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View related content: Environmental and Energy Economics
The Obama administration and its congressional allies have been promising to usher in a green economy that will create millions of new green jobs that “can’t be outsourced.” Many of those jobs, we’re told, will come from wind and solar energy development, but other areas are supposed to benefit as well, including the automobile, construction, and ill-defined “green technology” sectors. These claims are nothing new, though they have grown more Orwellian over time. In the 1990s, California politicians promised to replace a fleeing aerospace sector with a new industry making batteries for the electric cars they tried to mandate into an unwelcoming market (didn’t happen), and they’re making the same claims for a new greenhouse-gas-control regime.
There’s only one problem with all this feel-good blather: It makes no economic sense whatsoever, and where it has been tried most extensively, evidence shows that it’s a job-destroying, economy-weakening fiasco.
First, Economics 101. What we know, from the fundamentals of economics, is that governments don’t “create” jobs; consumer demand for goods and services does that. All the government can do is subsidize some industries while jacking up costs for others. In the green case, it will be destroying jobs in the conventional energy sector, and most likely in other industrial sectors, through taxes and subsidies to new green companies that will use taxpayer dollars to undercut the competition. The subsidized jobs that will be “created” are, by definition, less efficient uses of capital than market-created jobs. That means they are less economically productive than the jobs they displace and contribute less to economic growth. Finally, the good produced by government- favored jobs is inherently a noneconomic good that has to be maintained indefinitely, often without an economic revenue model, as in the case of roads, rail systems, mass transit, and probably windmills, solar power installations, etc.
Now to the empirical evidence. When talking about our bold green energy future, President Obama held up Spain as an example. Spain invested heavily in wind power and other renewable energy. Alas, after studying the Spanish experience, Prof. Gabriel Calzada Alvarez and colleagues at Spain’s Universidad Rey Juan Carlos found that if America followed Spain’s example, for every renewable energy job that the United States managed to create, it should expect a loss, on average, of at least 2.2 traditional jobs.
Each job created in Spain’s effort cost about $750,000, and only 1 in 10 was permanent. Thus, creating even 3 million new green jobs would cost $2.25 trillion. Even in a time where a trillion is the new billion, that’s a lot of money.
And the goods produced (wind and solar power plants in this case) jack up energy prices dramatically and cause more job losses throughout the economy. Electricity rates in Spain would have to rise 31 percent just to repay subsidies given to renewable developers.
Finally, the Spanish team found that “the high cost of electricity due to the green job policy tends to drive the relatively most [sic] energy-intensive companies and industries away, seeking areas where costs are lower.”
As for the nonexportability of green jobs, New York Sen. Charles Schumer recently asked the administration to keep stimulus money from going to a proposed West Texas wind farm because it would have generated as many as 3,000 permanent jobs in Shenyang, China (proposed site of the wind turbine construction), but would have created only 300 temporary jobs in the United States and a laughably trivial 30 permanent jobs here. Anyone who thinks the United States is going to compete with China for windmill and solar cell manufacturing, given that nation’s lower labor rates and greater access to vital rare-earth elements, is living in a fantasy world.
The bottom line: Government job creation, green or otherwise, is private-sector job destruction. In the end, there are fewer net jobs and less net economic productivity than if the government had not interfered with the market.
Kenneth P. Green is a resident scholar at AEI.
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