On the campaign trail Barack Obama promised if he were elected president, he would create 5 million “green collar” jobs. Today President Obama announced $2.3 billion in tax credits for a clean energy economy will ostensibly create 17,000 jobs. “Building a robust clean energy sector is how we will create the jobs of the future,” he said in a speech this afternoon.
Make no mistake; this government-run plan will kill more jobs than it aims to create.
There are a number of serious problems with the goal to create green jobs, and Europe’s unfavorable results with renewable energy should raise red flags in the United States. And cap and trade, which is sold by President Obama, Nancy Pelosi, among others as the ultimate jobs bill, is in reality the ultimate jobs destroyer.
Less Bang for your Buck: Sure, the government can create jobs. They can use our taxpayer dollars to hire workers to dig holes and fill them back up. But if there’s no net gain in productivity and wealth, the job is a waste. For instance, we could replace all of the world’s mechanized agriculture equipment with hoe wielding farmers, and that would create jobs. But it would also significantly reduce productivity and efficiency. The economic reasoning for switching from more efficient machinery to less efficient human capital is such a baseless plan any politician suggesting it would be laughed out of office.
Yet that is the exact premise of the green jobs boondoggle. The government wants to mandate and subsidize labor intensive, inefficient, and expensive power sources. But the problem is that if it takes more labor and capital to produce renewable energy, there is a net cost to the economy. Proponents of wind and solar argue this is a good thing. Apparently they forgot the there’s-no-free-lunch-lesson you learn in Economics 101. Government spending will create some jobs to build windmills and solar panels and work at biomass plants but this diverts labor, capital and materials from the private sector that could be used more efficiently to create even more jobs. In effect, government subsidized green jobs destroy jobs elsewhere.
Cap and trade, while not part of the green stimulus, is being marketed as such. Because of higher energy prices, some jobs will be destroyed completely while others will move overseas where carbon capping isn’t in their country’s agenda and therefore the cost of production is cheaper. The Heritage Foundation’s Center for Data Analysis found that, for the average year over the 2012-2035 timeline, job losses will be 1.1 million greater than without a cap and trade bill. By 2035, there is a projected 2.5 million fewer jobs.
Green Stimulus Already Failing: Thus far, the effort to create or save jobs with a green initiative hasn’t been very successful. In Baltimore, for instance, stimulus dollars have been spent to patch roads, install newer furnaces and painting rooftops white to conserve energy. According to the Washington Post’s Alec MacGillis, none of these projects, as well as others, have created a single job. Another example is in the state of Indiana, where companies have “weatherized 82 homes out of its three-year goal of 25,000, and reported zero new jobs from the spending.”
Learning from Europe’s Mistakes: A research institute located in Germany recently released a study on the economic impacts of that country’s green energy initiative. Commissioned by the Institute for Energy Research (IER), the report finds with per worker subsidies for solar industry jobs are as high as $240,000.
Spain is a country President Obama says the U.S. should replicate when it comes to energy policy, saying, “they’re making real investments in renewable energy.” But real investments aren’t necessarily good investments. Another IER-commissioned study coming out of King Juan Carlos University in Madrid by Gabriel Calzada found that, for every green job created, 2.2 jobs in other sectors have been destroyed. Furthermore, Spain’s government spent $758,471 to create each green job and used $36 billion in taxpayer money to invest in wind, solar, and mini-hydro from 2000-2008. The country’s unemployment rate is currently at 19.4%.
The economically rational way to create jobs and expand green energy is to allow them to compete freely in the market, end dependence on the government, and eliminate regulatory barriers to entry. Like all energy sources, green energy should be able to live or die on its own two feet.
In time and with the proper policies in place, renewable energy might be inexpensive and efficient. If the private sector can create wealth by hiring green laborers for renewable energy projects (absent federal handouts), it will do so. The U.S. Chamber of Commerce’s “Project No Project” lists all the renewable energy plans not moving forward and the groups that are opposing them. The NIMBY, regulatory litigation problems make it difficult, not just for renewable sources, but all sources of energy stifle real job creation and economic growth. To fix this Congress and the administration should:
1.) Peel back regulations. Reduce the unnecessary regulatory red tape that holds up renewable energy ventures and makes them prohibitively more expensive and deters investment. Establishing regulatory certainty would allow businesses to plan financing for the future rather than to be hit unexpectedly with unforeseen costs.
2.) End energy subsidies. Subsidies create complacency within the industry and direct money that could be used more efficiently elsewhere. The private sector investment in energy research is actually larger than many might think. True breakthroughs in energy technology take time but the private sector has been generating marginal improvements in efficiency for decades.
3.) Limit Litigation. Creating a manageable timeframe for groups or individuals contesting energy plans would avert potentially cost-effective ventures from being tied up for years in lawsuits.
We’ve heard the green jobs rhetoric before and we’ll likely hear it again, but that doesn’t make it a good idea. It’s a profoundly wasteful use of taxpayer’s money and will do much more to hurt the economic recovery than to help it.
Today the White House will host a Forum on Jobs and Economic Growth featuring such leftist luminaries as Joseph Stiglitz and Paul Krugman. Yesterday The Heritage Foundation hosted House Minority Whip Eric Cantor (R-VA) for a presentation on his common-sense job creation plan. After Cantor spoke, Heritage fellow Brian Riedl explained why President Obama’s $787 billion stimulus, and all the other government stimulus ideas of Stiglitz and Krugman, failed:
I’m going to examine why the stimulus failed, and why Congress should instead keep tax rates low and spending restrained in order to allow the economy to create jobs and grow.
In a January report, White House economists predicted the stimulus bill would create (not merely save) 3.3 million net jobs. Since then, 3.4 million more net jobs have been lost, pushing the unemployment rate above 10 percent.
This failure of government to spend its way to prosperity is not an isolated incident:
- During the 1930s, New Deal lawmakers doubled federal spending — and unemployment remained above 20 percent until World War II;
- Japan responded to a 1990 recession by passing 10 stimulus spending bills over 8 years (building the largest national debt in the industrialized world) – and their economy remained stagnant;
- In 2001, President Bush responded to a recession by trying to “inject” tax rebates into the economy. The economy did not respond until two years later, when tax rate reductions were implemented;
- In 2008, President Bush tried to head off the current recession with another round of tax rebates. The recession continued to worsen; and
- Now, the most recent $787 billion stimulus bill was intended to keep the unemployment rate from exceeding 8 percent. Instead, it now exceeds 10 percent.
These repeated failures are not an accident. They reflect the myth that government spending is a free lunch. Stimulus advocates assert that government spending injects new dollars into the economy, thereby increasing demand and spurring economic growth. It makes perfect sense under one condition:
No one asks where the government got the money.
Congress does not have a vault of money waiting to be distributed. Every dollar Congress “injects” into the economy must first be taxed or borrowed out of the economy. No new income, and therefore no new demand, is created. It is merely redistributed from one group of people to another.
Removing water from one end of a swimming pool and pouring it in the other end will not raise the overall water level – no matter how large the bucket. Similarly, redistributing dollars from one part of the economy to the other will not expand the economy, no matter how much is transferred. Yet that is all the stimulus bill is doing.
If government injecting $200billion into the economy so far creates 640,000 jobs — as the White House claims – then by the same logic, first removing that $200 billion from the economy must cost about 640,000 jobs
Spending advocates respond that redistributing money from “savers” to “spenders” will lead to additional spending. That assumes that savers store their savings in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings (where it finances business investment) or deposit it in banks (which quickly lend it to others to spend). Therefore, the money is spent whether it is initially consumed or saved. It means all the money government borrowed for the stimulus, would have been spent by the private sector.
Let’s do the math. If deficit-spending represented “new dollars” in the economy, then the record $1.2 trillion in fiscal year 2009 deficit spending that began in October 2008 – well before the stimulus added $200 billion more – would have already overheated the economy. And if it didn’t there was no reason to believe that adding $200 billion more in 2009 deficit spending from the stimulus bill would suddenly do the trick.
So what should we do to create growth?
First, Congress should resist all tax hikes. There is no school of economic thought that would justify raising tax rates in a weak economy. Doing so would reduce incentives to work, save, and invest, and be productive.
Congress must also rein in runway spending. Last year, federal spending soared to $30,000 per household for the first time ever – up from $21,000 per household (adjusted for inflation) at the beginning of the decade.
President Obama’s budget would hike spending to $37,000 per household by 2019. It would more than double the national debt. This would raise interest rates, cost taxpayers trillions in net interest spending, and eventually lead to painful tax hikes
The only way to avoid this fate is to cut spending through four steps:
- First, do no harm: Resist totally unaffordable expansions of government-health care and energy subsidies. Stop increasing discretionary spending by 8% annually
- Then, take back unspent Stimulus and TARP money. They haven’t worked, and they are dragging us deeper in debt.
- Next, enact spending caps. So that lawmakers can better prioritize.
- Finally and most importantly, reform Social Security and Medicare. This is truly the most important reform, as these programs threaten to bankrupt the federal budget. A good first step would be adding the creation of a Bipartisan Entitlement Commission to the upcoming debt limit vote.
Let me wrap up by saying that — thanks to the economy’s self-correction mechanism — all recessions eventually end. And we may be moving out of the current recession. But its no thanks to the stimulus bill. We need to focus on building a strong economy recovery, driven by entrepreneurs and families. That means keeping tax rates low, and the government out of the way.