From the inbox:
As an avid reader of Environmental Economics I was surprised to see this post from the WSJ before comment on your own page. Looking forward to a modest (self-aggrandizing) post re: your trusted role at the Journal.
Wow. I'm a big fan of tongue-in-cheek flattery! Note the definition of self-aggrandizing!
Here is the money quote from a green jobs post at the WSJ's newest blog, Environmental Capital:
Nobody can really argue against more, and higher-paying jobs. But at a time of historically low unemployment, in a world where fossil fuels are expected to provide nearly 80% of energy for the forseable future, many economists ask: how many net jobs can “greening” really create?
“In the short run, there’s no way net jobs are going to be positive” from renewable energy alone, says John Whitehead, an economics professor at Appalachian State University and half of Environmental Economics. “More brown-energy jobs will be lost.”
I have two comments. First, I'd say that since I cover both micro and macro issues at this blog, and have a great attitude, I'm more like two-thirds of Environmental Economics. Or even as much as four-sixths.
Second ... (you gotta click on the continuation link to get our page view count higher) ...
Some clarification on the quote. I'm not sure if it is a trade-off between green energy and brown energy jobs, but the big issue is the role that microeconomic policies play in providing jobs in an efficient macroeconomy. It is hard to get away from the fact that a microeconomic policy that raises costs of production will produce a net loss of jobs in an economy. However, this is likely to be a small impact and short term.
How does a renewable energy subsidy raise the cost of production? For producers of renewable energy, obviously, the subsidy seems to reduce the direct costs of production by covering the additional cost of increasing output. But, note, as output rises, marginal costs rise (i.e., supply curves slope upwards). The subsidy pushes jobs into an expensive sector of the economy and away from a cheap sector. We gain green jobs and lose brown jobs and since green jobs are expensive and brown jobs are cheap, the net effect is a net loss of jobs.
But, this isn't the important issue. In the long run the number of jobs is unchanged. Larger forces, technology, innovation, all that stuff David Warsh writes about, keeps a dynamic economy humming along. In the first economics course that you ever took, you were introduced to the production possibilities frontier. Imagine one of these with a green sector and a brown sector on the two axes. In the long run, an environmental policy moves the economy towards the green sector, we gain green jobs, lose brown jobs but we remain at full employment.
Jobs aren't the issue. Although the word is salient to politicians and voters.
The real issue is the efficiency of environmental policy. The benefits and costs of a cleaner environment is what matters. If the benefits of a cleaner environment exceeds the costs, then the environmental policy is a good (i.e., efficient) idea. And vice versa. Jobs aren't part of the benefit and cost calculations.
Just for kicks, below is a plot of the U.S. annual unemployment rate since WWII (source: BLS). The 1970s and early 1980s is the only period where the unemployment rate trends upwards. This time period was characteristized by heavy environmental and social regulation and two OPEC price shocks. Both have been blamed for the slowdown in labor productivity that lead to slow economic growth rates. During the later 1980s and beyond, economic growth picked up in spite of heavy environmental regulation (and please don't jump to the conclusion that environmental regulation caused it). Whether, the 1970s EPA caused a slowdown in growth or not, in the long run the Clean Air Act, Clean Water Act and etc didn't destroy the U.S. economy. And all the while, the net benefits of the 1970s environmental regulation seems to be very positive, especially in the case of the Clean Air Act.
