There may be nothing so dangerous as a policy fantasy. A good one is like the H1N1 virus. It spreads on contact and threatens to infect everyone in its path.
Policy fantasies are dangerous because they cause direct harm, replacing plans that might actually work, and because they spread economic illiteracy that can negatively influence future policies. If we want to address global warming, and we should, we need to adopt a carbon tax or cap-and-trade program to penalize greenhouse-gas emissions. Just about anything else is a distraction.
Right now, one of the most dangerous policy fantasies is the distracting notion that government can create so-called green jobs and should strive to do so enthusiastically.
While the principal proponent of the green jobs hokum, Van Jones, is now out of government, the idea still influences policy design. Witness the Renew Through Green Jobs Act of 2009, which is making its way through Congress. President Barack Obama, of course, has been a veritable Typhoid Mary of the green job virus, promising to deliver 5 million of them.
The analysis to back that up, and spread by green job enthusiasts such as Jones and many of his colleagues at the Center for American Progress, is that transferring society's resources to the green sector leads to a net creation of jobs. And it provides a tasty free lunch by cleaning the environment.
Eat for Free
Economics teaches, of course, that there are no free lunches. A key force driving such calculations is that alternative-energy production or energy conservation are fairly labor intensive relative to, say, the oil industry. But if the alternative-energy sector were really economically more efficient than other forms of energy, it would create all the wonderful jobs all by itself, without the assistance of Uncle Sam.
If, even after all the subsidies that government already provides to green technologies, we have to also subsidize training for workers in that industry, that suggests we are throwing money at an industry that can't pass the market test.
The notion is that we make ourselves better off by transferring resources from one sector, which is fairly efficient, to another, which isn't. Such an assertion might be correct if we account for the damage done by greenhouse gases. But with regard to job creation, the argument is nonsense.
Heritage Foundation economist J.D. Foster recently wrote that the same logic would recommend an even better and greener plan: the federal government could require that we all move about in rickshaws.
The logic is sound, is it not? It will take many environmentally friendly rickshaws to replace the passenger miles currently devoted to travel in cars and buses. With unemployment so high, a rickshaw program could reap huge economic benefits.
Or would it?
In the long run, when real wages and workers have the opportunity to adjust, the economy tends toward full employment. One simply can't redistribute resources and change the number of jobs. So we get to choose in the long run between an economy with lots of rickshaws and an economy with more efficient transportation, and lots of jobs in other sectors.
In the short run, when unemployment is high, then the government can conceivably create jobs. If it does so by transferring resources from one sector to another, then one must be careful to net the jobs lost in one sector against the jobs gained in another.
Consumers Get It
Even if we use deficit spending and borrow money from the Chinese to create jobs, we can't be sure that the net creation is very large. If consumers understand correctly that the big deficit means higher future taxes, they will cut their consumption, and businesses outside the green industry will reduce production and employment.
Obama has consistently used Spain as an example of green job paradise.
Spain has, indeed, invested heavily in green jobs. And the results? A recent study by Spanish economist Gabriel Calzada Alvarez and colleagues at the Universidad Rey Juan Carlos, found that the Spanish program spent 571,138 euros for every job it created. That's about $833,000 per job.
The Spanish program also sucked resources out of more productive sectors into less productive ones, costing 2.2 jobs for every green job created.
While Alvarez's calculations rely on assumptions that might overstate the case a bit, consider the impact of the Obama green jobs program if his numbers are correct. The president has promised to create 5 million green jobs. If he succeeds, then it will cost 11 million jobs in other sectors, and the medium-term increase in unemployment will be 6 million jobs.
To put that in perspective, the number of unemployed Americans has increased in the past two years by 7.6 million. Creating 5 million green jobs would do almost the same amount of net harm.
Environmental programs should be weighed on their merits. The most efficient way to move toward a cleaner future is to provide incentives to rely on alternative energy with a penalty on carbon. If a carbon tax causes some unemployment, we can address that with tax reductions elsewhere. The green jobs fantasy makes the adoption of such a plan harder, and, to the extent that it affects real policy, hurts real people.
Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.