Green jobs

From Investor's Business Daily:

The professor, Gabriel Calzada Alvarez of Juan Carlos University in Madrid, produced a 41-page study last year on the European experiment of going full bore on the conservation front. He found that "the Spanish/EU-style 'green jobs' agenda now being promoted in the U.S. in fact destroys jobs."

For every green job created by the Spanish government, Alvarez found that 2.2 jobs were destroyed elsewhere in the economy because resources were directed politically and not rationally, as in a market economy.

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Alvarez's findings, of course, were rejected by the environmental left, which tried to smear him as a stooge of the oil industry.

But inconveniently for the eco-conscious, his results have been backed up by Carlo Stagnaro and Luciano Lavecchia, a couple of researchers from the Italian think tank Istituto Bruno Leoni.

And from Pajamas Media, a translation of the article in a Spanish newspaper that is the source of the story:

The president of the United States, Barack Obama, doesn’t seem to have chosen the right model to copy for his “green economy,” Spain. After the government of José Luís Rodríguez Zapatero demonized a study of different experts about the fatal economic consequences of renewable energies, an internal document from the Spanish cabinet that it is even more negative has just been leaked.

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The numbers in the long run are even scarier. The government itself says that the alternative energies sector will receive 126 billion euros in the next 25 years. Just an example: The owners of solar plants make 12 times more than what they pay for the energy coming from fossil fuel combustion. The majority are subsidies charged to the consumer.

The conclusion is that with the economy at the point of bankruptcy, it is not possible to keep injecting money in such a costly sector. And the government seems to realize this now.

Image that--government policy forcing a move to costly and inefficient methods of production does not make a nation more prosperous but less prosperous. Who would have ever suspected it? Certainly not the politicians. 

Cash for clunkers

The Cash for Clunkers program that ran out of money after just a few days in operation is an interesting program from many perspectives. It is firmly in the tradition of some of the New Deal Programs--it immediately brings to mind the agricultural program that paid farmers to kill livestock. It seems to have a considerable amount of political appeal because it seems to be effective.

I have not read economists on the program, but I am confident most of them, other than some of the extreme partisans, would give it thumbs down. Economists have certain criteria by which they evaluate programs. One of them is equity or fairness. Who does the program benefit? The problem that this program has from an equity point of view is that it seems largely arbitrary. It is as if the government held a lottery and gave random people several thousand dollars. To qualify, one must have an car that has low value. Lots of lower and middle class families have those, often as a second or third or fourth car. I do not know enough about the rich to know if they tend to have old clunkers. Then one must be willing and able to buy a new car. For some of the poor, that may not be an option--they will not be able to make the payments. As time goes one, someone will figure out if this program subsidized the rich, the poor, or the middle. My guess is that it was a subsidy that went largely to the middle--or to the dealers, who were able to charge higher prices because of the program.

A second criteria is efficiency, which asks the question of whether the program increases value. Here the program is clearly a disaster because it destroys things that have value. The cars traded in with the program must be destroyed, as must their parts. The program is taking a lot of cars that are worth a couple thousand dollars each and converting them into scrap worth a few hundred dollars each. This brings up a secondary equity point. For many of the poor, the purchase of used cars is their best option in getting vehicles. This program will tend to raise the price of older used cars because it reduces their supply. The poor will pay more, and most economists believe that programs that hurt the poor should be condemned on equity grounds.

However, are these bad effects worth enduring for the good of stimulating the economy? We can see that sales of autos have greatly increased as a result of the program--so much so that the program ran out of money after just a few days in operation. A key question here is to what extent were those sales new sales, sales that would not have taken place without the program, and to what extent were those sales simple shifted in time. If you wanted to buy a new car and had a car that qualified as a clunker, you would have had a strong incentive to wait until the program was in force. Or if you were planning to buy a new car sometime in the future, you would have had a strong incentive to move the purchase forward in time to take advantage of the several thousand dollar grant. It is not clear that the program did more than shift sales in time, and if that was its primary effect, it was meaningful stimulus.

Addendum: People find ways to game the system, another example of people responding to incentives.

Update: Econbrowser had a post on the program with many comments.

Orzag and Public Choice theory

The Wall Street Journal has an article profiling Peter Orzag, the White House budget director:

The battle heated up in June, when Mr. Orszag visited Capitol Hill to discuss health care with a small group of House Democrats. The meeting started well, with one lawmaker after another echoing his message that spending controls were critical to any health-care overhaul, according to two administration officials.

Then one member said her top priority was winning higher payments for oxygen suppliers, the officials say. Mr. Orszag was taken aback. Officials had been trying for years to cut payments to suppliers of oxygen and other medical equipment, which critics say are inflated. Yet when a new competitive bidding process was set to take effect last year, industry supporters in Congress were able to delay the plan. They are still fighting to block changes.

"One of the reasons we currently have such disjointed and skewed incentives is that we have an excessively political process," Mr. Orszag said in an interview.

So the solution to disjointed and skewed incentives causes by an excessively political process is to increase the role of the government in health care? I cannot figure out what the logic is to this argument.

It is an interesting article about one of the big players in the changing of health care policy. He reminds me a lot of the very bright Keynesian economists of the 1960s, who were sure that they could solve the economy's problems if only they did not have to worry about the politics that goes with government spending, regulating, and taxing.

Health Care Reform

After President Obamas' rambling and awkward press conference, the momentum for nationalization of health care insurance seems to have halted. Charles Krauthammer argues that Obama's push is all about politics, and that if he were serious in reducing medical costs, tort reform would be at the top of the list. He argues that the cost of malpractice insurance is passed on to consumers, and also that it inflates costs:

But the greatest waste is the hidden cost of defensive medicine: tests and procedures that doctors order for no good reason other than to protect themselves from lawsuits. Every doctor knows, as I did when I practiced years ago, how much unnecessary medical cost is incurred with an eye not on medicine but on the law.

PS This is part of what economists call "rent seeking."

In praise of Jimmy Carter

Holman Jenkins has words of praise for President Jimmy Carter in his Wall Street Journal column:

In Mr. Carter's day, bankruptcies were scything through the railroad sector, hurtling toward a rendezvous with nationalization. Conrail, an amalgam of failed Northeastern lines, had already been taken over and analysts foresaw a $300 billion bill (in today's dollars) in the likely prospect that Washington would soon have to operate the rest of the nation's freight railroads.
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Rail executives and economists had been arguing since the 1920s, when competition from trucks and planes began to emerge, that comprehensive federal regulation had only distorted the industry's pricing, driven away investment, and made competitive adaptation impossible.
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It still took some doing on Mr. Carter's part. When the bill stalled, a hundred phone calls went from the White House to congressmen, including 10 by Mr. Carter in a single evening. The bill essentially no longer required railroads to provide services at a loss to please certain constituencies. It meant going up against farmers, labor, utilities, mining interests, and even some railroads....

Theory of the second best

The AP reports on the results of removing the feral cats from an isolated island in an effort to get the island back to what it was before man introduced non-native species. It sounded like a good idea, but the results were a disaster because the rabbit population then exploded, and the rabbits ate the vegetation that the birds needed for cover.

This is an illustration of the theory of the second best, the idea that if a system has several things that are less than optimal, then removing one of the defects can actually make the system worse because it is possible that the defects offset each other. An economic system with an industry that is a monopoly and a polluter may be less efficient if only one of the problems is solved because one problem leads the industry to produce more than is economically efficient and the other leads it to produce less.

The idea was also illustrated in a Simpson's episode in which Mr. Burns was told that curing any one of his many diseases would kill thim because all the things wrong with him were in a delicate balance of offsetting one another.