Switching from affordable, reliable energy to expensive, intermittent energy does not make the economy stronger. Raising taxes does not make the economy stronger.
In a bizarre twist, Democrats want us to believe their Clean Electricity Performance Program (CEPP) is a policy double negative: Raising taxes and forcing consumers to use more costly and less reliable power sources will somehow create millions of new green jobs.
Of course, there is a study (there is always a study). The study of the moment is from the Analysis Group. They claim the $150 billion CEPP will create seven million new jobs and add nearly a trillion dollars to economic output between 2022 and 2027. It won’t, and the study actually demonstrates why.
Jobs worth having, economic output, and growth go up when inputs are combined in a way that creates output whose value exceeds that of the inputs. One thousand dollars of labor and other inputs for $1,100 of output is good. Twelve hundred dollars of labor and other inputs for $1,100 of output is bad.
By what magic does the Analysis Group turn more costly electricity into an economic stimulus? As always, to see the trick, don’t look where the magicians want you to. The bright red scarf, here, is “seven million jobs.” If you actually read the paper, you see they are really talking about job years over a five-year period. That is 1.4 million jobs for the 2022-2027 study period.
It gets worse, much worse.
As with virtually every economic study promising job creation from policies that raise costs, this CEPP study uses something called input-output analysis, which is totally unsuitable for determining net-job creation. The logic of input-output analysis works something like the following.
If the government buys $1 billion of widgets, you will need 10,000 widget makers. That’s 10,000 new jobs and $1 billion of income for them. The input-output analysis goes to the next step and says the widget makers will spend the money at the butchers, the bakers, and the candlestick makers. This round of spending creates induced jobs and income that we add to that of the first round. Then the butchers, bakers, and candlestick makers also have to buy stuff. This, too, creates induced jobs and more income.
The problem is that the initial $1 billion came from all the taxpayers who preferred to spend their money on gizmos. The gizmo makers now lose their jobs and $1 billion of income. Further, the gizmo makers were also going to spend that money creating indirect and induced jobs.
Skipping indirect and induced jobs, what does the Analysis Group find? On chart ES-2, we see they predict 0.75 million job-years—about a tenth of the claimed seven million—over five years. This works out to 150,000 jobs for the five years.
The bottom line is that this CEPP study predicts we will spend $150 billion for 150,000 jobs. Everything else is the indirect and induced jobs you get anyway. Get your calculator out if you want, but that’s a million bucks per job. If you think there will be 150,000 workers who will get $200,000 per year for five years, keep reading.
This hocus pocus is not new. In 2009 President Obama promised millions of new jobs as part of his stimulus package. The Center for American Progress offered up the requisite study. What happened?
Indeed, the stimulus package spent hundreds of billions of dollars on green this and that, but the jobs never materialized. The Bureau of Labor Statistics and the Department of Labor’s inspector general issued such damning green-jobs reports, the Obama Administration actually defunded further reports on the topic. All that money didn’t create the millions of green jobs, but it did fund billions of dollars of crony, insider-deal projects for the already rich and powerful.
For instance, Mr. Obama’s pals at Solyndra got hundreds of millions for their famously bad solar panel fiasco. In another deal, a consortium of unneedy corporations, whose market capitalization exceeded $1 trillion, got billions in loan guarantees and federal grants for a hybrid powerplant masquerading as a solar electricity plant. And on and on.
CEPP would spend $150 billion. The job-creation fiction is yet another misdirection needed to cover up the special-interest redistribution. There is nothing new here; we’ve seen it before.
Those billions will come from everyday taxpayers and consumers and, abracadabra, go to those with the best connections in the backrooms of Washington.
• David Kreutzer is a senior economist at the Institute for Energy Research. He taught economics for 23 years at James Madison University and for three years at Ohio University.