Job creation and economic recovery are atop the agenda of both political parties. The White House, however, has chosen a government-heavy job creation plan, beginning and ending with so-called “green energy” jobs. Critics stress the less visible but all-important private-sector, deficit-neutral, consumer-driven creation of jobs.
The science of economics supports the market-driven approach to job development as more efficient than the government-sponsored alternative. The reason was well expressed in a classic of twentieth-century economics, Economics in One Lesson, first published in 1946 and periodically revised during the lifetime of its author, Henry Hazlitt (1896–1993).
Hazlitt’s understanding of economic scarcity (limited means for unlimited ends) revolves around opportunity cost. Resources spent on one project cannot be spent on another project. Therefore, if the government uses its tax-and-spend power to create jobs or whole businesses, the private sector is deprived of those resources and of the jobs that would have been created. Government, after all, does not create resources but merely redistributes them.
Now consider a government “green” job in the politically correct sector of renewable energy. Renewables account for about 8 percent of all U.S. energy usage, but the “green” favorites of wind and solar power account for just slightly more than 1 percent. (Hydropower and ethanol, once thought of as “green,” account for most of the difference.)
In the recent State of the Union, the President touted “green jobs” as the best path for job creation. But government monies for wind and solar energy mean that ratepayers and taxpayers have fewer resources to spend elsewhere. And U.S. “green” policy, ironically, creates jobs not here at home but in China and other foreign hubs for wind turbines and solar panel manufacture.
In a free market, consumers and taxpayers would be paying less for energy overall (wind and solar is more expensive and less reliable, hence the government dependence) —and creating a completely different set of jobs in the process.
Henry Hazlitt, a journalist who became a first-rate economist in his long life, came to define his discipline in a simple yet profound way. “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Such a view explodes many fallacies regarding government job creation, as well as other free-lunch schemes that attempt to suspend the reality of scarce means versus unlimited ends.
Watching the most recent State of the Union speech, I thought of this passage from Economics in One Lesson:
Demagogues and bad economists are presenting half-truths. They are speaking only of the immediate effect of a proposed policy or its effect upon a single group.... [The full view is] showing that the proposed policy would also have longer and less desirable effects, or that it could benefit one group only at the expense of all other groups."
Timeless wisdom applies to today’s jobs debate. Future posts by this writer will focus on energy jobs, which are both a major source of recent private-sector U.S. employment growth and a controversial area of government-job creation.