Environmental Economics

Question of the Day

I'm teaching a couple of sessions in the MGSI this week and next and received a question for which I didn't know the answer:

How long has energy been in the Consumer Price Index?

My answer was "forever" but then I had to admit I wasn't sure. Any help out there?

Fun with stimulus math

From the Columbus Dispatch:

Ohio passed a stimulus mile marker Friday when it received word that transportation projects totaling more than $336 million had been approved by the Federal Highway Administration.

The state had to have received approval for $327.5 million in funds for road and bridge projects -- half its allocation -- by June 29 or forfeit the difference.

Now, Ohio is eligible to pick up money from states that miss the deadline, said Scott Varner, an assistant director at the Ohio Department of Transportation.

"We've heard that most states are meeting it," he said. "But if just one misses it and leaves $49 million on the table, Ohio has a chance at $1 million. That's a million more we could put to use today."

And if 23 states miss the deadline and leave $1,321 million on the table, Ohio has a chance at ... um ... well ... more.

Green jobs are expensive

From the Center for American Progress:

This paper examines these broader economic considerations—jobs, incomes, and economic growth—through the lens of two government initiatives this year by the Obama administration and Congress. The first is the set of clean-energy provisions incorporated within the American Recovery and Reinvestment Act .... The second is the proposed American Clean Energy and Security Act ...

Our analysis in this paper shows that these two measures operating together can generate roughly $150 billion per year in new clean-energy investments in the United States over the next decade. This estimated $150 billion in new spending annually includes government funding but is notably dominated by private-sector investments. We estimate this sustained expansion in clean-energy investments triggered by the economic stimulus program and the forthcoming American Clean Energy and Security Act can generate a net increase of about 1.7 million jobs. This expansion in job opportunities can continue as long as the economy maintains a commitment to clean-energy investments in the $150 billion per year range.

Dividing $150 billion by 1.7 million gives a green jobs cost estimate of $88,235 per job. Frankly, I'd rather see the benefits of $150 billion in clean energy measured as the value of environmental improvement. If we focus on the macroeconomic effects of government subsidized and mandated clean energy then green jobs are costs to society, not benefits, as they represent a more expensive way of producing goods and services. The benefits of subsidies and mandates should be measured as the value of the (1) improved health, recreation and ecological benefits and (2) climate change mitigation benefits of clean energy.

Hat tip: Green Inc.

Minimum wages cause unemployment

In my basic econ classes I usually use minimum wages as an example of bad government policy.  I tell the class that a binding price floor in the labor market will create a surplus of workers (unemployment).  I go on to explain that the situation is worse than that, because the likely victims of this unemployment are those for whom the minimum wage is binding--low-skilled and teen workers.  In other words, minimum wages cause unemployment among those they are intended to help. 

But any good economist knows that there is plenty of evidence to contradict this.  As a reader asked in a past discussion we had on minimum wages:

...are you all essentially ignoring all of the work by David Card that suggests that in many cases minimum wage increases do not have large employment effects?

My gut reaction was always, well, yes, because price floors have to cause surpluses.  It's just intuitive and it seems that the evidence is just hiding.  Well, it's hiding no longer.  Respected labor economist David Neumark, in today's Wall Street Journal, writes:

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

Yep, I knew it all along.

 

The recession is over

An official ruling won't come for a couple of years, but the recession likely ended this spring, A UNC Charlotte economist said today.

Even so, North Carolina's economic recovery will be slow, with unemployment remaining in double digits the rest of this year, said John Connaughton, author of the quarterly UNC Charlotte economic forecast.

Source: http://www.charlotteobserver.com/business/story/758976.html

Matt Kahn on Green Jobs

His Texas NPR Debut ...:

A fundamental issue in public policy is whether there exist any "double dividends" where through one policy you can achieve two distinct goals. Through encouraging a public push for "green jobs" can we significantly increase energy efficiency and reduce urban minority unemployment? I hope this is the case but there are still a few open questions. I will be discussing some of these tomorrow on My Texas NPR Radio Tomorrow at 11am PST .

While economists have been typically pessimistic about the cost-effectiveness of job training programs, an optimistic Obama worldview is that under-employed adults can be trained in construction so that they can be part of a domestic green army who will retrofit our energy inefficient buildings and homes and can install the millions of new solar panels and wind turbines that will soon generate our power in a carbon regulated economy.

I like this vision but I wonder if it is right. In my preferred vision, private sector firms will be incentivized by carbon pricing to take a second look at whether they are consuming too much energy. My concern is that the Obama Team will justify a large public sector employment growth in the name of increasing energy efficiency.

What is the optimal size of the public employment sector? This paper has informed my thinking.

Former President Clinton on green jobs in Spain

From Environmental Capital:

From his speech transcript (ellipses in the original):

Lot of controversy in Spain now. You’ve become, you know, one of the three leading countries in the world in virtually every clean energy category, second behind Germany in the production and the deployment of solar energy… thanks to solar thermal as well as photovoltaics, third behind the United States and Germany in the perce.. in the sheer volume of wind energy generated and now you’ve got a study that says that your commitment to clean energy, I saw it in the press today, has cost you twice as many jobs as it gained you. I don’t agree with that by the way, and I can… I’ll, anybody wants to know why, I’ll tell you why I don’t agree with it. But the point is, you have to ask yourselves…. you young people…. if you want to avoid global warming, and you want Spain and Europe and the world to continue to grow, knowing that it’s expensive to change the way you produce and consume energy, well what are you going to do about that? Because these three problems could wreck your future.

Actually, having heard what some other academics and energy types have to say, we’d like to take the former president up on his offer: Why doesn’t he agree with the green-jobs study that says renewable-energy subsidies have destroyed twice as many jobs as they’ve created?

By the way, my position is still that it makes little sense to talk about "jobs" when debating environmental policy. In short: jobs are the wrong metric.

The recession hits the ponies

From the Courier-Journal (Churchill seeks ...):

Churchill Downs Inc. announced this afternoon that it is asking regulators to eliminate seven days from its current spring meeting because of a shortage of horses to fill races and a 20 percent drop in betting outside of its biggest days.

The track announced it will ask the Kentucky Horse Racing Commission on Tuesday for permission to go to a four-day a week racing schedule, from the current five, beginning May 20. The cuts will mean the elimination of Wednesday racing after this week and the Thursday, May 28. No Wednesday racing had been scheduled that week because of Memorial Day. ...

Churchill will cut purses for six stakes races by a total of $425,000, including reducing the biggest spring meet race it offers after Derby, the Grade I Stephen Foster Handicap, won last year by Curlin, will be $600,000 instead of $750,000. ...

Churchill officials and horsemen have cited various reasons for the shortage, including: new and tougher competition from tracks in other states where expanded gambling revenue supplements purses; the difficulty in filling races the week after the Kentucky Derby because owners and trainers shoot for Derby week races; and cutbacks at Ellis Park in Henderson, Ky ["the summer home of racing in Kentucky"].

My analysis? A fall in income leads to less betting on horses, lower profits and lower purses.

In case you were wondering how the recession is affecting me

I'm being furloughed (Furloughs ordered ...):

Gov. Beverly Perdue signed an executive order this morning, calling for unpaid furloughs of all state employees.

All teachers and state employees will receive a pay cut of 0.5 percent and in exchange will receive 10 hours of time off, at a time they choose. Although workers will see their pay cut in May and June, they may take their 10 hours of flexible time off between June 1 and Dec. 31.

...

The emergency steps respond to a worsening budget shortfall in the current fiscal year. ...

In addition, a nice little wind farm study might be shut down.

It's not just green jobs that aren't net positive ...

... it is sports stadium jobs too. We've spent a lot of time trying to argue that government subsidies that push green jobs will likely lead to employment losses elsewhere in the economy, leading to no net effect. Here is Market Power telling the no net effect story from a different angle:

Frederic Bastiat taught us almost 200 years ago that the good economist accounts for the seen and unseen effects.  Those 600 jobs are what we see, but because other companies in other industries will see their consumers decrease their spending and take this "savings" and spend it, instead, on the Gwinnet Braves.  The unseen effects are the loss in jobs in those other industries.  The research in the field suggests the effects at best completely offset.

You might also try Market Power's recipe for chicken soup.