Not surprisingly, proponents of spreading the wealth around from taxpayers to the producers of renewable power did not care for the Spanish study. When Dr. Calzada visited the United States to publicize his team’s findings and warn Americans not to repeat Spain’s mistakes, the usual ad hominem attacks came forth. Now, the National Renewable Energy Laboratory (the “renewables” part of the Department of Energy) has recently issued its own critique [.pdf] of the Spanish study.

To its credit, the NREL critique focuses on the Spanish study itself, rather than casting aspersions on the economists who wrote it. But here too the critics fall flat on their faces, making arguments that are at times contradictory and often downright silly. Because of space constraints we can’t discuss every (unfounded) objection, so we’ll just focus on three of the “Fundamental Limitations” as alleged by the NREL, and we’ll conclude by mentioning the first of the alleged “Shortcomings in Assumptions” just because it’s too funny to ignore.

The first bulleted “Fundamental Limitation” concerns the measurement of job losses:

The metrics used in the Spanish study are not jobs impact estimates. The primary conclusion of the report is that the Spanish economy has experienced job loss as a result of its RE [renewable energy] installations. However, comparing the RE subsidy per job with the Spanish economy’s average capital per job and average productivity per job is not a measure of job loss. Traditional methods for estimating jobs and economic impacts are discussed below.

The Spanish study gauged the cost of government subsidies through different techniques, both of which yielded the result that every “green” job created by the government came at the expense of 2.2 jobs in the private sector. In the first calculation, the Spanish study took the subsidies per worker in the renewables sector, and compared it to the (much lower figure) of the capital invested per worker in the Spanish economy. The comparison showed how many jobs were created in the subsidized renewables sector, versus how many jobs the same amount of resources could support in the private sector. In the second technique, the Spanish study compared the annuity value per worker of the expected stream of government subsidies, and compared it with the average productivity of workers in the private sector. In both techniques, the answer was the same: a given amount of resources supported 2.2 times as many jobs in the private sector, as in the government-supported renewables sector.

This result should not be surprising, since the political process is hardly an efficient way to ration resources. In some cases, the subsidies were outrageous—since 2000, the Spanish government spent more than one million euros per job created in the wind industry. On average, the government spent some 571,000 euros per “green” job. This is clearly an example of economic inefficiency, as the actual workers were certainly not taking home such lucrative paychecks.

Incidentally, the “traditional methods” cited by the NREL for estimating the impact of subsidies often completely ignore the downside of government involvement. As IER documented in its own study, “Green Jobs: Fact or Fiction?”, some of the leading studies promoting green job investment commit this basic fallacy. They use apparently sophisticated “input-output models” to count up all the jobs fostered in various sectors by big government spending, but they completely ignore the impacts of the taxes and deficits needed to fund these grandiose projects. That money comes from somewhere, and the source is taxpayers’ incomes, now or later. The economic concept of “opportunity cost”…what one could have done with the money if the government had not snatched it…appears lost on the authors.

In reality, no one can know exactly how many jobs Spain would now have, had its politicians not squandered so much money on green boondoggles. No model can show us with certainty what the Spanish economy looks like in that alternative universe. But the virtue of the Spanish study—in contrast to the ones put out by “progressive” US think tanks—is that it acknowledged that government money has to come from somewhere, and so it necessarily carries a cost in terms of reduced capital available for the private sector.

Another alleged “Fundamental Limitation” involves export potential:

The report fails to account for technology export potential. Robust RE technology exports can greatly affect economic impacts of renewable energy…With its proactive RE policies, Spain is already a major exporter of renewable energy equipment…If global demand for RE technology increases, Spain’s early investment could allow it to capitalize on a global market for RE technology, which would contribute further to the Spanish economy.

We really have to wonder if the NREL team considered the implications of what they’re saying here. It sure seems as if they are saying: “Yes, the Spanish government’s spending didn’t create many jobs in Spain. But if governments all over the world subsidized Spain’s renewables sector, then we would we see strong job growth.” In any event, we point out that this justification only applies to the pioneers in the field—namely, Spain. It can’t be true that all countries “capitalize on a global market for RE technology” by early investment. If anything, this NREL bullet point shows that the United States should expect a worse return (measured in job creation) from its own subsidies to renewables, since—as NREL explains in the quotation above—the Spaniards already have such a head start and will export their renewables abroad as global demand increases.

Another of the Spanish study’s alleged “Fundamental Limitations” concerns the apparently wonderful innovation spurred by Big Government:

The study ignores the role of government in facilitating growth of valued new industries. Governments invest in renewable energy technologies to promote the growth of the industry as a whole. Emerging RE technologies have not achieved levels of maturity and economies of scale that traditional technologies have; nor have they benefited from years of public and private investment.

First, plenty of renewable energy technologies have received massive government support, for decades. Tax incentives for solar generation originated with the Energy Tax Act of 1978 (Public Law 95-618), which established a business energy tax credit of 10 percent of investment in solar technologies. It became permanent with the passage of the Energy Policy Act of 1992. That legislation also introduced the production tax credit (PTC) for wind, which has expired and been reinstated several times since its origination. Most recently, the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) extended the PTC through 2012, and President Obama has directed that $83 billion of the $787 billion economic stimulus plan go to prop up green technologies which otherwise fail consumer market tests. The Energy Information Administration in a report cited by NREL has shown that in fiscal 2007, total Federal subsidies for electric production from either solar or wind power are almost 100 times more than the subsidies for electric production from natural gas and petroleum liquids on a watt-for-watt basis.[1] The reason they have not achieved “levels of maturity and economies of scale that traditional technologies have” is that they are grossly inefficient and costly. The market has thus far relied on traditional energy sources such as coal, oil, and natural gas because they are the most efficient means of delivering power to consumers in convenient forms and at low prices.

Yes, government can artificially create entire new industries if it’s willing to throw enough taxpayer money into the boondoggles, but politicians are hardly the people who should be picking winners and losers in the energy sector. Relatively unregulated sectors, such as the computer and cell phone industries, show the rapid-fire innovation and cost-cutting of free market capitalism. It is the most heavily regulated and politicized sectors, such as education and health care, that suffer from stagnation and wasted resources.

Finally, we turn to one of the alleged “Shortcomings in Assumptions” brought up in the NREL critique:

The authors assume that a dollar spent by the government is less efficient than a dollar spent by private industry and that it crowds out private investment. Government spending may be more or less efficient than private investment. To the extent that government spending is a correction for market failures (e.g., existing fossil fuel subsidies, environmental externalities), it is less likely to represent an inefficient allocation of resources. Furthermore, there is no justification given for the assumption that government spending (e.g., tax credits or subsidies) would force out private investment. This assumption is fundamental to the conclusion that Spain’s renewable energy policy has resulted in job loss.

In the first place, we are discussing tangible job creation. Even if it were true that greenhouse gas emissions represented a “negative externality” because of manmade global warming, government policies to combat this outcome would register as job destroyers. The “efficiency” would kick in because of the theoretically milder climate inherited by future generations.

The Spanish study was not factoring in all the pros and cons of environmental benefits versus economic losses, because the proponents of a “green recovery” argue that we can have our cake and eat it too. When President Obama and others point to Spain as a “success story” for government funding of renewables, his message was not that the Spanish economy shed jobs, but gained the comfort of knowing their grandchildren would live in a cooler world. No, the message has been that the Spanish subsidies to renewables were good for the economy. And as the Spanish study and its worst-in-the-EU economic performance has shown, this is simply not the case. The Spanish government itself is bowing to the economic realities of its mistake.

As for the NREL’s complaint that “there is no justification for the assumption that government spending…would force out private investment,” we have to ask: Where does NREL think the government’s money comes from, the Tooth Fairy? The assumption that money itself is renewable is a common governmental misconception, aided no doubt by annualized budget awards which simply appear from the thin air of Washington. The awards get larger if one can justify an agency’s existence.

Yes, yes, Paul Krugman and other leading Keynesian theorists can come up with fancy mathematical models purporting to show that there really is a free lunch during a severe economic recession, so that government deficits actually promote job growth on net. Whether or not one agrees with Krugman is irrelevant. The Spanish study looked at the evidence from the year 2000 onward, well before the current crisis hit. Furthermore, the proponents of massive “green” spending programs don’t intend for the funding to dry up once the global economy has returned to normal. So when the NREL asks for a justification for assuming that government spending reduces private investment, we simply remind them, “Money doesn’t grow on trees.” It’s ironic that we have to point this out to people with impeccable environmental awareness.

In conclusion, we can do no better than to update Professor Calzada’s pointed question he posed in testimony to US Congress: With Spain’s July unemployment running at 18.5% versus the US rate of 9.4%, why in the world would we want our policymakers looking to Spain for tips on job creation?

Contrary to the claims of the study, both the Obama administration’s “stimulus” plan and the House-passed Waxman-Markey climate bill will indeed lower living standards for most Americans. It’s true, some groups will benefit financially from the government’s massive deficit spending and power grab—solar panel manufacturers and Wall Street carbon dioxide allowance brokers are good examples. But the nation’s poor are not politically connected, and thus will not benefit from these backroom deals. Instead, the poor will suffer the most from rising energy prices and reduced transportation options.

Helping Business By Crippling It?

The fundamental flaw with the notion of a “green recovery” is that it overlooks all the jobs the government will destroy with its mandates and stealth taxes. For example, the PERI study tells us:

The building of a clean-energy economy in the United States can also serve another purpose: to create new ‘pathways out of poverty’ for the 78 million people in this country (roughly 25 percent of the population) who are presently poor or near-poor, and raise living standards more generally for low-income people in the United States. (p. 2)

Such claims sound good, but simply don’t hold up to scrutiny. The government can’t make the economy richer by siphoning resources away from the private sector and spending them on political pet projects, nor does it raise living standards by weaning businesses off the most efficient techniques of production.

The “green recovery” advocates are trying to have their cake and eat it too. Assume that some of the most dire global climate computer simulations are accurate, and that drastic reductions in greenhouse gas emissions are necessary to literally avert global catastrophe. Even in this case, the government’s preferred solution—taking away options from business and forcing them to make their products using less efficient energy—will lower total domestic economic output. To some, the tradeoff of averting the “what if” scenario would be worth it, but the point is, there would be a tradeoff. Americans would be forced to enjoy a lower material standard of living for the (theoretical) benefit of lower long-run temperatures.

To see how far-fetched the green jobs rhetoric is, notice that the argument has nothing intrinsically to do with “clean” energy. If cap-and-trade in carbon dioxide emissions will be such a boon to the economy, then why stop there? The government could also declare a cap on how many tons of steel businesses could use in a given year. By ratcheting down the steel cap every year (as they plan on doing with carbon dioxide), the politicians would force businesses to come up with other ways of making their products with less and less steel. According to the PERI study’s logic, this would be great because of all the new job opportunities in plastics and other soon-to-be invented sectors.

The Lower the Wage, the More Jobs You Can “Create”

The PERI study relies on a typical claim from the “green recovery” literature:

[O]ur findings show that clean-energy investments create more job opportunities than spending on fossil fuels, across all levels of skill and education. The largest benefits will accrue to workers with relatively low educational credentials. (p.2, emphasis added)

Sounds too good to be true, doesn’t it? That’s because it is. In a relatively free market economy, where for the most part lawmakers and unelected bureaucrats don’t control economic decision-making, labor and capital moves towards those sectors where they are the most productive. Some businesses, such as hair salons, are relatively labor-intensive, whereas other businesses, such as airlines or oil rigs, would be more capital-intensive. Loosely speaking, the economy’s overall output would be maximized, because every worker and machine would be deployed in the sector where they could produce the most value (and earn the most money).

Now enter the policymakers and bureaucrats who start rearranging resources. They look at businesses that generate electricity by harnessing wind and solar power, and then they look at businesses that produce electricity by harnessing coal power. Since it takes more workers to produce electricity from windmills and solar panels, they decide to cripple the coal burners and give subsidies to the wind harvesters to try to create a “green recovery.”

But if it really helped workers for them to move from efficient energy industries into “green” energy sectors, why would the government have to force them to do it? Part of the answer is that the new jobs will actually not be very high paying, as the PERI study unwittingly admits when it says, “Out of the 1.7 million net increase in job creation, roughly 870,000 of the newly available jobs would be accessible to workers with high school degrees or less.”

Saving Consumers Money By Taking Away Their Products

As bad as their arguments for “helping” workers are, the PERI approach to “helping” consumers is even worse. The government will “save” households money by forcing them to consume less energy and transportation. For example, in discussing the benefits of increasing the availability of mass transit—funded with taxes taken from the private sector—the PERI study says (p.3):

• The largest benefits will accrue to households that can replace a car with public transit.
• These households would see their annual transportation expenditures fall by roughly $2,000.
• This would represent a reduction in total expenditures for these families of about 10 percent.

Applying the same logic, if the government expanded public housing projects and doubled property taxes at the same time, that might encourage families to “save money” by moving into government-owned apartments, but it wouldn’t make them better off as a result.

What the PERI authors fail to explain is why the poor would need to be forced to reap all the benefits that will allegedly accrue from new government “green energy” mandates. For example, if it makes economic sense for a poor household to install better insulation and fluorescent lights, why does the government need to be involved at all? At best, PERI should conduct an educational campaign alerting poorer households of all these alleged savings. Or better yet, maybe they could provide free compact fluorescent light bulbs to citizens of modest means. Both would be certainly be less intrusive to the poor than fundamentally reorganizing energy markets, and consequently harming the U.S. economy, for the sake of promoting politically correct energy.

Conclusion

The $787 billion Obama “stimulus” (pork) package and the 1400-page Waxman-Markey energy tax bill will not help the poor. You don’t improve the economy or raise living standards by rearranging resources and imposing artificial constraints on the private sector. These two government programs do nothing more than siphon money from taxpayers and into the hands of lawmakers and bureaucrats to shower onto their politically connected friends. Unfortunately, the working poor are not lucky enough to be members of that exclusive club.

• Rep. Obey’s Summary of the Bill
  
• Text of the “Green Jobs” Stimulus Bill
• Discussion Draft of the Bill Report
  

The bill is partially based on studies which purport to show large numbers of jobs created by government spending on “green technology” such as energy efficiency and renewable energy projects. IER recently released a study demonstrating that the campaign to sell government ‘green jobs’ as a cure for our economic ills relies on misguided assumptions, unsound data, and false hope.

Among the key findings of IER’s Green Jobs: Fact or Fiction?:

• “[Obama’s green jobs plan] would likely increase consumer energy costs and the costs of a wide array of energy-intensive goods, slow GDP growth and ironically may yield no net job gains. More likely, [it] would result in net job losses.”

• “Although each report [in defense of ‘green jobs’] is unique, a common characteristic is that they all rest on incomplete economic analysis, and consequently greatly overstate the net benefits of their policy recommendations.”

• “[The Center for American Progress] estimates that this “fiscal stimulus” will result in the creation of two million jobs. Yet the CAP methodology treats the $100 billion as manna from heaven; it does not consider the direct and indirect adverse effects (including job destruction) of imposing higher costs on a wide array of energy-intensive industries and thereby raising prices for consumers.”

• “The government doesn’t create wealth simply by taking $100 billion from one group of firms and handing it over to a different group …”

• “After broadly defining the renewable industry, the Council of Mayors study goes on to paint a picture of expanding markets that can only grow further.  In reality, with the single exception of wind, U.S. power production from renewables has stagnated for the past fifteen years.”

During the campaign, President-elect Obama said he would like to dedicate $15 billion in taxpayer funds to create “green jobs.” Spending billions to create jobs sounds appealing, but Obama and other proponents of such a program have thus far failed to mention the downsides this will have on the productivity of the overall economy.

One of the great things about a market economy is that politicians and government planners don’t have to do anything for economic activity to take place. Bureaucrats don’t need to invent non-government related jobs and subsidize them with taxpayer funds. They don’t need to determine in which regions the jobs should be created and which skills are best suited for them. In a market economy, employees and employers make these determinations together. Entrepreneurs start new business and try to hire the best people for the jobs these businesses create. Nobody needs to check in with a government bureaucrat and it doesn’t cost the taxpayer a dime. While not perfect, the entire process is remarkably efficient. Jobs are created to provide the goods and services that people want and need when they want and need them. And when consumers change their preferences, the economy adapts accordingly.

Take Google, for example. Google was incorporated in September of 1998. By 2008, Google employed 20,000 people. It didn’t cost the American people anything to create these jobs. But the American people, and the rest of the world, have benefited greatly from Google’s excellent search engine and other innovative products like Google Maps, Google Earth, and Gmail.

Google shows us how jobs are created in a market economy. Without imposing on the American taxpayer, they made a superior product for consumers and 20,000 jobs have been created. As a result, humanity reaps the benefit of being able to use Google’s superior products. And as an added bonus to the government, Google pays millions in taxes each year.

Consider Exxon Mobil as another example. Even in these challenging economic times, Exxon Mobil earned billions in profits, employs 80,800 employees, and pays billions of dollars in taxes and fees to the government every year. Exxon Mobil makes money because people are willing to buy, without being forced by the government, Exxon Mobil’s gasoline and other products. When Exxon Mobil hires a new employee, it doesn’t receive money from the federal government to help create that new job, because Exxon Mobil sells a product people will voluntarily buy.

So if Google and Exxon Mobil can create jobs without Federal subsidies and payments, why do so-called “green jobs” need to cost the American taxpayer so much? President-elect Obama says his 5 million new green jobs will cost $30,000 taxpayer dollars per job. And Obama’s plan is far more optimistic than those of even his closest allies.

The Center for American Progress (whose CEO heads Obama’s transition team) calculates that it would take government spending of $100 billion to create 2 million jobs. By their calculations, it costs the taxpayer $50,000 to create a single “green job.” The Apollo Alliance (whose founder served on Obama’s campaign staff) released a study which calculates that it would take $500 billion in taxpayer dollars to create 5 million jobs. That works out to a taxpayer “investment” of $100,000 per green job.

These green jobs are awfully expensive. And even the Apollo Alliance admits their numbers have little basis in reality. According to the Wall Street Journal, “Kate Gordon, co-director of the Apollo Alliance, says the numbers are less important than the message. ‘Honestly,’ she says, ‘it’s just to inspire people.’”

Inspiration, it seems, is in the eye of the beholder, for it is hardly inspiring to consider that even with the President-elect’s most optimistic assumptions, $30,000 in government subsidies are necessary to create every new government-inspired green job. And if such a plan is actually implemented, it might indeed create some new jobs, but it is also going to destroy a lot of existing jobs through the increased tax burden necessary to carry out his plan. The $30,000 to $100,000 per job has to come from somewhere and that somewhere is people with real jobs today – working at Google or Exxon Mobil for example – that pay taxes on the income they earn from their real job. These people didn’t ask the government for a dime, nor were their jobs created by the government and yet they will be paying the Obama green jobs tax.

Finally, the fact that Obama’s green jobs require such lavish government subsidies is proof that they simply fail the market test. That is to say, consumers currently do not choose to voluntarily hand over enough money for the products and services created by green jobs otherwise they wouldn’t need such a lavish government subsidy in the first place. This economic inefficiency will only make the country poorer in the long run. After all, you don’t make consumers better off by forcing them to buy products and services that they wouldn’t have purchased voluntarily in the first place.