The Government’s “Green” Jobs

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Jonathan A. Lester, president of Continental Economics Inc., has written an insightful critique of artificial stimulus to wind power and the like (“Gresham’s Law of Green Energy,” in the Cato Institute’s journal Regulation, Winter 2010–2011, pp. 12–18). Like similar critiques, however, it could benefit from better placement of emphasis.

Lester laments the wasteful diversion of resources into uses that would otherwise not pay (waste, that is, barring untypically sound “externality” arguments). Furthermore, as for jobs created by subsidy- or regulation-based spending on green energy, the money so spent would have to come from somewhere. It would necessarily be diverted from spending on other public or private activities, where jobs otherwise created or maintained would be lost.

Such arguments put too much emphasis on spending itself relative to the allocation of real resources, including labor. Would the workers newly drawn into green jobs come from elsewhere, or would they have otherwise remained unemployed? Do green subsidies, tax breaks, and regulations really remedy economy-wide unemployment exceeding the frictional unemployment of normal times?

Unemployment in a recession reflects discoordination. Mutually advantageous transactions among workers, employers, and consumers are somehow frustrated. That is what needs attention. Putting emphasis on spending and its destinations is superficial. As W.H. Hutt used to say, spending is a measure of transactions accomplished; it is not what drives transactions.

Now, what impedes transactions in a recession? Usually or often it is a deficient quantity of money in relation to desires to hold it at the prevailing price and wage level. Sometimes (as now, apparently) the demand to hold money has increased, even if only passively or by default, because individuals and firms are especially uncertain about what transactions would be worthwhile. Adding to the usual uncertainty about business is uncertainty about taxation, government deficits and debt, complicated and costly regulations, and other government interventions, including unintended consequences of earlier ones.  This is what needs attention, not the allocation of spending between green and other employments.

Recession is not something to be remedied by shifting resources around. Besides channeling resources into relatively inefficient uses, artificially favoring green energy obscures the true nature of recession.

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