Jun 20, 2009
By Matt Bogard
Recently there has been a lot of hype created regarding the creation of 'green jobs' and even excitement that the creation of green jobs may help stimulate the economy. This may be counter to what we would expect given basic economic theory.
Recent research by Gabriel Calzada Álvarez (link) indicates that job losses may result from what economists refer to as the broken window fallacy.
'we find that for every renewable energy job that the State manages to finance...that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.'
'Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.'
With the broken window fallacy, as the analogy goes, breaking the baker's window leads to jobs for glass repair workers, and thus acts like a stimulus to the economy. It is a fallacy in that it does not consider the jobs that other wise would have been created had the baker not had to fix his window, but expanded his business or invested the funds. Jobs may be created on both accounts, but who is to say which jobs create the most value for the economy.
Green jobs created by government are not equivalent to those created by the free market. A recent story from the Charlotte Observer points out that according to a study by Pew Charitable Trusts "Green-jobs growth has occurred without consistent regulatory support... "All the states that grew were responding directly to consumer demand."
A prime example of green job creation via the free market can be found when we look at modern agriculture. As pointed out in a recent AgWeb blog post 'Biotechnology: An Agriculture Success Story' recent research from PG Economics indicates that biotech crops have greatly reduced agriculture's carbon footprint and reduced pesticide applications. In essence, all biotech realted jobs and jobs created by growers using biotech are 'green jobs.'
Green jobs created by the biotech industry are created voluntarily. Investors and entrepreneurs recognized that the money they invested in biotech would yield more benefits to society than any alternative at the margin. Or else they would have invested their money elsewhere.
When government tries to create green jobs, it has to arbitrarily take money from one place and put it somewhere else. Because they base their decision on the limited knowledge and preferences of at most a few voters, politicians, and bureaucrats vs millions of market participants, they have no way of knowing whether the additional benefits to society from their program are greater than the costs. ( and they risk destroying more jobs than they create).
If we truly want increased growth, decreased poverty, and improved environmental quality, our best chance is going to be to leverage the power of the 'invisible green hand' and let the market create green jobs where they are needed most. The ag industry has already set the example.