How to prepare for the next global recession

HONOLULU, Hawaiʻi — Speculation over another economic decline in the near future is increasing, as unsettling trends in employment, bankruptcies, and visitor growth continue. To prepare for economic downturns in our future, the Hawaiʻi Budget & Policy Center (HBPC) has released a report examining how the most significant recession in recent U.S. history, from December 2007 through June 2009, affected Hawaiʻi’s workers, economy and state revenues and spending.

“When the economy is strong, jobs are plentiful, investments grow, many people prosper,” said HBPC Director Beth Giesting. “During a recession, the opposite happens, and it’s usually the people who can barely make ends meet that are hurt most by economic hard times.”

In Hawaiʻi, this means nearly half of all families. In this report, HBPC takes a closer look at what happened to Hawaiʻi during the “Great Recession.”

Government spending decisions have a big impact on how well we, as a community, weather a recession. In fact, these decisions are just as important to the state’s post-recession economy and the long-term well-being of residents as they are to withstanding the actual recession.

“During a recession, the state may have to cut its budget,” said Giesting. “However, not all budget cuts are equal.”

Some services are essential and need full support, and diminishing them through across-the-board reductions could end up making matters worse for Hawaiʻi residents in the long run, or make it more difficult for people to get back on their feet once the recession ends.

For example, forcing public schools to close for 17 days during the 2009–10 school year hurt a greater number of people than did shuttering some other departments for three days out of each month—or 36 days—during that same period. Likewise, certain programs, such as government-supported mental health services, are more essential in the event of an economic decline, despite strained public resources. Other than increasing Medicaid support, Hawaiʻi did not do well by this measure during the last recession. 

The state largely met its goal of retaining its workforce. But this also resulted in passing along bigger budget cuts to nonprofits that provide direct services under contract with the state. Hawaiʻi’s Department of Health and Department of Human Services, together, cut more than $25 million in such services during the fiscal biennium 2010–11. As a result, crucial services provided with great efficiency were lost, and the nonprofit agencies that deliver these services were forced to lay off their employees.

“It is important that we revisit the ‘Great Recession’ so that we can try to understand what happened and can prepare to make smart financial decisions when the economy, once again, faces a destabilizing contraction,” said Giesting. “Our goal is to help our government and community leaders plan now for better outcomes the next time jobs, earnings and economic security shrink.”