Wednesday, February 9, 2011

Expensive "Clean Energy" Jobs ....

Vice Planner-in-Chief?

Shortly after the State of the Union Address Vice President Biden visited a battery factory in Greenfield, Indiana owned by ENER 1, Inc., to tout the Obama Adminsitration's plan to encourage job creation via investments in "Clean Energy" as outlined in the President's State of the Union speech last evening. Biden's visit and speech was part of a larger communications strategy whereby, according to the White House:

"Members of the Cabinet will travel throughout the country to highlight the pillars of the president's remarks, visiting companies and schools that are already engaged in cutting-edge ways to innovate and accelerate economic growth[.]"

Let's hope that the particular project Biden is touting is not indicative of the Obama Administration's Economic Policy. Biden is visiting ENER 1 because it received a $ 118 million grant under the "Stimulus Package." According to a local news source, ENER 1 employs a grand total of 350 people. Hence, even if one assumes that the grant is responsible for each and every job at the company in the year the grant was received, the jobs in question cost $337,000 each that year. Such a method of "job creation," if applied across the board, would rapidly bankrupt the country.

Moreover, even if the price tag of such jobs was lower, there is a more fundamental policy question to be engaged here. That is, should the National Government be choosing economic winners and losers, taxing some individuals and firms (or incurring debt to be paid back later) so as to subsidize those the government chooses to favor. Generally Free Societies rely upon decentralized market-based decision making to allocate scare factors of production, such as labor, capital and technology. If, as the Obama administration apparently believes, the production of particular batteries by a particular company is cost-justified, then presumably private investors will put their money at risk to support that production, having chosen such an investment over other opportunities, hoping to reap economic rewards in the process. And, in fact, ENER 1 has, according to CNBC, raised millions in private capital markets to support its enterprise, presumable because investors are optimistic about the company's success. There is no reason to believe that the National Government, which also has alternative uses for the capital it raises via taxation or borrowing, will do a better job choosing between competing uses (and there are ALWAYS competing uses) for that capital than private markets. Indeed, one suspects --- and Free Societies generally assume --- that private markets will do a better job deciding between different possible uses of scarce capital, thereby maximizing society's economic welfare for any given endowment of resources. If, say, the National Government wishes to encourage the production of alternatives to cars powered by fossil fuels, because such cars impose external harms in the form of pollution, it should, for instance, increase the tax on gasoline, or subsidize the purchase of automobiles --- and not just automobiles manufactured by a particular company. These steps would encourage consumers to demand automobiles that attain higher gas mileage, thereby encouraging private market actors to meet that demand in various ways, including more fuel-efficient gasoline-powered automobiles. The decentralized process of meeting this demand would presumably produce a more efficient allocation of labor and capital than a system under which the national government selects picks particular industries or even single companies to be the recipients of government largesse.

Finally, it should be noted that the sort of planning the Administration contemplates will do more than misallocate capital between various industries; the existence of such planning will also cause private firms to invest scarce resources in lobbying members of Congress and the Administration itself in an effort to obtain such subsidies. Unlike, say, an investment in plant and equipment, or research and development, such investments will produce no wealth. (By contrast, even a losing investment usually produces some output, even if that output is less than the magnitude of the investment.) Thus, the existence or possible existence of such programs will result in the diversion of scarce resources from productive to non-productive uses.