Cordato: No economics in ‘economic impact’ studies

Read my colleague Roy Cordato’s piece on the Mises Wire. He pinpoints again the glaring flaw in those ubiquitous “economic impact” studies:

Opportunity costs are the result of the fact that all economic activity uses scarce resources that, under normal conditions, would be used for other purposes had the project under consideration not occurred. Opportunity costs, while real, are by their nature related to resource uses that are diverted from economic activities that would otherwise be pursued and are therefore unseen.

Any economic impact study that does not attempt to assess these opportunity costs cannot legitimately be called economic analysis. In fact, not attempting to take account of the latter is considered to be the biggest mistake that non-economists make when thinking about economic issues.

Case in point: how economists vs. economic impact studies look at solar energy jobs. The Energy Policy Institute in March 2013 conducted a literature review of job estimates from nearly 100 economic impact studies prepared for energy projects.

I wrote about its findings here:

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. …

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.

With respect to economic growth, is it a good thing or a bad thing that solar employs 79 people to produce the same amount of electricity that coal produces with one person?

Jon Sanders / Research Editor and Senior Fellow, 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...