After the defeat of cap-and-trade and the Obama administration’s pullback of the job-kiling ozone regulations, advocates of “green” regulations have resorted to a new absurdity: they claim that imposing new burdens on business will create jobs. The most recent example of this approach is Congressman Keith Ellison (D-Minn.). We have already produced a comprehensive critique of the “green jobs” canard. Even so, as many times as proponents bring up the crazy claim, we will knock it down afresh. Our message will be the same time and time again—shackling the economy does not make it more productive.
Rep. Ellison’s Plan for Job Creation
An article in Real Clear Politics reports:
Rep. Keith Ellison (D-Minn.) tells MSNBC regulations create jobs because a business will have to hire people to help them comply with the new requirement.
"I think the answer is no," Ellison said when asked if he believes regulations kill jobs. "And here is why: When we talked about increasing fuel efficiency standards, the industry responded, and they need engineers and designers and manufacturers, and they need actually more people to help respond to the new requirement."
"I believe if the government says, look, we have got to reduce our carbon footprint, you will kick into gear a whole number of people that know how to do that or have ideas about that, and that will be a job engine. I understand what you mean, because if anything adds a cost to a business, you could assume that that will diminish that business’s ability to hire. But I don’t think that’s actually right. I think what businesses want is customers and what — if they are selling product, if they have a product to sell they will do well even if they have some new regulations to meet," the Congressman said.
Although it would be tempting to dismiss Ellison’s views as silly, Nobel laureate Paul Krugman has made similar claims (though with more jargon). So it’s worthwhile to pick apart the fallacies.
Why So Timid?
First of all, let’s suppose Ellison is right. Let’s concede for the sake of argument that the federal government will “create jobs” in an economically meaningful sense by forcing businesses to reduce their carbon dioxide emissions. The way Ellison describes the situation, he clearly implies that the new regulations would be killing two birds with one stone—not only would we mitigate climate change, but we’d also reduce unemployment.
Yet hold on a second. If that really is the case, then why stop short? No one has been bold enough to suggest that the entire population of unemployed will be mobilized by carbon dioxide regulations. So why not double the potency of the regulations, by insisting that all workers involved in the compliance process tie one hand behind their backs? Then adapting to the new regulations will require twice as many (actually probably more) workers.
The Goal Is for Workers to Create Value, Not Jobs Per Se
Hopefully in light of our tongue-in-cheek proposal, the reader can sense that there must be something fishy with Ellison’s position. Specifically, the problem is that he narrowly focuses on “job creation” without looking at the big picture.
The ultimate reason people have jobs is to create goods and services that people value more than the raw materials going into the process. In a sense a worker “creates value” by mixing his or her labor with the other inputs on the job. That’s why the employer is willing to pay for the labor services.
A healthy market economy channels scarce labor resources into the most efficient lines. Absent government intervention, you would never see a firm paying one group of workers to dig ditches and another group to fill them up. No, the onerous task of labor is always directed into projects that are expected to yield a useful product or service to a paying customer.
In this context, imposing new constraints on businesses can only make us poorer. If it originally takes 100 workers to make a certain batch of computers, and then a new government regulation bumps the number up to 150, then society is that much poorer, because those 50 workers can’t be used elsewhere.
Mainstream environmental economists can make a case that there are “negative externalities” from carbon dioxide emissions, and that imposing a carbon tax or cap-and-trade will make society “richer” if we include aspects of the climate in our broad definition of wealth. But it will make us poorer compared to a baseline in which there were no threat of global warming.
In other words, it is still costly for us to have to comply with the carbon tax, even assuming the standard models and policy recommendations were valid. Of course, we at IER do not endorse the conventional case for a carbon tax. The point is, even someone who believes a high carbon tax is crucial, has to concede that it will make us poorer in terms of forfeited output of conventional goods and services. Rep. Ellison misleads his listeners when he implies that carbon dioxide regulations will help the planet and the economy simultaneously.
What About Idle Resources?
The proponents of new interventions often respond to the above argument by pointing out that we are currently in a bad recession with high unemployment. Therefore, they claim, there is no “opportunity cost” in putting people to work revamping businesses.
Yet this argument only works if we adopt the Keynesian notion that unemployment is high because of a lack of “aggregate demand.” There are many economists who oppose this view, and blame our economic woes on continued government and central bank interventions. The stagflation of the 1970s showed that high price inflation and high unemployment can occur simultaneously. Imposing carbon dioxide regulations—which will raise energy prices and constitute a “negative supply shock” in econ jargon—could plausibly increase unemployment. In other words, for every job “created” by the new regulations, there would be a greater number of jobs destroyed elsewhere.
Congressman Ellison joins a long line of government apologists who make the incredible argument that shackling businesses with new regulations is the path to prosperity. If this were really true, then the government could cure the recession next week by banning the use of construction vehicles. (Think of how many construction workers would have to be hired to get a particular job done!)
In reality, limiting carbon dioxide emissions will hamper businesses, definitely leading to lower total output (conventionally defined) and likely leading to net job losses in the short term. If proponents of a carbon tax want to claim it will hurt the economy now, but help the climate in the long haul, that at least would be a coherent argument. But it is absurd to claim that we can spur job creation in the aggregate by taking away options from businesses.