Wednesday, December 17, 2008

More Expensive Energy

President elect Obama's plan for the economy seems to center on two tactics: a huge ($1 trillion) stimulus package and "investment" in new energy sources and more fuel efficient technology. Neither encourages production and both are extremely inefficient uses of our tax dollars.

A big stimulus check, which will only go to low and middle-income Americans, is intended to stimulate demand for goods and services - "priming the pump", if you will. Classic Keynesian economics. Unfortunately, there are easily foreseeable problems with this plan. Economists favoring this approach are counting on a huge multiplier effect: you spend your check to buy x, the guy who sold you x uses the profits to buy y, and so on. The increased demand for goods and services caused by the stimulus is supposed to encourage more production of goods and services to meet this demand. However, in these economics times, low and middle-income people will likely save the money or use it to pay down debt instead of running to Best Buy. Saving and paying down debt eliminates the multiplier effect, does nothing to stimulate the economy and increases the national debt.

The trillion dollars has to come from somewhere and it is likely to come from higher taxes on people making too much to get a stimulus check in the first place and from higher corporate taxes. Aside from the injustice of this income redistribution, higher taxes on the most productive workers and corporations discourages production and job growth. Tax cuts also get more spending money in people's pockets, but have the added benefit of encouraging production and job growth.

Obama plans for huge spending increases on alternative fuels and green technology. He claims that these green jobs will boost the economy. Absolutely wrong headed. We can argue about the wisdom of spending billions on policies that will have zero effect on the climate another time. If Obama's green policies are about global warming, then he should sell them as such, but don't tell me they are good for the economy. Markets are very good at finding the best price for energy. For our cars, you can't beat gasoline. However, our government pays huge subsidies to add ethanol to the mix. Subsidies for alternative energy increase the amount we as a country pay for energy. Every extra dollar we spend on energy is a dollar we can't spend on education, health care, or a hat, a big ol' hat with a bill that goes buuuup (sorry, but this blog has been movie reference deficient of late).

Investing in green jobs is simply taking the tax payers' money and spending it on things they wouldn't choose to spend their own money on. Green jobs do nothing to add to the production or standard of living of the American people. Paying a researcher $100k a year to find new ways to increase our energy costs does not help the economy. It's little different (from an economic perspective) from paying someone to dig ditches and then fill them in again. Sure, you created a job, but you had to take money from other people to do it and you gave them nothing back in return.


Sandy said...

Hi Jon, I partly agree to what you say… if we intensively research on the topic of Green Jobs then we will find the positive statistics of Green Jobs, the data cannot be incorrect for so many years… Green Jobs are “By the society, For the society”… its an give and take relation between us and society and environment… if you would like to discuss and learn more on the topics of CSR, Green Jobs, Environmental Management then please do visit JustMeans site… Recently I have come across this site; it is the only one of such site which brings all companies and individuals together on one platform to discuss on CSR, Green Jobs, Networks, Events, Articles and Reports etc many in the list. JustMeans is very well designed, informative, refreshing and the most important easy to use, the best usability. I and many of my colleagues, friends and relatives are always in contact with the medium of JustMeans, we do exchange our thoughts here and also I would like you to see on JustMeans very soon.

Jon Vander Plas said...

Sandy, thanks for your comment. seems like a good site for those interested in the environmental impact of companies. Companies can't be allowed to pollute at will. However, reducing CO2 emissions is usually unrelated to true pollution and is only a concern if you believe excess CO2 in the atmosphere is causing catastrophic global warming (which I don't).

Green technologies are great if they come from private organizations driven by private demand. People should be just as free to drive Priuses as Hummers. However, if the government gives the guy who bought a Prius a tax credit, they are subsidizing this green technology. This takes away our freedom because it is taxing one person in order to give it to another person for buying a government favored car.

We will move beyond oil. A free market, on its own, will develop products and services that people want. Government spending on green jobs is an inefficient use of resources because it spends more on these new technologies than people would choose to do with their own money. People generally want the cheapest price they can get for energy (but they can also use their freedom to spend more on hybrids and solar panels and the like). Government subsidies for alternative fuels forces people to pay of their hard earned cash on energy.

I neglected to comment on another plank of Obama's economic plan: major spending on infrastructure. This is the only halfway decent part of his plan. Surely some of these projects are needed, and America actually gets something for all that spending, unlike the green jobs. Good infrastructure improves productivity. However, construction workers are not the foundation of our economy. The jobs of future need to be high tech, advanced service jobs, not low tech, low education, manual labor type jobs. Hopefully Obama will take a cue from the successes of Indiana and Texas in allowing the private sector to take the lead in road and bridge projects. China, Australia, France, and other countries have also used public-private partnerships, allowing for greater efficiencies and innovation in transportation.

Kyle Hommes said...

I live in Colorado, and as you may know, we out west are somewhat green minded, so I know a little bit about green energy. One of the things that Xcel energy is doing in Denver and Boulder is creating a Smart Grid. Our current energy grid is based on a 100 year old model and is extremely out of date and loses 40% of the energy it creates. The smart grid is computerized and allows a house or business to "communicate" with the power company, so that power can be shut off and redirected when people are on vacation, or energy can be given to homes when it is cheapest for the utility to create it. These types of innovations not only save energy, they can also save the consumer money. Green energy is not just about alternative fuels or reducing out carbon foot print, it can and will save us money. As far as I now, there are no subsidies funding this, though, so it is more of a private industry project.

Also, regardless of whether one believes that global warming is a reality, from your previous posts, it seems that you do not think it is happening, there is still a finite amount of non-renewable energy sources in the world. The numbers are always changing as technology changes, but it is safe to say that in a century, natural resources will be completely depleted if the use of carbon based products for energy continues to grow. So, it may not be cost efficient now to invest in alternative fuels, but in the long run it will pay off. It seems to me that the government is trying to help push the country into a new type of energy economy through the subsidies. I don't see why that is a bad thing if you are willing to say that the free market will brings us to the same place in the long run. Also, it's not like we aren't paying subsidies on non-renewable energy, they receive billions in subsidies every year. The state of Colorado provides a 300 million dollar subsidy to companies that drill in our state. Plus, if one does believe the research on global warming, there is added incentive.

And, in a time when unemployment is on the rise, shouldn't we create as many jobs as we can, regardless of the cost. I mean it also costs tax payer money to pay unemployment benefits, what is the difference between paying the money in taxes and paying it in energy costs.

Jon Vander Plas said...

Kyle, this Smart Grid sounds great and entirely supports my point: the market will, on its own, pursue and invest in technologies that help us save money on energy. I'm all for that. What I'm saying is that it does not help our economy to use tax dollars to finance things people don't want enough to actually spend their own money to get them.

If certain natural resources grow scarcer, then they will increase in price. This will cause the market to look even harder for alternatives. I understand your point amount having a limited amount of oil. However, the market, if left alone, will find the most efficient (cost effective) way to give us the energy we need, now and a hundred years from now. Government will only make this process less efficient and make us spend more money on energy than we would choose to if we were free to do so.

I appreciate that you are interested in economic growth (can't say the same for all Democrats), judging by your unemployment benefits comment. But you seem to imply that these govt' created green jobs will go to unemployed people (unlikely) and that without the green jobs these people wouldn't find other jobs and would continue to collect unemployment.

A better plan would be to lower corporate taxes so that they were at least in line with most of Europe. This would encourage investment and job growth and it would actually increase our standard of living, as opposed to government created jobs that produce little of value.