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Can Green Jobs Save the Economy?

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Thoughts on Green Jobs
By Pete Geddes

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. -F.A. Hayek, The Fatal Conceit

On a family trip to Nicaragua we saw workers digging a multi-mile ditch in preparation for laying communication lines. The workers were using picks and shovels; we saw but a single John Deere backhoe. "Imagine how much more productive these workers would be if they had access to more of Deere¹s machinery," I commented. "But then many of them would be out of work," one of my boys responded. I replied, "If the point is to provide maximum employment, why not replace the picks and shovels with spoons?"

I am reminded of this as I read about President Obama's plans to create five million "green jobs." They include making houses more energy-efficient, constructing wind-turbines, building greener buildings, and upgrading the electrical grid. But this promise is made without mentioning the cost (i.e., the loss of jobs in other sectors) or considering what else these folks might productively do had they not been lured into the green jobs.

The American Wind Energy Association claims wind power creates the most jobs per kilowatt-hour of energy generated 27 percent more than coal generation and 66 percent more than natural gas. Buried in this is the presumption that labor has a very low value. Only if you're using prisoners, whose opportunity cost is zero, could this make sense. Following my Nicaragua example, if maximum employment is the goal, why not have people digging the footings for wind turbines by hand? This would create far more jobs per kilowatt-hour.

Productivity is the amount of output per unit of input. It is a basic indicator of economic health. Why? Because producing the same good with less input not only makes it more affordable, but also frees human and physical resources for use in other areas. "It can be said without exaggeration that in the long run probably nothing is as important for economic welfare as...productivity growth," wrote Princeton economist William J. Baumol.

The jobs lost in our dynamic economy are normally replaced by new and different jobs. For example, a quarter of all Americans now work in jobs that didn't even exist in the Census Bureau's occupation codes in 1967. In 1900, one-half of adult Americans worked on farms. Today, it's fewer than 2 percent. Despite lower farm employment, American farm productivity is the highest in the world.

The idea of government 'job creation,' green or otherwise, is an example of the broken window fallacy. The French economist Frédéric Bastiat explained this in 1850. Here's Bastiat's basic economic insight as described by Ken Green of AEI.

Imagine some shopkeepers get their windows broken by a rock-throwing child.

At first, people sympathize with the shopkeepers, until someone claims that the broken windows really aren't that bad. After all, they create work for the glassmaker, who might then be able to buy more food, benefiting the grocer, or buy more clothes, benefiting the tailor. If enough windows are broken, the glassmaker might even hire an assistant, creating a job.

Did the child therefore do a public service by breaking the windows? No. As Bastiat explained we must also consider what the shopkeepers would have done with the money they used to fix their windows had those windows not been broken. Most likely, the shopkeepers would have ploughed that money into their store: perhaps they would have bought more stock from their suppliers, or maybe they would have hired new employees. Before the windows broke, the shopkeepers had intact windows and the money to purchase more goods or hire new workers. After the windows broke, they had to use that money to repair the windows, and thus were unable to expand their business.

In the Great Depression the opportunity cost for labor approached zero. When this occurs it is reasonable and prudent for the government to create employment and educational programs like the CCC and WPA. But job creation fundamentally comes from the private sector. Every public dollar spent on green jobs comes at the expense of taxpayers and business owners who would have spent the money in ways we can't imagine.

Pete Geddes is Executive Vice President of the Foundation for Research on Economics & the Environment (FREE), based in Bozeman, MT.



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