expenditure Hawaii’s state based education system is among the highest in the nation. This level of expenditure all by itself indicates that this is certainly not an area of future growth.

Part of the Education industry but separate from the state DOE is the UH system which has become administratively bloated in the last two decades and its diversity of campuses has added more to its costs as a system. UH-Manoa is one of the top pork-barrel research funding recipient universities in the nation which is unsustainable past the retirement of Senator Daniel Inouye. Several units will continue to excel, but the UH as a whole is not a promising locus for job growth in Hawaii.

Private education will continue to hold its own but escalating tuition costs place a ceiling on the potential for large expansion unless citizens receive the choice of having education vouchers. Given the poor outcomes of Hawaii’s public education system, this opportunity may arrive sooner than it is currently thought to be possible.

Civilian Government
The table above suggests that Government provides 21% of the jobs in Hawaii but the table below suggests that if public education and US DOD are taken aside, then the share of the rest of the government’s shrinks to 10%. (The percentage shown is out of the total civilian employment in 2010.)


Over several decades Government has been a “growth industry.” Hawaii had 125,200 civilian government workers in 2010 of which 57% in state government, 28% in federal government and 15% in local government. This is an area that will experience reductions in the next few decades as city and state budgets come under heavy stress from necessary infrastructure investments, consent decrees, and pension and health fund liabilities vis-à-vis the actuarial reality of long-living baby boomers. Even larger pressure will be on federal employment.

In 1960 the ratio of government employment to the population in Hawaii was 7.8%, that is, there were 8 government workers for every 100 Hawaii residents. This ratio reached a high of 9.5% in 2000 and dropped to 9.2% in 2010. In 1960, the federal civilian employment was large at 4.3% but it reduced to 2.6% in 2010. State employment went the opposite way: From 2.3% in 1960 to 5.3% in 2010. State employment doubled from 1960 to 1970, and it doubled again between 1970 and 1990. County employment was 1.2% in 1960 and 1.4% in 2010.

It is clear that there has been no bloating in county employment and a reduction has occurred in federal employment. So the bulk of anticipated future government employment cuts will be from state ranks and from the education portion of it in particular.

Military
The explosive economic and military growth in Asia is a strong force behind stability and expansion of military in Hawaii. This is one area that the retirement of Senator Inouye may have relatively little negative effect. The geopolitical placement of Hawaii is highly advantageous. However, shifts may occur that may be less desirable for Hawaii resident employment: Military personnel numbers may increase but local civilian jobs may be reduced as Hawaii becomes more of an action-ready base rather than a storage and maintenance base. The existing Navy shipyard may be too costly and too limited to maintain at its current size.

In the past three decades the ratio of armed force personnel to Hawaii’s population has dropped from 5.3% in 1960, to 4.5% in 2000, and all the way down to 2.9% in 2010 in part because of deployments to wars. Defense cuts and vastly improved automation in military operations may result in keeping armed force employment in Hawaii below the 4% mark.

Tourism
Tourism is long regarded as the economic engine of Hawaii by capitalizing on the trifecta of natural beauty, warm climate and Hawaiian culture supported by the political and economic might of the US.

Although 2012 is expected to be a “banner year” for Hawaii tourism more dark rather than rosy clouds are in the horizon. The fundamental problems are neither market size nor marketing. It is cost.

Hawaii cannot be moved 200 miles off of the US mainland or 200 miles off of Asia. As a result, 8 million tourists have to fly to it. Fuel is roughly 25% of an airline’s cost when oil is just under $100 per barrel. If oil price grows to $200 per barrel, fuel cost will be roughly 50% of an airline’s cost and airfares will be adjusted upward accordingly. Necessarily, the market will shrink. So here is a summary of positive (+) and negative (-) forces on Hawaii tourism which, in turn will affect its job count in the hospitality industry and its supporters such as the food, culture, entertainment and transportation industries.

(-) While in the next decade there will be large changes in energy innovation and a reduction in electric power production from oil, there are no foreseeable fixes for transportation fuels, particularly when it comes to air and marine transportation, both of which are Hawaii’s only lifelines. Hawaii’s sensitivity to oil prices will only worsen.

(+) Vast improvements in personal wealth in China, Russia and other developing Asian nations combined with possible relaxation of visa requirement bodes well for tourist arrivals from Asia.

(-) There will be a long-term reduction of arrivals from Japan not only because it is a mature market but also because it’s becoming an aging, less populous and heavily indebted country with somewhat slowed ability to innovate and outsourced production of most of its consumer and industrial products.

(+) Korea has almost 40% as many people as Japan and it’s a growth market for Hawaii.

(+) Hawaii has the ability to follow the American tradition of innovation by continuously developing niche tourist markets (adventure, ecotourism, fishing, LGBT, wedding, etc.)

(+) The large national debt is forcing a progressive devaluation of the dollar which makes foreign visitation to Hawaii more attractive. This may also boost arrivals from the mainland because foreign destinations become more expensive for Americans.

(-) Development of the proposed Honolulu rail with its debilitating multi-year construction, and the resultant non-improvement of traffic congestion and eyesore guideway will cause a prolonged tourism loss on Oahu, some of it made up by the other islands.

(-) Unless city and state budgets are re-aligned with emphasis on infrastructure improvement and maintenance, the resultant traffic congestion, potholed roads, sewer spills, water main breaks, poor park condition and homeless camps will cause a prolonged loss of tourism for Oahu. Eventually the disproportionally large budget allocations to outer islands will shrink to avert the collapse of Oahu.

While tourism and related occupations account for one fifth of the jobs in Hawaii, this is actually a fairly fragile industry that is heavily dependent on strong forces beyond its control. This is apparently lost on Hawaii legislators who on every downturn turn up the taxation scale for the tourism industry. Mismanagement in Hawaii and Washington, D.C. can easily affect Hawaii’s tourism and its related job count. So far Washington has no path to managing the national debt and Hawaii has no path to managing its looming infrastructure and energy crisis. So the dark clouds clearly overtake the rosy ones.

Summary
Oahu already had a net 50,000 out-migration from Honolulu County to other US or Hawaii counties. This will expand to all of Hawaii in the next two decades. State and federal government jobs, and DOE and UH jobs will be cut back. If local government improves its priorities there will be thousands of private local jobs for needed infrastructure replacement and maintenance, as well as productive energy projects. In the next couple decades, the job count in Hawaii will remain stable but several sectors in the economy will experience large changes.

(1) Source: State of Hawaii employment data is 2010 State of Hawaii Data Book.

US Financial Crisis and Globalization

In the coming years US may suffer greatly by the very pattern that it advocated: Globalization. The US is substantially dependent on outside sources to supply industrial products, consumer products, food and energy. So far this has worked well, but the table is about to turn around.

First let's summarize the fiscal crisis in a few bullets:

• This is the fourth straight year that the US borrowed more than $1 trillion to support its federal government. US budget deficit will top $1.3 trillion, 8.7% of GDP. Only two European countries, Greece and Ireland, have larger budget deficits as a percent of GDP.
• US national debt now exceeds $15.3 trillion, or 102% of GDP. Only four European countries have larger national debts than US: Greece, Ireland, Portugal and Italy.
• If one adds the unfunded liabilities of Social Security and Medicare to the US official national debt, the US debt is $72 trillion, by Obama administration projections. This is more than 480% of GDP. France, the second most insolvent nation in Europe, owes 549% of GDP.
• Under more realistic projections, the US official national debt is $137 trillion or 911% of GDP. Counting both official debt and unfunded pension and health care liabilities, the most indebted nation in Europe is Greece, which owes 875% of GDP.
• 48 of 50 states have annual deficits and large long term debt. Several states have insolvent employee pension and health care trusts. Of course Hawaii is one of them.
• Many US cities are in deficit, some are at or near bankruptcy and all face major infrastructure backlogs as well as their own employee retirement shortfalls.
• Unlike the huge debt of Japan or France that is owed mostly by their own citizens, US is more like Greece. Most of its debt owned by foreign countries and external lenders.

Why is the US not at the same position as Greece? The reasons are many and they include US' vastly larger economy, vast ability to innovate, vast natural resources compared to most EU countries, vast dependency of many countries on the US consumer to buy the things they make, vast military capability, and having the US dollar as the world's main reserve currency.

This reserve currency is also US' main tool for controlling a quick financial collapse. The devaluation of the dollar would slash the debt owned to foreign interests. At the same time globalization will come back and bite the US consumer since all imports will become 30% more expensive if the greenback is devalued by 30%, resulting in internal hyperinflation and market instability. Messy!

At the same time, this devaluation will cause substantial losses to US' global partners. For example, BMWs will be 30% more expensive in the US and Chryslers will be 30% less expensive in Italy, causing compounded losses in the demand of consumer products in the EU. Messy!

What caused all this mess? Policies and actions focused on the negative side of Capitalism and the negative side of Socialism. Capitalism focused on price and profit, not on sustainable production. Socialism focused on ever increasing and unsupportable entitlements instead of basic and sustainable security.

The path to the abyss is clear.

Greece is there but the US is near.

Do politicians hear?

Sustainable Growth for Hawaii -- Expert Panel Program

Use this link to load or print a PDF version of this announcement.

Jobs: Fundamental Trends – 2000 to 2050. How Did We Get Here and What’s in Store?

There are three fundamental trends at play in this half century:

• Aging of both population and infrastructure;
• Advanced economies cannot absorb unskilled and low skilled laborers; and,
• Too many crises in one decade took our eye off the ball.

The first trend affects the US more than other nations. Baby-boomers have started reaching the age of retirement and the age when health maintenance expenses increase. As a result many state pension and health funds are under substantial stress and their situation is likely to rapidly worsen as more workers age and fewer workers find high paying jobs that pay high enough taxes to sustain pension and health expenses. One of the proposals toward retirement fund solvency is to raise the age of retirement from the typical of 65 year of age to 70.

Along with the baby boom in the US also came the second infrastructure boom (the first one was during the Great Depression.) The second boom focused mostly on transportation and the road and air modes in particular, along with a misguided urban rail renaissance* of the late 1970s till the 1990s. For example, BART in San Francisco and Metro in Washington. DC are facing work backlogs in the order of tens of billions of dollars for required refurbishment and rehabilitation to bring those systems to a top operational condition. The bills are in the billions for bridges and elevated highway sections, and for the strengthening and restoration of millions of lane-miles of roadways.

While infrastructure presents a great opportunity for boosting the job count, a lot of the work is both highly technical and very expensive. The former implies that unskilled labor is unsuitable, and the latter implies that a lot of infrastructure projects may be unaffordable. The existing gasoline taxes which have been constant for almost 20 years at the federal level have lost value and are insufficient to cover highway maintenance. In addition about 20% of these funds is re-purposed to pay for loss-making transit systems.

Electric and other non-fossil fuel powered vehicles are not visiting the gas pump regularly (or ever), thus no tax for their road usage is collected. The highway tax system needs both a tax rate update and modernization. This will create new jobs, but again, the expertise will vary from technician to engineer; no need for unskilled labor.

This segways us to the second trend which is the progressive evolution of advanced technologies out of labor intensive jobs. Agriculture, construction and manufacturing are increasingly automated. They require fewer and more skilled staff. A good example is driverless trains in France. They replace approximately 100 motormen with two dozen rail engineers and train management technicians in a control room. This cuts the job count by 75% and costs by 50%. Fewer, more comfortable and better paid jobs is what advanced economies provide.

Retailing absorbs low skill labor. But there are many changes that reduce the unskilled job count in retailing such as Internet retailing, big box store retailing and upscale retailing, all of which require fewer and better skilled workers.

The transportation sector employees roughly 5% to 15% of a region’s workers (the count is higher in highly urbanized areas). This sector is dominated by federal and state regulations as well as unions. Both regulations and unions make the absorption of low skill labor more difficult.

The third trend is actually a series of calamities that caused stress to the economy and inattention to its drifting into deep losses. I list eight major ones:

1. Global Warming related regulations leading to various stresses on energy production and pricing.
2. The September 11, 2001 attacks in the US and the subsequent wars in Afghanistan and Iraq.
3. Hurricane Katrina in New Orleans which, among other things, caused a fuel price escalation.
4. Drought in Texas with major impacts on jobs and food prices.
5. Huge losses in wind and solar projects, and erratic US energy policy.
6. Rapid increase in commodity and energy prices due in part to rising demand in Asia.
7. The sub-prime lending melt down.
8. Euro crisis, weakening US dollar, and Chinese RMB strengthening are causing various currency instabilities.

How did we get here? The discussion above suggests that large losses in the count of jobs in 2009 and 2010 can be explained by natural trends (aging), structural trends (modernization) and calamities (man and nature-made losses).

What’s in store? Prognostication is both fun and faulty. One thing that is certain is that the BAU model, that is, Business As Usual will bring more of the same.

If Congress remains dysfunctional, if state and federal administrations focus on government expansion and business regulation, if unions stress demands for perks instead of modernization and productivity improvements, if US energy policy continues to be an assortment of mostly special-interest ideas and incentives, then job count and quality of life will certainly deteriorate.

It does not have to be this way. Upcoming articles look into ways for more sustainable jobs.

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(*) Rail Transit: Are we creating new life or resuscitating a dinosaur? This was the title of an 1980s article by Northwestern University’s Joseph Schofer, a distinguished professor of transportation at the McCormick School of Engineering and its Associate Dean.

ECONOMY Survey -- The Economist and Hawaii Results

I like people, global and local issues, and numbers ... so I present a mini-series of surveys on major issues which have been debated at The Economist. Obviously the results only represent people with at least a basic level of computer and Internet savvy. However, the results may be sufficiently indicative because most questions along with the careful wording of questions lead to a straightforward answer: Agree, Disagree or Do Not Know. The Economist has received a few thousand responses to each of their questions. I post results only when Hawaii surveys exceed 100 responses.

ECONOMY Survey Results (click to take the survey, part 1, and economy survey part 2.)

The results are summarized in the Table and discussed below.


The first three issues shown in the table results in solid agreement for both Economist and Hawaii respondents.

• Brand AMERICA will regain its shine, although some may question whether brand AMERICA has lost its shine in the first place.
  
• People do not have much faith in corporations to take measures towards sustainability. Although one might argue that it is people who force corporations to make "cheap" choices since they demand inexpensive products. You can't run an operation on solar power at current costs and expect to have a cost similar to a competitor using coal or hydro-electric power.
• 75% of both Economist and Hawaii respondents agree that workers do not get enough sleep. This has important implication on weight gain, diabetes, productivity at work, safety in traffic and personal relations. How much of this is due to electronic gaming and social media engagement is an open question.

The next four issues show a solid disagreement between Economist and Hawaii respondents.

• Almost 75% believe that China's currency won't be a reserve currency any time soon. Currently the basket of reserve currencies include the US Dollar, the Euro and the British Pound but dollar super dominated the basket accounting for 890-100% of most reserve applications.
• A woman's place is at work is a controversial statement; it is the only statement for which I received complaining emails. Recall that The Economist has developed all these statements. Economist respondents give a slim margin of disagreement to this, but two thirds of Hawaii respondents do not agree that a woman's place is at work.
• Almost 75% believe that senior company executives are not worth what they are paid. No surprise here and both the perception of the respondents and the reality are so, in my opinion.
• The clear majority of the respondents do not agree that sustainable development is unsustainable. In other words, they believe that we can continue to develop but in a sustainable, Earth-friendly manner. Sure, but only up to a point. There will likely be too many challenges to overcome one Earth's population approaches 10 billion people. This bring up the divisive issue of population. (See below.)
  

The remaining four issues reveal opposing views between Economist and Hawaii responses.

• 80% of Economist responses believe that the world would be better off with fewer people, but only 42% of "spirit of aloha" Hawaii respondents think so. Are we seeing the result of Western selfish culture and Hawaii's more accepting multi-ethnic culture?
• Who should pay for higher education? Almost 80% of socialist-minded European respondents of the Economist want the state to pay. Free market minded Hawaii respondents make this an individual pocket-book and career choice.
• Economist respondents come from industrial nations so it's no surprise that 78% feel that an economy cannot succeed without a big manufacturing base. In Hawaii with its sparse and light industrial base the response is about 50-50.
• Again socialist-minded European respondents are split about 50-50 on the effect of government regulation of business finance, but Hawaii respondents are resoundingly against multi-billion bailouts and the ropes (not strings) that come attached to them.

Jobs. Jobs. Jobs.

Seth Godin, marketing guru, ex-VP at Yahoo! and author of 13 books, believes that “the current recession is a forever recession” because the industrial age has ended and this means that the days when people were able to get above average pay for average work are over. Self-improvement, continuous learning and investment on oneself are key to employment otherwise “never mind the race to the top, you'll be racing to the bottom.”

While this is useful advice for those currently employed, the pressing problem is unemployment and under-employment. The Bureau of Labor Statistics (BLS) calculates the official unemployment rate by looking at those who are employed or who have actively looked for work within the last four weeks. As a result, the official rate excludes workers who have decided to drop out of the labor market altogether. The official rate also ignores those who settle for part-time work since they are unable to find a full-time job.

Recognizing this shortcoming, the BLS also reports the U-6 rate, which includes those who have sought a job sometime in the last 12 months and those who have accepted part-time jobs but would prefer full time. The U-6 rate is a better representation of the ability of the economy to provide jobs. Let's take a look at the numbers as summarized in NCPA's Tracking the Unreported Unemployed:

• The 1948-2007 unemployment average is 5.6%.
• The unemployment rate moved from 5% in January 2008 to a high of 10.1% in October 2009, and a current rate of 8.6%.
• The U-6 rate moved from 8.8% in December 2007 to 17.4% in October 2009 and 15.6% in November 2011.
• U-6 rate is almost twice as high as the official unemployment rate. It explains the increasing pressure for economic improvement and jobs.
  
• By the end of 2011, 43% of all unemployed have been unemployed for more than 27 weeks. Besides being jobless, their skills deteriorate, which worsens their employment prospects.
  

Without doubt the unemployment challenge is serious. What causes a high unemployment rate? There are several causes. Here is a big one: The disconnect between supply and demand for jobs. There is a glut of low skill laborer supply. There is demand for high skill, specialized jobs. Unemployed carpenters. Engineers wanted.

The problem of turning 500 unemployed carpenters to 500 engineers is impossible to legislate. In general, turning thousands of low skilled workers to thousands of high skilled workers is very difficult to solve. We need to understand and address the root causes of the problem some of which have deep cultural roots such as over-emphasis in sports instead of scholarly achievement, under-performing public education systems, and stereotypes based on race and gender. Another part of the problem is government regulations and union rules. I’ll cover most of these in a series of articles.

Instead of addressing the root causes of unemployment, politicians in the recent past responded to the cries for “jobs, jobs, jobs!” in two wrong ways: (1) They approved “make work” projects for low skill and construction labor, and (2) they “incentivized” new high tech industries.

“Make work” projects is the use of taxpayer funds to develop unnecessary or low effectiveness infrastructure projects, typically show-off projects or transit projects. These provide some jobs for low skill labor but in reality the unemployment problem is postponed for a few years while the tax hole becomes bigger. “Make work” policies are unsustainable. They develop dangerous dependencies for thousands of low skill laborers instead of providing opportunities for advancement and job diversification.

The current genre of “high tech incentives” is the green industry. Incentives are typically taxpayer handouts to targeted groups, e.g., relating to solar panels and electric cars. People and industry respond to incentives. While accounting in Hawaii is poor, it is much better in the UK where the conclusion in Worth The Candle? The Economic Impact of Renewable Energy Policy the UK was that “for every job created in the UK in renewable energy, 3.7 jobs are lost.” In Hawaii, misguided policies will likely result in more solar guys than nurses per 1,000 people; and a deeper tax hole. Such outcomes are unsustainable and undesirable.

Politically expedient solutions to unemployment are both costly and ineffective. We can’t talk about solutions until we are able to wrap our brain around the issue of “jobs.” What are some of the many facets of employment and unemployment?

Unemployment varies widely by level of education. The Chronicle of Higher Education reports this: The overall unemployment rate for recent Bachelors degree recipients is 8.9%, compared with 22.9% for recent high-school graduates and 31.5% for recent high-school dropouts. It also varies by fields: Unemployment is higher among recent graduates with nontechnical fields of study, such as the arts (11.1%) and humanities and liberal arts (9.4%), but it is only 5.4% for graduates who studied health or education.

College pays off: The Los Angeles Times reports that the average take-home pay of college graduates is $38,950, compared with $21,500 for high school graduates. A college graduate's earnings would exceed a high school graduate's by more than $1 million over 40 years.

Gender makes a difference. The Economist published detailed analysis which I’ll summarize elsewhere but the bottom line of "The Cashier and The Carpenter" is that men and women do different work for different pay. For example, by working shorter paid hours, women are managing to achieve a reasonable balance in their lives. The Economist cites results that show that work-life balance dissatisfaction is about 18% for women and 27% for men in Europe.

The New York Times reports that in the two and a half years since the recovery officially began, men age 16 to 24 have gained 178,000 jobs, and women have lost 255,000 positions. “Apparently discouraged by scant openings, 412,000 young women have dropped out of the labor force entirely in the last two and a half years, meaning they are not looking for work. Young women in their late teens and early 20’s view today’s economic lull as an opportunity to upgrade their skills, their male counterparts are more likely to take whatever job they can find.” As a result, the next generation of women may have a significant advantage over their male counterparts in the near future.

The NYT article continues to say that many of the occupations expected to have the most growth, like nurses, home health aides and dental hygienists, have traditionally been filled by women. Jobs in male-dominated industries such as manufacturing and construction have been in decline. Manual labor careers can also be hard to maintain indefinitely because youthful strength eventually fades. The pension coverage of construction and manufacturing workers is also lagging which presents a challenge for males as they age.

Knowledge and understanding of the true causes of a problem are the right foundation for crafting solutions. My series of summary articles on “jobs” throws light onto the employment and unemployment challenges. Stay tuned!



1. Jobs. Jobs. Jobs. This article.

2. Jobs: Fundamental Trends – 2000 to 2050. How Did We Get Here and What’s in Store?

3. Jobs Hawaii: Outlook for Jobs in Education, Government, Military and Tourism

4. Jobs: The Young and Unskilled

5. Jobs: What Women Want

6. Top Jobs: 10 Hot Careers for 2012

7. The Right Job: Sustainable, Desirable Employment

Five Myths about US Gasoline Taxes

A good summary article by Shin-pei Tsay and Deborah Gordon. CNN, November 19, 2011.

There is no doubt that federal gasoline and diesel tax should go to 40 cents per gallon and none of it should be used to fund transit and rail projects.

APEC 2011 in Honolulu Ended. Was there a Result?

Yes, although we did not get much information about it in Hawaii. In general, coverage of APEC 2011 in the international press was limited and mostly focused on countries other than the US. There was little or no mention of Honolulu, Hawaii other than as a reference to the location of the meeting. The lack of leis and aloha shirts in official pictures made the exposure of Aloha even more minimal.

The APEC 2011 accomplishment “headline” was the formal initiation of a possible free trade agreement among Pacific nations, which is referred to as the Trans-Pacific Partnership (TPP). This, in turn, put Japan squarely in the middle of the issue and pinned China in a defensive position.

President Obama made even bigger headlines ... in Australia where he announced that WE ARE BACK!

The Economist’s summaries of “We are Back” and of the TPP are informative. See below. We should be following these developments closely because along with expedited visas for tourists from China these have strong implications for Hawaii.

America in the Asia-Pacific - We’re back
America reaches a pivot point in Asia

Nov 19th 2011 | SYDNEY AND WASHINGTON, DC

BORN in Hawaii, raised for some of his childhood in Indonesia, Barack Obama has since his election wanted to be known as America’s first “Pacific President”. Until recently, he has not done much to earn the title. That, Mr. Obama declares, is now changing.

Allies in Asia have complained about only intermittent American attention to their region. But in a speech to Australia’s parliament on November 17th Mr Obama announced that America is back. “Let there be no doubt: in the Asia-Pacific in the 21st century, the United States of America is all in.” It was, he said, a “deliberate and strategic decision”: America was “here to stay”.

Senior administration officials back up the president. They talk of a new “pivot” in foreign policy towards Asia. America will be around to ensure that China’s “peaceful rise” remains just that.

Free trade in the Pacific - A small reason to be cheerful
An inspiring idea to liberalize transpacific trade hinges on the courage of America and, especially, Japan
Nov 19th 2011 | from the print edition

WITH thunderclouds looming over the trans-Atlantic economy, it was easy to miss a bright piece of news last weekend from the other crucible of world trade, the Pacific Rim. In Honolulu, where Barack Obama hosted a summit of Asia-Pacific leaders, Canada, Japan and Mexico expressed interest in joining nine countries (America, Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam) in discussing a free-trade pact. Altogether, the possible members of the Trans-Pacific Partnership (TPP) produce 40% of world GDP—far more than the European Union.

The creation of a wider TPP is still some way off. For it to come into being its architects—Mr Obama, who faces a tough election battle next year, and Japan’s Yoshihiko Noda, who faces crony politics laced with passionate protectionism—need to show more leadership.

Opening up the Pacific
Nov 12th 2011 | TOKYO

MOST Americans have not heard of the Trans-Pacific Partnership (TPP), a free-trade area of countries dotted around the Pacific Ocean. They will soon. The news has electrified the summit of Asia-Pacific Exporting Countries (APEC) convening in Honolulu this weekend. President Barack Obama, who acts as the meeting’s host, hopes the TPP will be the cornerstone of an APEC-wide free-trade area.

There are, however, huge hurdles to overcome in the meantime. Mr Noda’s decision was delayed by a day because of the extent of opposition to trade liberalization within his own Democratic Party of Japan (DPJ), let alone the opposition.

Asia-Pacific trade initiatives - Dreams and realities
A battle over American-led free trade brews in Asia
Nov 12th 2011 | SEOUL AND TOKYO

THE American president is bringing a new—or at least re-warmed—cause to the Asia-Pacific region: free trade. Barack Obama recently signed a ground-breaking free-trade agreement (FTA) with South Korea, after years of Washington foot-dragging. He signed FTAs with Colombia and Panama on the same day. On November 12th-13th the president hosts an Asia-Pacific trade jamboree in Honolulu which, he seems to hope, will give momentum to the idea of a remarkably ambitious free-trade zone at just the time when global trade talks are going nowhere.

Mr Noda will need to convince his counterparts that he has enough domestic support to negotiate in good faith. If he can achieve that, Japan might start a long-overdue push to reform and revitalize its economy. And then the TPP might become more than just another Asia-Pacific acronym that only wonks have heard of.