Once upon a time, in a land far, far away — actually, last spring, right in the heart of Washington, D.C. — Recovery Summer was upon us, beckoning any and all with not just a promise but a guarantee of bright light at the end of the economic tunnel. More employment. Greater growth. Higher wages. A reduction in the federal budget deficit. The end of Reaganism. The car was being pulled out of the Republican ditch, the Bush freefall was going to end, and a massive increase in the size of the federal sector would be made permanent, along with the Democratic majority in Congress. And all for a mere $862 billion in stimulus spending.
Oops. The unemployment rate remains mired at 9.5 percent, millions have given up searching for employment — in part because of highly perverse federal policies on the duration of unemployment compensation benefits and other such “aid” to the unemployed — and economic growth has declined from 5 percent to 3.7 percent to 1.6 percent over the last three quarters.
Anyone can make a mistake: yes, even President Obama and his advisors. But the rest of us should try not to be burned again, a prospect looming large in the form of siren songs about the future “green jobs” soon to emerge in abundance thanks to the planning, regulating, micromanaging, and do-goodism of the environmental experts, defenders of Gaia, oil companies, and other idealists now entrenched in the Beltway. After all, President Obama promised in the summer of 2008 that his presidential nomination would begin the process of slowing the rise of the oceans and healing the planet. Given that, the creation of millions of good “green jobs” ought to be child’s play for Obama.
Oh, please. The green agenda is straightforward: to replace conventional energy sources with unconventional ones — wind, solar, ethanol, etc. — that have failed the test imposed by market competition. That these unconventional energy sources must be subsidized heavily (or the conventional forms hindered) in order for them to survive is highly revealing; but the central point here is that green policies inexorably have the effect of making energy more expensive.
So one truth is obvious: because green energy would, to some degree, be a substitute for conventional energy, any increase in green employment must be offset by reduced employment elsewhere in the economy. This is what economists call a “structural” economic shift, as resources (including labor) shift from one sector of the economy to another.
But the real question is the net employment effect of making energy more expensive to use. After all, if energy in the aggregate is a “normal” input — a bigger economy uses more of it — then as energy becomes more expensive, the economy will become smaller, reducing employment. The following chart illustrates the historical correlation between changes in energy use and changes in total employment.
This data covers periods of expensive energy, cheap energy, economic growth, economic decline, etc. But the pattern is obvious: employment and energy use are closely related.
We can argue about whether it is energy use that drives employment, or the reverse; clearly, both causal functions are important. But the basic “green jobs” argument — that we can make conventional energy significantly more expensive and then avoid the inevitable employment impacts of doing so by subsidizing economically uncompetitive sources of energy — is dubious at best.
“Better technology” and reduced carbon dioxide emissions automatically mean fewer resources available for other economic activities. In short: the “green jobs” gambit is yet another example of the standard Beltway claim of a free lunch, and is worthy of deep skepticism and, indeed, derision. That ordinary Americans seem to understand this while the Beltway sophisticates do not is fascinating.
Benjamin Zycher is a visiting scholar at the American Enterprise Institute and a senior fellow at the Pacific Research Institute. Email: benzycher@zychereconomics.com.