Green Jobs are Broken Windows

Fixing what isn't broken doesn't help the economy.

The Investor's Business Daily reports from the campaign trail:

Blue-collar burgs like Quakertown, Pa., are places where politicians usually talk about "fixing" trade deals, defending gun rights and taking care of veterans.  Former President Clinton, stumping for his wife, talked about some of those things this week. He added one other thing that Quakertown doesn't often hear: Going green will get them jobs.  "I can promise you that you can create millions of jobs if you decide to make America more energy efficient and more energy independent," the former president said. "You pay for it all with lower electric bills . . . (and) reduce greenhouse gases and global warming."

As the American economy is reported faltering, and as people see jobs moving overseas, one of the key issues in the presidential campaign is how to create new jobs for the people who have lost theirs.

Not just any job, mind you; McDonalds and Wal-Mart are always hiring and will give you a job if you have a pulse, but those jobs don't pay enough to raise a family.  No, politicians seek the creation of good jobs - jobs, that is, which pay a reasonable living wage, offer healthcare and other benefits, and allow a normal person to create an ordinary middle-class life, as the great factories and industrial cities did for our parents and grandparents a generation ago.

Unfortunately, politicians forget that in order for an employer to create a job for a new employee, each employee must be able to produce more value for the employer than the total cost of creating the job.  If a worker's output is worth less than the worker costs, the employer either fires the worker or goes out of business.

The problem is that, thanks to globalization, every worker in America is in competition with the entire world and impoverished masses elsewhere are willing to work for far, far lower salaries than American workers.  "Grunt" jobs that require little or no education are simply uneconomical to do in the United States if it is at all possible to move them.

What's worse, competing countries have been developing education systems allowing their workers to slowly climb up the value tree.  Yesterday, the Chinese manufactured furniture and toys; today, Indians and Chinese staff call-centers and software development offices; what will it be tomorrow?

According to the Democrats, the answer to the conundrum is the "green job."  This is based on the assumption that we need a major new effort in technology to develop and manufacture environmentally-correct products and methodologies.  These will require researchers, engineers, designers, factory workers - that is to say, jobs by the millions.  We can not only clean up the environment, we can help the economy while doing so.  Sounds a perfect solution, does it not?

Unfortunately, those arguing for "green jobs" as a salvation of the economy have fallen into one of the most fundamental economic fallacies, which is known as the " broken window" fallacy.  The name came from the explanation of the issue by the French economist Frederic Bastiat in 1850.  He illustrated the problem via a parable.

Consider a small child who throws a rock and breaks a window.  The houseowner must pay for a new window.  In doing so, he has given money to the window repairman; that repairman has earned money that he can now spend on food, shoes, or whatever else.  By breaking the window, it appears, the child has created work and benefited the economy.

This is a mistake, because the houseowner is now poorer by the value of the window.  Previously, he had the window and some money; now, he has his window and less money.  If the window had not been broken, he could have spent the money on something else he wanted.  As a whole, the village is poorer by one window.

You can see the truth by considering the extreme: would a city be better off if someone went around one night and smashed all the windows?  Think about all the work this would create for repairmen, the glass factory, the street-sweepers, insurance adjusters, and so on.  That's obviously ridiculous; sheer destruction is not good for the economy, quite the opposite.

Creating jobs just to fix something that broke is not helpful overall; breaking things adds to costs without providing any benefits.  Mother Nature tried something quite similar in New Orleans; the results speak for themselves.

That's exactly what the Democrats are proposing.  We are already generating electricity, say, and manufacturing clothes.  We are driving cars, and turning on lights, and doing all the other things that are part of modern society.  By requiring what we do now to be replaced with something new and more environmentally correct that accomplishes nothing more than what was there before, the government would not make society richer; in effect, it would be breaking everybody's windows to create jobs.

This is not to say that all environmentally-correct improvements are wasteful.  New technology that makes things more efficient is helpful both ecologically and economically.  Boeing, for instance, has spent billions on research preparing to build its new 787 airplane out of fiber composites which are far lighter than the aluminum previously used.  When flying, the 787 will use far less fuel to carry the same load as before.

This is good for the environment.  Because fuel costs money, and using less of it saves money, the 787 is also good for airlines and passengers.

That is why the government did not need to command that the 787 be built.  The 787 happened all on its own, through the business decisions of Boeing, because Boeing determined that they could make a profit doing so.  The airlines have ordered hundreds of 787s because they figured out the same thing.

Likewise, consider fluorescent lights in office buildings.  Fluorescent lights are much cheaper to run than ordinary light bulbs because they use less electricity.  Big office complexes, which pay thousands of dollars in electric bills every month, find that it saves lots of money to use them - so they do, without any law being required.  When was the last time you saw an ordinary office floor with main lighting that used ordinary lightbulbs?  The early 1960s maybe?

In short, anything that in fact benefits the economy and the environment by being more efficient is going to get done anyway, without the government having to require or subsidize it.

If the government has to require or subsidize something in order to get it done, that's proof positive that it's not economical or that the market is broken in some other way, which should be addressed by fixing the market, not fouling it up worse.

About the only thing that the government could usefully contribute is by funding basic research, because it's usually not possible to tell upfront what sort of profitable inventions will arise from fundamental investigation into the laws of nature - but they almost always do somehow.  However, that requires PhDs and university laboratories; not much help there for unemployed steelworkers.  It also requires that areas of research be evaluated dispassionately, which is something that government is no longer able to do.

We can only hope that Hillary and Obama have no real intention of keeping their promises.  If they actually implement the requirements and subsidies they're talking about, they might just as well walk down the street throwing rocks into people's living rooms, for all the economic good it will do.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments
Your basic premise is right, but I disagree with your conclusion. There can be economic benefit to becoming green ahead of the curve. Subsidies can make the difference in whether it's a company in the states that becomes a market leader, or company somewhere else in the world.

Denmark, for example, has become a world leader in making windmills, largely through government subsidies. Fundamentally, I disagree with this approach, but it's hard to argue that Denmark hasn't benefited economically.

Solar power is an area, where i could see that happening in the states. It is, in fact, with some of Arnold's initiatives.

Clearly, the broken window fallacy is not a very good description.
May 3, 2008 3:53 AM
Jason is only right UNTIL user acceptance picks up and these green paradigms are tested on larger audiences. Solar, for instance, still is not worth the cost in terms of basic engineering ROI. Wind power is even more laughable. The only renewable, green power source that can operate on large scale (and is relatively constant) is hydro-electric. The rest are either too unstable or are net losses on the macro energy level.
May 4, 2008 11:27 AM
Mexico recently built a large hydro electric damn that is powering like half the country (don't quote me on that). I saw a documentary on the build, and it was very cool seeing how massive the operation is - first the startup and then the ongoing maintenance. The problem with hydro electric is that even IT can take decades before any ROI is seen. Google is trying to produce ROI on their monster solar project. But the upfront costs were dozens of millions. Will they ever get that back? Doubtfull.
May 5, 2008 9:01 AM
According to this case study:

Google is saying $395k per year in energy costs now and will pay off the entire system in 7.5 years. It also says that they will save $15m over 30 years, and 30 years is the lifespan of the system. I don't know what "lifespan" means. Do all the PV cells have to be changed every 30 years? I can't imagine all the installation will have to be redone.
May 5, 2008 9:35 AM
From what I have heard, solar grids take a LOT of time and money to maintain. There are constant problems with wildlife - bugs and birds flying into the panels - and moisture/heat problems with the networking. In Google's case, they have the panels laid out over several acres of buildings so their maintenance costs might be even higher. I hope they can save money and I hope they do get a good ROI. But if they're saving $400,000 per year and it takes 7 and 1/2 years to pay off that means it cost roughly $3,000,000 to install. That is no small amount of money in upfront capital investment. Keep in mind that they are onnly pulling 2.5 megawatts per year. That may seem like a big number, but there are large mansions that take 1/10 of that alone. And Google has an entire campus to run.
May 5, 2008 9:51 AM
Google is a good illustration of the point being made in the article. If it's cost-effective to do something green, you don't have to mandate it - people and businesses will do it on their own, regardless, because they want to save money. If, on the other hand, you have to FORCE greenness to be done, it is precisely because it's not cost-effective, and thus is a "broken window" leading to a net loss of wealth - R&D efforts excepted, as noted.
May 5, 2008 10:49 AM
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