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Green Jobs Myths at the White House Summit

December 08, 2009

By Josh Barro

With unemployment at its highest levels in more than 25 years, the Obama Administration is trying to show that it is focused on jobs. Last week’s White House “Jobs Summit” brought together business, labor, academic and environmental leaders to talk about how the government can foster job creation. Unfortunately, the summit agenda repeated much of the same nonsense we’ve been seeing from the Administration for the last year.

Exhibit A: the Administration’s ongoing push to create “Green Jobs.” The Administration touts environmental initiatives not only as a way to improve quality of life and discourage climate change, but also as a way to employ more Americans. Accordingly, last week’s summit included a breakout session called “The Innovation Agenda and Green Jobs of the Future.”

The Green Jobs conceit goes like this: the government should offer tax credits and impose regulations that lead businesses to implement environmentally-friendly practices. This will create jobs doing what’s needed to qualify for the credits or comply with the regulations. Most importantly, carbon regulation (most likely in the form of Cap and Trade) will lead to investments in technology that reduces carbon emissions.

This is a modern version of Frederic Bastiat’s parable of the broken window. The accidental breakage of a shopkeeper’s window may look like an economic boon - it creates work for a glazier, who spends his extra income on goods from other merchants, producing a virtuous cycle of economic activity. But what’s not seen is how the shopkeeper would have otherwise spent his money: on goods from other businesses, creating a similar virtuous cycle. Breaking the window is a net loss for society, as no bonus economic activity is generated and a valuable capital item is lost.

Errors arise when we think about jobs on a gross basis, not a net one. Green programs do create jobs in certain fields, like makers of solar panels and providers of energy audits. Home Depot’s CEO attended the jobs summit to push for more tax credits for products like insulation and energy-efficient windows-because these create jobs (and profits) at Home Depot. Many participants in the Green Jobs session argued that quick implementation of Cap and Trade was necessary to create jobs, because businesses won’t invest in the green technologies they produce until they know what it will cost to emit carbon.

But Cap and Trade which will cost jobs in carbon-intensive fields just as it creates them in solar panel manufacturing. A report from the Brookings Institution estimates that, by 2025, the Waxman-Markey Cap and Trade bill would reduce employment by over 40% in coal-related industries and 35% in crude oil-related industries. Most of these workers would find jobs in other fields, but the overall effect on employment and GDP would be modestly negative.

Assuming climate change is a serious problem that can be helped by carbon regulation, a policy like Cap and Trade could reduce GDP and employment and still be a good idea. The idea behind carbon regulation is that emitters of carbon are imposing a negative externality on others by furthering climate change. Cap and Trade or a carbon tax is intended to “internalize” those costs to the actor, leading him only to pollute when that benefits society as a whole -- and therefore to produce less in the aggregate.

But whatever it is, Cap and Trade is not a jobs program. This should be obvious. If the Obama Administration argued that we should further complicate the tax code, so as to create more jobs for lawyers and accountants, they would be laughed out of the room. The fact that people must work harder to comply with new regulations is a cost of such policies, not a benefit.

The Administration’s upside-down approach to job creation isn’t limited to the Green Jobs mirage. In his opening remarks at the jobs summit, Obama once again hailed Cash for Clunkers as a success the Administration should build on for future job creation. The program was a “success” inasmuch as the government successfully got consumers to accept $3 billion in free money. It was not a cost-effective economic growth or job creation measure - in fact, estimates that it cost taxpayers $24,000 for every new car sale generated.

Not every idea advanced at the summit was bad-participants talked about the need to simplify regulations, improve American tax competitiveness, and increase openness of foreign markets. Even President Obama admitted that “true economic recovery is only going to come from the private sector.” But if Obama realizes the private sector must lead the recovery, why is he proposing to burden it with more taxes, more government spending, and more regulation? True economic recovery will only come when the Administration realizes that regulation does not create jobs.

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