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    Can Subsidizing Green Jobs Make Economic Sense?
    By Hank Campbell | March 11th 2011 02:46 PM | 15 comments | Print | E-mail | Track Comments
    About Hank

    I'm the founder of Science 2.0® and co-author of "Science Left Behind".

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    There are expensive gambles we can make and none are in the forefront of cultural thought more than penalizing current businesses and subsidizing 'green' ones to protect the environment.   California, with a deficit that can basically never be repaid and $100 billion in unfunded pension liabilities, still subsidizes hundreds of millions in green tech companies with no benefit to-date.

    Pres. Obama thinks we should subsidize green companies also, to the tune of $2.3 billion in Recovery Act tax credits for green manufacturers. 

    But does breaking something to allow for something else to flourish work?    Kenneth Green discusses this 'broken window' fallacy first introduced in 1850 by French economist Frédéric Bastiat.(1)  If a child breaks a shopkeeper's window, Bastiat said, people feel bad unless they are told the broken window leads to more work for the window repairman, who then buys more food from someone, etc.  So is the little hoodlum who broke the window a civic hero?  Well, no, the shopkeeper bought things with his money anyway and the intact window added value to the town - the most a repaired window can do is lose value because it's the same window purchased twice and one person was severely penalized.   

    Journalist John Stossel believes that we have the benefit of learning from the mistakes of others.   Green programs in Spain destroyed 2.2 jobs for every green job created, he notes, while the capital needed for one green job in Italy could create almost five jobs in the general economy.
    In judging any government initiative, such as Obama's green-jobs plan, you can't look just at the credit side of ledger because the government is unable to give without first taking away.
    That's true.  I am no Adam Smith but a government first has to acquire money from somewhere to give credits to someone else.   But is that 2.2 jobs ruined for every job created a real number?  Like "jobs created or saved" it sounds made up.   Well, he and Green at least didn't make it up. Green was citing a study by researchers at the Universidad Rey Juan Carlos who looked into the economic effects of Spain's push into wind and other renewable energy. 

    According to their findings, Spain spent 571,138 euros on each green job since 2000 but because Spain is a rather socialist state the government they also eliminated 110,500 jobs elsewhere in the economy.  That is where the 2.2 jobs destroyed for every green job created number comes from.

    You might argue those jobs would have been eliminated anyway - and you're right for saying so.  If you were critical of Pres. Obama's "jobs saved or created" numbers you can't accept this because it criticizes the green economy, but they note the type of jobs this impacted is quantifiable and therefore more valid than saying every construction worker who did not get fired was not fired because of a stimulus plan.  Because these were energy jobs, the higher cost of electricity was directly attributable to employment changes in metallurgy, food processing, beverage industries. etc. that have high energy usage.

    Green goes on to cite similar data about efforts in Italy.   I can't think of any instances where government subsidies have turned into businesses that became self-sustaining.   When the government ran ARPA-NET, no one used it.  It was only because a different government worker created a way to make Web pages usable for everyone (and did it for free) that the Web took off.    Government did not penalize the horse and buggy industry, like they are doing with light bulbs, and subsidize automobiles.   When a better solution came along, people adopted it and Big Trolley Car or whatever was powerless to stop them.

    Obviously the environment is important and if we want to have people in other countries improve their quality of life a better energy solution will need to be found - but solar panels and wind farms have failed for decades and throwing government money to keep them afloat does not seem like a great solution.

    NOTE:

    (1) Before you criticize the source, please recognize that the number of times leftwing organizations like PBS have noted the benefits of lower taxes is still comfortably sitting at 0.  So it stands to follow the only groups noting the pitfalls of spending money on big gambles will be free market.

    Comments

    vongehr
    Gerhard Adam
    Well, no, the shopkeeper bought things with his money anyway and the intact window added value to the town - the most a repaired window can do is lose value because it's the same window purchased twice and one person was severely penalized.  
    I agree and its an important lesson to learn the next time we roll the BP clean-up into our GDP growth numbers.

    I also agree that subsidies as you're describing can't work, but that isn't a completely accurate picture.  First, we don't seem to have a problem subsidizing successful industries such as the oil companies in the form of tax breaks and write-offs and even in cash.
    Oil industry officials say that the tax breaks, which average about $4 billion a year according to various government reports, are a bargain for taxpayers.
    http://www.nytimes.com/2010/07/04/business/04bptax.html
    The problem with these subsidies, is that it artificially keeps the true costs of oil production down which prevents the economic incentives from producing the quest into alternate fuels.  If we expect the "free market" to produce a different tier of competition, then we can't bolster up industries whose costs are going up in an interest to help them out.  That's every bit as bad as trying to manipulate new technologies.

    As a result, such assistance and subsidies, does penalize new development since it can't become economically competitive with such a financial bias.

    However, it is also worth noting that major government expenditures (such as the early NASA missions which lead to the moon) were also responsible for making many new technologies viable by creating the start-up environment necessary for the commercial development of products that might otherwise have taken decades longer to occur under normal "free market" pressures.  Your point about ARPANET may be true, but without that initial investment and development it isn't likely that anyone would've been in a position to put something similar together.

    I'm not a fan of the government's heavy-handed approach in many of these cases, but we also have to be reasonable and recognize that one of the advantages of government spending in these types of programs is that they don't have the business pressure of being forced to make a profit.  As a result, if programs and developments are carefully considered, they can provide the necessary climate to allow new start-up industries to move into those niches and become economically viable in their own right.

    However, regardless of how one feels about such government programs, we can never have real economic choices as long as we spend money protecting the status quo industries from having to suffer the economic consequences of their reduced viability.
    Mundus vult decipi
    MikeCrow
    Oil industry officials say that the tax breaks, which average about $4
    billion a year according to various government reports, are a bargain
    for taxpayers.
    http://www.nytimes.com/2010/07/04/business/04bptax.html

    In 2010 Exxon/Mobil for instance had Revenues of $383B, Costs of $330B, Income of $52B and paid $21B in taxes.

    So instead of paying 50% taxes they paid $40%. I don't feel too cheated.
    Never is a long time.
    Gerhard Adam
    Where do you come up with these numbers, since the highest corporate tax rate is 35%?

    In addition, where did you get the information about Exxon's tax liability?
    Though Exxon's financial statement's don't show any net income tax liability owed to Uncle Sam, a company spokesman insists that once its final tax bill is figured, Exxon will owe a "substantial 2009 tax liability." How substantial? "That's not something we're required to disclose, nor do we."
    http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes_2.html

    In the end, this also assumes that the "costs" are actually "costs" instead of the smoke and mirrors nonsense that GE pulls. 
    Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain). Not only do the U.S. losses balance out the overseas gains, but GE can defer taxes on that overseas income indefinitely.
    http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html
    Mundus vult decipi
    Hank
    I didn't check Exxon but I also pay 50% in taxes.   Your assumption on 35% is only the federal government takes a bite, and maybe that is true where you live.  In most states there is also state income tax and local.
    Gerhard Adam
    I'm not sure how a state income tax works for a multinational corporation.  However, if they're based in Texas, then there is 0 income tax there, at least.

    In any case, my point remains the same, in that I don't believe in favoring any industry over any other and it is equally obvious that many corporations are playing fast and loose with the tax laws by writing off losses in one place and claiming gains in low-tax areas.  So, I'm skeptical that we're seeing anything resembling the true picture of corporate finances regardless of SEC regulations.  I'm not suggesting they're doing anything illegal, but the current laws have enough loop holes in them for there to be questions.
    Mundus vult decipi
    MikeCrow
    It came from their Annual Report, which the SEC has many rules to limit the fudging of numbers.

    http://ir.exxonmobil.com/phoenix.zhtml?c=115024&p=irol-reportsOther
    Never is a long time.
    vongehr
    You yourself doubt the 2.2 jobs maths. Your point nevertheless is "solar panels and wind farms have failed for decades and throwing government money to keep them afloat does not seem like a great solution". This news does just not look like it fails as badly as you like to portray it. I mean, what may count as success? If Spain one day imports basically zero oil from mister dictator and has no nuclear facilities left that can blow up, it seems you will still say it is a failure because of all the people in Japan having jobs cleaning Fukushima or something. How sure are you even about what costs more? Alternative energy is not the only one subsidized, as I am sure you are aware of and Gerhard pointed out, too.
    Hank
    I doubted it until I looked for where the journalist got the number.   Am I going to fly to Spain and duplicate the efforts of the researchers at Universidad Rey Juan Carlos?   No, they haven't done anything to show they are liars.

    Would I be critical if clean jobs in Japan were really people shoveling dirt and then shoveling it back at a cost twice what normal jobs are?  I certainly would be.     If fewer people have jobs because money is being spent on a wish rather than the real world, I am critical of that.    I'm a little surprised you are accepting an advocacy piece by a journalist over the data of academics who live there.    Yesterday I saw the same thing adoring China for being the world leader in clean energy and bragging that we should also adopt a one-party system if it would help.  Basically, the whole thing has collapsed in America so proponents in the media are insisting again it makes economic sense.  

    Living in California, as I mentioned in a different comment, where we were told our wind vanes would pay for themselves in 5 years but instead are millions in the red decades later, I am suspicious when bad numbers get framed as good ones.
    vongehr
    Hank, you got me all wrong. By "doubting the number" I meant not that the number is 1.9 instead but no more than doubts already partially mentioned by yourself (is "jobs created" at all a meaningful number, especially isolated, in this highly complex system, would it have been eliminated anyways, were these jobs with a future or must we bite the bullet in order to be left with jobs that have a future and all that).
    I am not "accepting an advocacy piece". I have no expertise in economy and such percentage numbers are always there to fool people. Thus, I first posted it onto your corkboard and now I plainly asked questions about it in a comment. Faaaaar from "accepting"! However, I am in science for too long to accept something just because it is in a peer reviewed article by a so called "researcher", too.
    WE MUST reduce oil dependence, CO2 producing technology, and nuclear power. Now it seems (is the advocacy article totally wrong?) that Spain actually does it with some success (surely also problems, but not close to as impossible as some people constantly make it out to be!), and all I hear from you is that there are subsidies (as if oil and nuclear do not have those aplenty, not even counting the late ones after oil spills and meltdowns) and that there are 2.2 jobs less than before (which usually makes the same people who now point it out go "hurray, this is more efficient, giving people jobs is socialism" or whatever) and again that it is all just failure as California shows (many things fail in California).
    Stop being ever more polarizing please (to me, it feels like this is the case, sorry). "Can Subsidizing Green Jobs Make Economic Sense?" Well, maybe short term it does not. If so, I am not going to deny it because of what you think I would vote for.
    The question stays: Spain goes ahead and does "the impossible" and I do not see it going bankrupt like California yet. Am I totally wrong here or something? If so, give a good argument. Nothing to do with leftwing/rightwing at all.
    Hank
    I get that early adopters are going to spend more.    I bought a 1X CD burner for $5,000 and it was the size of a typewriter.

    What I did not do is advocate that the government should spend the money to buy a 1X CD burner for everyone in order to create a CD-burning industry and hopefully drive the price of machines down.  In reality, you and I both know that if the government were spending $5K on something it would have stayed $5K.

    We all recognize pollution is bad and I have said many times I want poor people in other countries to have a chance to acquire the same stuff I have, and that requires energy - but unlike people who fawn over every and any supposed green solution that comes along, I want lives to get better without rationing and mitigation.  If anything, I am far more optimistic about the ability of science to solve this problem than people on the other side.  Is that polarizing?   You agree that when 99% of science writing is taking a cultural/political side, someone has to address the other - and spending someone's else's money, even on bad green solutions, is practically a tag line for the vast majority of science blogging.
    vongehr
    Why a company cares about who bought? Maybe I am wrong with corruption and all that, but Spain may buy the best wind energy offers on the market, driving the prices just like any other customer. Does the product magically improve? No, but without anybody buying the product, the company is surely not going to have the money to improve anything. The research done in companies, here you definitively agree, drives product efficiency often much faster than university research.
    "You agree that when 99% of science writing is taking a cultural/political side, someone has to address the other"
    No. This either-one-side-or-the-other mentality is called polarization. If 95% are on one side and 5% on the other, chances are about 100% that 100% of them are wrong.
    MikeCrow
    that Spain actually does it with some success (surely also problems, but not close to as impossible as some people constantly make it out to be!),

    Spain is also about the equivalent of Southern Calif, Arizona, and New Mexico. I don't live there, I have some Sun, and some wind, but not enough of either, maybe together it might work, but that doubles the investment required, and the time for it's ROI. When I priced out solar alone, ROI was around 30 years.
    Never is a long time.
    Aitch
    Spain's Solar power seems to be a crucial part of Europe's GHG reduction plan, as does wind in the North



    Clearly there will be jobs created outside of the Oil megalith, as it's not just about jobs, but environmental considerations that oil cannot achieve

    Aitch
    Hank
    I don't see why environmental considerations in the long term should mean that 2.2 people not have jobs to subsidize 1 green energy job.   It would be better paying 2.2 to do nothing at all than porkbarreling tech that has been shown not to be cost effective and then paying welfare for the unemployed people on top of it.

    The thinking seems to be that if we keep dumping money into technology shown not to be effective it will magically improve.    Making the same mistake over and over and expecting a different result used to be the definition of insanity.