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Thursday, July 1, 2010

Efficient vs. inefficient green jobs

At the EconLog blog this morning, Economist David Henderson noted his response to arguments for government subsidies of green jobs. While I don’t agree with all his points, he does bring things back to the core problem often ignored in cleantech policy: as in any other government (or private) policy, more efficient policies should be chosen over less efficient ones.

The arguments were in a monograph called The Economic Benefits of Investing in Clean Energy, available free from its two sponsors: the Center for American Progress (a progressive think tank) and the Political Economic Research Institute, a research project focusing on progressive issues headquartered at the University of Massachusetts Amherst.

In turn, Henderson — who has a part-time appointment at the Hoover Institution — published his review in the Summer 2010 issue of Regulation magazine, from Cato, the leading libertarian think thank. While CAP and Cato might agree on free speech or military spending, when it comes to government regulation and domestic spending, they are continents apart.

Henderson begins provocatively enough:
Suppose that you want to build a house, and you solicit two builders for estimates. Builder A's eight employees can build the house in three months for $300,000. Builder B's four employees can build the same house in the same time for just $150,000. Which builder would you choose?

This is not a trick question. You would choose Builder B, right? But Robert Pollin, James Heintz, and Heidi Garrett-Peltier would select Builder A if they employ the same reasoning they exhibit in their recent monograph The Economic Benefits of Investing in Clean Energy.
In other words, if spending $10 billion on green jobs is good, $20 billion is better. If this weren’t OPM (other people’s money), no one would ever think that way: it would be “how can we best increase consumer welfare by spending $10 billion” or even “what policy will create the most jobs at the lowest cost?”

Really, Henderson could just cite the Frédéric Bastiat and broken window fallacy — which describes much of the waste in government spending today. Maybe Henderson assumes his readers know the story, but the principle is inviolate: money spent fixing broken windows is money not spent on something that would otherwise be a higher priority.

Small is Beautiful: Economics as if People MatteredAttempts to abolish the laws of economics have (so far) failed, whether by Marx, Galbraith or EF Schumacher. The price system in free markets sends signals to consumers to make the optimal allocation of their resources, and no better system for decentralized coordination has yet been found. Thus, the efficient use of resources should be just as much a priority in creating “green” jobs as with ordinary jobs.

Every so often, when hiking in a national park or visiting the old downtown of a small city, I find a road, bridge or building built by the Civilian Conservation Corps. Whatever the original cost, the fact that these facilities are in use 70 years later suggests that the expenditure had a productive use, amortized over a long period of time.

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