How lobbyists and economic impact studies trick you

Jobs, jobs, jobs. Jobs are good, right? The economy needs jobs. Now, let’s draw your attention to jobs right here in my industry. If you just give my industry a subsidy, or a special tax break not available to anyone else, especially not my competitors, then you can create jobs right here in my industry.

Did you notice the switch? We went from talking about jobs in general to a very particular kind of job. The other jobs suddenly don’t exist. But the politician acting upon this advice would think he’s helping create jobs when he very well might be killing jobs, on net — helping lead to the creation of some while also helping to cause the destruction of many others.

If you’re a lobbyist for an industry that can’t survive without government interventions, you must have a strongly developed ability to make that switch. The renewable energy industry definitely needs it.

A recent literature review of nearly 100 renewable energy industry “economic impact” studies showed how crucial being able to make this switch is, considering how unreliable and inefficient that industry is. As explained in my newsletter:

In its literature review, EPI found that “renewable energy technologies produce more jobs per dollar and more jobs per megawatt of effective capacity than fossil fuel generation sources.” Renewable energy sources were more labor-intensive than traditional energy sources, they found. Furthermore, “The greater number of wind and solar jobs per effective megawatt is primarily the result of the low capacity factors characteristic of intermittent generation sources.”

In other words, solar and wind are so unreliable and inefficient, they wind up employing more people per actual unit of power produced. “Economic impact” models calculate this as very lucrative.

It’s a bit like saying the greater number of horses employed by the Pony Express as opposed to UPS and FedEx is primarily the result of the low horsepower capacity of actual horses relative to, say, delivery trucks or airplanes. But that would hardly be an argument in favor of the Pony Express.

An economist would think requiring more labor or capital to meet a business need was more costly. The “economic impact” study highlights those things as benefits.

So an “economic impact” study would project wonderful results of transitioning to the Pony Express because of all the new uses for horses and projected growth in related horse industries. More inefficient service means more labor and capital, which means … more jobs. I.e., Hey, investing in our businesses creates jobs!

EPI looks at other aspects of a forced transition to renewable sources that their lobby’s “economic impact” studies avoid:

Compared to renewable sources, fossil fuel based generation is generally cheaper in terms of dollars spent per effective megawatt of capacity. This creates a potential conflict in which job creation may be at odds with the long-term goals of increasing efficiency and reducing production costs (CEE, 2008). The basic supply and demand argument suggests that we should expect the consumption of electricity to be inversely correlated to the price of electricity.

Given that electricity is a primary input for nearly every good and service produced in the country, a rise in price should be expected to have a negative impact throughout the national economy.

The renewable energy lobby is right now waging all-out war against the obviousness of that last sentence. Continuing:

If residential consumers reduce consumption in response to higher prices, the result would be jobs lost in the electricity generation sector due to decreased need for fuel, construction and operation. Increased cost to industry and commerce would result in increased cost of production, resulting in more expensive goods and services. Consumption would decline because goods are more expensive and consumers have less money in their pocket due to higher electricity bills. The result could be job losses in all good and service producing sectors. The basic argument would be:

  • Jobs are created by increasing the share of electricity produced from renewable sources.
  • Jobs are destroyed through the economic impact of higher electricity prices.

Jon Sanders / Director of Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...

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