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The Honolulu Advertiser
Posted on: Monday, December 29, 2003

EDITORIAL
Economic turnaround fragile, easy to reverse

As the year comes to an end, economic good news can be found almost everywhere.

Nationally, the stock market has pushed above the psychologically important 10,000 mark and the economy lodged a growth rate above 8 percent last quarter.

Locally, tourism is steady and the state is gearing up for an economic boom sparked by construction in both the military and civilian sectors.

All this good news might persuade policy-makers both at home and in Washington to launch a fresh round of tax cutting or new spending initiatives.

That could be dangerous. While the economic news of the moment is good, it is also fragile. It would not take much to send things plummeting again.

In Hawai'i, the challenge will be to stay on a prudent course that keeps the budget to a size the economy can support on a sustainable basis. If there is room for some fresh spending, it should be focused on our most critical needs, which include education and core social services.

Nationally, good economic news has been tempered by recent reports from the Congressional Budget Office and the General Accounting Office that warn of looming budget deficits.

Unless those deficits are turned back — and this almost inevitably means raising taxes or at least scaling back recent tax cuts — our long-term economic recovery is in doubt.

The GAO says a particular problem is the impending retirement of the baby boom generation. Just to maintain current services to those retirees will require a 35 percent cut in other spending or an inflation-adjusted tax hike of 40 percent.

Neither option appeals. So the only option is to begin a course of fiscal prudence immediately. This means being tough about new spending, rejecting the politically popular idea of cutting more taxes and imposing spending caps that are both realistic and enforceable.

But the responsibility is not solely on the shoulders of legislators here and in Washington. It also rests with taxpayers and voters who too often insist on more than their representatives should rightfully be asked to deliver.

We must reward prudence as freely as we discourage profligacy.