Higher Energy Costs Means Fewer Jobs And That Is No Myth

The Washington Post profiles Special Advisor to the President for Green Job Van Jones today. The article is a bit of a puff piece, however the Post does mention the unfortunate detail that despite Jones’ title “there is no official federal definition of a green job” but then the Post does allow Jones to assert unchallenged:

Jones said anecdotal evidence is strong that the strategy is working, and he dismissed as “myth” reports that the plan merely moves jobs around the economy without creating new ones. “If you get people in on the ground floor of a growing industry, they can grow that industry,” he said.

As Heritage fellow David Kreutzer has detailed, creating higher energy costs through energy taxes will always lead to a net job loss:

When energy prices rise (whether due to changes in market conditions or regulation and taxes), markets will adjust in many ways. Consumers reduce consumption and buy more energy–efficient products. Producers economize on the use of energy by cutting production and purchasing more energy–efficient machinery.

Of course, some producers will see an increase in sales when energy prices rise. For example, manufacturers of heating and cooling equipment may increase sales as firms and households replace older air conditioners and furnaces with newer more efficient ones. This will increase the demand for labor, material, and capital used by the heating and cooling manufacturers. Those changes will induce yet other changes elsewhere in the economy as suppliers to the heating and cooling industry adjust their production. These sorts of responses have happened in the past and have been estimated using real data and are incorporated into the hundreds of equations built into the macroeconomic model used by the Center for Data Analysis.

Energy is a valuable input to the modern economy. Cutting CO2 makes less energy available, and when the impacts are traced through the economy, some jobs are created but more are lost. Counting only the jobs that are created distorts the analysis and invalidates the conclusions.

When all is said and done, restricting CO2 cuts energy, income, and jobs. Pretending that breaking windows creates employment may make choosing among alternatives easier, but it leads to bad policy.