I periodically hear this during presidential campaigns and when various elected officials are trying to push a green policy, often in response to global warming.
Because of [insert environmental problem here] we need to pursue a policies that will promote [insert one or more alternative fuel/energy sources here]. And not only will it address [the environmental problem noted above], but it will also reduce our demand for foreign oil, which often goes to the terrorists, but it will also promote job growth.
I’ve always found this argument to be extremely annoying. Why? Because anyone who has sat through intermediate micro economics should know that it is just simply bunk.
Intermediate micro is where you are introduced to the concept of relative prices. Typically, it is in a “two good world”. This simplification allows the instructor to draw graphs of indifference curves and budget constraints. And the point of tangency between the budget constraint and (highest possible) indifference curve is the point where people consume various amounts of the two goods. This point of tangency is where the ratio of the prices is equal the ratio of marginal utility for each of the two goods. Change the prices and you’ll move to a new point of tangency and a new allocation of goods.
What the above argument is saying (implicitly) is that we’ll change the price ratio by subsidizing whatever green energy/fuel source they prefer, be it switch grass, tar sands, or solar power. However, we can also change the price ratio in another way: taxing the offending energy/fuel source. In most cases it is going to be a petroleum product like gasoline or maybe coal or even both. If we subsidize, for example switch grass based energy production we are in effect lowering the price of energy derived from switch grass relative to all other sources of energy.
Now, why do I say the above claim about jobs is baloney? Because we can get the same change in relative prices by taxing the offending sources of energy, but this option is never discussed. Why? Because nobody thinks raising the tax on gasoline by $5/gallon is a good way to stimulate the economy. Thus, the jobs claim is just not true. Or to put it differently, sure, you’ll get more jobs in producing energy from switch grass, tar sands and the like. But you’ll also lose jobs in the market for the offending energy source. The citing of the gross number of jobs created in the alternative energy source markets is not sufficient. The true measure is the number of net jobs created or lost. But politicians never tell you that.
Further, you’ll get an immediate price response by taxing the offending energy source so it will work even better at reducing the negative environmental impact. In short the most obvious and direct solution is never, ever discussed. This is the main reason why I scoff at people who are hysterical about global warming. If it is really the dire threat they say it is, then a tax on gasoline and other petroleum products should be the way to go. Instead of trying to jury rig up some stupid carbon credit trading scheme which in actual practice has turned out to be nothing more than corporate welfare they should be arguing for a tax on the offending energy source. But they don’t.
Note: This isn’t to say that global warming is not a problem or that we should ignore it.
