Economists differ on war's impact on Hawai'i

By Will Hoover
Advertiser Staff Writer

One of the state's leading economists said Hawai'i has developed a resilient economy that should recover if there is a war with Iraq, while another testified yesterday that a protracted war could potentially wreak economic havoc.

Paul Brewbaker, chief economist for Bank of Hawaii, addresses members of the Select Committee on War Preparedness. The committee met for the first time yesterday. Bruce Asato • The Honolulu Advertiser

The committee got off to a somber start yesterday afternoon with a moment of silence for the fallen astronauts of the space shuttle Columbia.

That set the tone for the sobering task facing the 10 members of the committee: How should Hawai'i ready itself for a war with Iraq?

With the conflict looming closer, Rep. Sylvia Luke, D-26th (Punchbowl, Pacific Heights, Nu'uanu Valley) referred to "a sense of urgency and the unpredictable nature of war."

The committee is composed of government, business and military leaders. Following introductory remarks by each member and brief discussions of such topics as the state's reserves of oil and food, the committee got down to the topic at hand.

Committee member Rep. Kirk Caldwell, D-24th (Manoa) touched on the question on the minds of many people: If there is another war in the Gulf, is the state in for protracted recession?

Caldwell recalled "the 1991 Gulf War, and what Hawai'i went through, and how it took about 12 years of dealing with the impact of that war to get the economy back on track. And we were just about out of it and then 9/11 happened. ... I don't want to have to go through another war and have another 12 years of that."

Those concerns were addressed by two guest economists, Paul Brewbaker, chief economist for the Bank of Hawaii, and Carl Bonham of the University of Hawai'i Department of Economics.

Brewbaker said when an economy such as Hawai'i's "is in equilibrium," as it has been in recent years, it should rebound following events such as Y2K or 9/11.

The state's economy bounced back reasonably quickly from those events because the economy has become resilient, said Brewbaker. Hawai'i's economy is actually less vulnerable today than it was before the beginning of the Gulf War of 1991. Consequently, Hawai'i should recover from a downward blip caused by a war, he said.

"And so the equilibrium of investment is on a trajectory involving continued growth in that kind of activity." Translation: "We should be cool," said Brewbaker.

But Bonham suggested that such a scenario would be possible only if a "best-case" war transpires. There is little doubt about the outcome of the war, Bonham said. But how the war plays out is an uncertainty.

If the war ends quickly, the United States is viewed as a liberator, there are few civilian casualties, Iraq doesn't sabotage its own oil fields, and no weapons of mass destruction are used, then the impact on Hawai'i should be limited.

But if the war goes otherwise, it could spell big economic troubles for the state. The impact of a war is going to depend on what effect it has on tourism in Hawai'i, said Bonham. It's that simple.

"I know you don't want to hear this," he told the committee. "But we're going to be wrong, because we cannot predict what's going to happen."