The Cost Of Green

The Cost Of Green
By INVESTOR'S BUSINESS DAILY | Posted Wednesday, December 03, 2008 4:20 PM PT

Economy: Stimulating the economy with massive new investments in "green" infrastructure seems to be a popular idea, and President-elect Obama has made it a centerpiece of his program. Will it work? We doubt it.

Both Obama and congressional Democrats believe we can move to a new carbon-free future by "investing" in "green" technologies and infrastructure, while creating millions of new jobs.

As it stands, Obama is eyeing $100 billion in "green stimulus" as part of a much bigger package — as much as $700 billion or more — of conventional stimulus. He reckons this will create up to five million "green-collar jobs" and "jolt" the economy back to life.

"Clean energy is going to be a foundation for rebuilding the American economy," says Bracken Hendricks of the liberal Center for American Progress and a member of Obama's transition team.

How will the money be spent? "School repairs," according to a Bloomberg report, "could be required to meet green building standards, including low-energy boilers and weatherization. Transportation spending could emphasize public transit, and support for new power sources such as wind . . . could go hand in hand with spending on an efficient electricity superhighway."

Sounds great. But it'll take money — plus new regulations that will make it more expensive to do anything with oil, even if there are no reasonable alternatives.

Nowhere is it mentioned that these "green-collar jobs" would be terribly costly, and that the planned "investments" are really just subsidies. And, as we know, things that require subsidies aren't competitive in the market, and thus aren't profitable.

Claims that such "investments" will create five million jobs are false. It's likely more jobs will be killed than created due to higher costs and increased inefficiency of the U.S. economy. A recent report from the Center for Data Analysis at the Heritage Foundation found that limiting CO2 emissions under recent proposed legislation would destroy 900,000 net jobs.

Spending money on projects where costs exceed benefits simply to "create jobs" is a bad idea. Taking capital from productive uses and redeploying it to politically popular but nonproductive uses lowers productivity by paying those with "green jobs" more than their output is worth. It's not welfare, it's "greenfare."

This, by the way, was the make-work model followed during the Great Depression. It didn't work then, and it won't work now.

These ideas aren't new — they were thoroughly debunked 158 years ago by pioneering French economist Frederic Bastiat, who wrote about the "broken window fallacy."

It goes like this: Most people agree that when someone breaks a store window, it's a tragedy for the shopkeeper. But many also believe the overall economy actually benefits, because the shopkeeper now must buy a new window, a kind of "stimulus."

This logic, of course, makes no sense. Yet it's the basic idea behind all government stimulus plans. The money for the window comes out of the shopkeeper's pocket. Instead of carrying more stock in his store, or hiring a clerk, he must spend his money instead on a window. So the "stimulus" is really zero — or negative.

"The 'broken windows' in this case," notes American Enterprise Institute analyst Kenneth Green, "would be lost jobs and lost capital in the coal, oil, gas, nuclear and automobile industries." They together employ more than 1 million people. But millions of other jobs would also be at risk because, as with the shopkeeper, money spent on green projects can't be spent elsewhere.

What was true in Bastiat's time is certainly true today. The weak productivity report Wednesday, showing a tepid 1.3% gain in nonfarm output per hour, should be warning enough.



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