One of the eternal fallacies of government (and the people who love government) is that governments can “create” jobs in the private sector. A second fallacy is that somehow, calling something “green” suspends the fundamental laws of economics and really does offer you a free lunch and a utopian future of affordable, abundant clean energy.
Ontario Premier Dalton McGuinty seems to fallen afoul of both these fallacies with his new “Green Energy Act.” The Act, which does not have a defined price-tag, would supposedly create 50,000 new jobs, putting people to work building windmills, solar power plants, and bio-fuel plants. The Green Energy Act, he claims, will lead Ontario out of its recession and into a glorious future of clean energy.
Now, everyone would love to end the recession, and enjoy clean, abundant, and affordable energy. But there are some hard realities that suggest Premier McGuinty’s plan isn’t the smart way to do it. Let’s review the reasons why governments cannot create jobs, and why labeling them “green” doesn’t change the basic dynamics.
Let’s start with the fallacy that governments can create jobs. This fallacy was exploded all the way back in 1845, by a French politician and political economist named Frédéric Bastiat. Bastiat pointed out that the only way governments can make jobs is by first breaking other jobs. Sometimes, they break other jobs by diverting taxpayer money away from the economic uses the taxpayer would have pursued if they got to keep their taxes. Other times, they break jobs by imposing regulations that kill off one industry in favor of another. In still other situations, they impose mandates, such as mandates to use recycled paper that create an artificial market for recycled paper, reducing jobs in fresh-paper production.
In the green energy case, they do all of the above: they use taxpayer dollars to subsidize the renewable energy sector; they lay damaging regulations on the traditional fossil fuel sector, and they issue mandates for the use of renewable energy that creates a false market in wind power at the expense of fossil fuel and nuclear power. Along the way, governments siphon off a chunk of the moneys they divert for administration, and they tend to create jobs that pay higher wages than those for a comparable activity in the private sector. Invariably, at the end of the day, government efforts to create jobs cost the economy jobs on net, and add insult to injury by causing economic underperformance because they’ve diverted limited resources to inefficient uses.
Now, let’s take the second fallacy, that somehow, there’s a free lunch if you call something “green.” The way that the green lobby does this is by inflating the expected value that society will get from engaging in a green activity that it otherwise wouldn’t get with a non-green alternative. In this case, the green aspect of the premier’s plan is that it would result in a reduction of greenhouse gases related to energy production. There’s only one problem: the amount of greenhouse gases that Canada could eliminate, even if the entire country simply shut down, is not sufficient to retard global warming in any significant way. Canada’s fossil-fuel greenhouse gas emissions account for about two per cent of world emissions. Ontario’s emissions are only seven-tenths of one percent of the world total. China, which is building a coal power plant every week, emits more than 10 times the greenhouse gases than all of Canada does, and shows no signs of slowing.
Ontario’s green energy program will offer virtually no climate change protection or delay in warming, and therefore no benefit to offset the costs of raising Canada’s energy prices, raising the cost of goods and services, and rending Canadian exports less competitive in world markets.
Mr. McGuinty, along with others such as U.S. President Obama who have internalized the twin fallacies of job creation and the free lunch need a reality check before they squander limited resources and worsen the economic prospects for North America. Energy is too important a policy field to be guided by such fallacious thinking. Developed countries are energy civilizations, first and foremost. Everything we make, do, and use requires multiple infusions of energy in creation and maintenance. Taking actions to raise the cost of energy using a fallacious job-creation approach and fallacious benefit claims will only exacerbate Ontario’s suffering in the ongoing world economic downturn.