Sunday, July 05, 2009

Green New Deals

Tim Worstall reckons that a Green New Deal will make us all poorer, and cites this report on actions taken by the Spanish government to encourage renewables as justification for it. On the face of it it all looks pretty damning:

7. The study calculates that since 2000 Spain spent €571,138 to create
each“green job”, including subsidies of more than €1 million per wind industry
8. The study calculates that the programs creating those jobs also resulted
in thedestruction of nearly 110,500 jobs elsewhere in the economy, or 2.2
jobsdestroyed for every “green job” created.

Harsh eh, on that kind of assertion I don't think that anyone would back the idea of a green new deal. It's not until you take a closer look at the paper and how it calculates the figures that you realise that all is not what it seems and in fact this particular assertion is little more than mickey mouse mathematics combines with a little unthinking neoclassical economics.

The report derives a figure for the cost of a green job using the following calculation:

cost of green job = (total subsidy / jobs created)

And comes up with a figure of €571,138, it then makes a comparison based on the average capital per worker between 1995 and 2005 coming up with a figure of around €259,143 it then does the maths of dividing the subsidy figure by the capital figure to argue that for every green job created an equivalant of 2.2 private sector jobs could have been created. It then does a similar comparison with the productivity per worker vs subsidy per worker and achieves similar numbers.

There are a number of counterarguments to this logic:

  • First, it has to be asked whether it should be expected that a job created in what is essentially an infant industry can be created at the same capital cost as a private sector job. A new industry is likely to have a higher cost due to the need to learn about the technology and the processes behind running an entirely new business. It is therefore not entirely unexpected that the cost of creating a green job was initially higher.
  • Second, the measurement used by the writers of the paper makes no asessment of the relative values of the jobs created. It could be argued that the highly skilled nature of the work in creating hydro-electric, photovoltaic and wind energy would mean that they require more capital than a worker in other sectors. Even if we accept the assumption of the authors that a job created in the green energy sector will mean jobs not created in the private sector (which I do not) it could be argued that the creation of jobs as Hydroelectric Technicians is worth more than the creation of twenty two jobs as, say, waiters.
  • Third, the argument that a job created in one sector means a job (or jobs) not created in another sector is in itself flawed since it relies on the assumption that the private sector is instantaneously able to respond to the additional availability of resource and create jobs in the appropriate field. This is not the case.
All in all, despite the shocking numbers quoted here, theres little reason to believe that the Spanish Green New Deal had anything like the shocking negative effect on jobs mentioned in the paper.

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