By Lowell L. Kalapa
The recently adjourned legislative session has been characterized as “bold” taking actions where no other state has gone by regulating gasoline prices and health care premiums.
Indeed, no other state has gone this far in trying to manipulate the economy and how businesses operate in any jurisdiction. And unfortunately, it does not appear that any other state would want to go in the direction that our state legislature went this past session for America is supposed to be the best of what a free market economy strives to be. Regulating and dictating how business is to operate runs contrary to the concept of a free market economy.
What is even more critical is how these actions will be viewed by those who might be contemplating investing in the state. These actions indicate that there is a great potential for government in Hawaii to dictate just how businesses are to operate, how much of a profit they should make, and where and when the business may operate. Why would any investor want to invest in Hawaii when there is a good possibility that government will tell that business what it can charge and what kind of profit it can make, or for that matter whether or not that business is allowed to make a profit?
Lawmakers supporting this legislation argue that their actions are justified because these companies make scandalous profits at the expense of consumers in Hawaii. What they don’t admit is that they do not understand the dynamics of competition in the marketplace nor do they admit that they don’t understand pricing.
For example, in the case of the cap on gasoline prices, local dealers will be able to set prices at a specified number of cents over an index determined by West Coast wholesale prices for gasoline. The question that quickly comes to mind is how does an index of wholesale prices charged on the West Coast have anything to do with providing the product in Hawaii? What if, as last year evidenced, the cost of gasoline in say California is higher than the cost of producing the product here in Hawaii? Do consumers have to pay the higher cost of West Coast production while the cost of production in Hawaii is lower?
Conversely, if gasoline dealers cannot sell the product at the capped price and still cover their overhead, will they withdraw from the market? If a business cannot recover costs, then that means the business will lose money. Why then would one want to stay in business providing this product at a loss?
This lack of understanding of what it takes to open and run a business by lawmakers is appalling. What it does tell the public is that the elected official is more willing to pander to the politically correct rather than learn what the forces and factors are that shape the marketplace.
This seems to be the case in the rush to regulate health care premiums. Did lawmakers stop to ask why those premiums are as high as they are? Or was the only response a law that directs the insurance commissioner to judge whether or not those rates are too high?
Studies by the previous administrations indicated that the proliferation of coverages included as part of the prepaid health care mandate is a major cause for rising premium costs as well as the minimal co-pay. Did lawmakers take this into account or was the driving incentive to regulate premiums nothing more than an opportunity to say that they did something about the high cost of health care?
What should concern taxpayers and voters is that there is a pronounced lack of understanding of what makes the economy tick. And despite all their efforts to stimulate the economy, lawmakers seem to lack the understanding of what attracts capital to Hawaii that is so crucial to create the jobs our people need.
Instead they buy into the fantasy that this or that industry will be the magic bullet of cure. Tax credits for high technology or construction are viewed as THE panacea to Hawaii’s economic woes. Unfortunately, when tax breaks are given only to certain groups or draconian regulations are imposed on selected industries, everyone loses. Those tax credits need to be paid for by other taxpayers and those regulations will hurt all consumers as investors shy away from Hawaii.
Regulating the cost of goods and services makes absolutely no economic sense. What if we decided that hotel room rates are too high or airfares deter potential visitors from coming to Hawaii. Will lawmakers decide that a cap on those costs will revitalize the economy?