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  • What Happens When Economists Skip Econ 101

    Job seekers line up for jobs at Citi Field in Queens in New York

    Suppose the government forces a company to take all the money it would have paid person A and use it to hire person B instead. How many jobs have been created? If you said, “One direct job, one indirect job, and a number of uncounted induced jobs,” call the University of Massachusetts, because you qualify to do economic analysis at their Political Economy Research Institute (PERI).

    The trick to the perverse PERI analysis is to ignore the cost of taking the money from person A and from the people who support person A (for instance, people who supply materials and people who deliver the materials and products). This is a long-recognized economic error called the “broken windows fallacy,” and it requires a belief in free lunches.

    On Wednesday, Environmental Protection Agency (EPA) head Lisa Jackson quoted this study to support her assertions the EPA regulations are net job creators. Under this logic, all regulations that have compliance costs create jobs.

    The PERI study claims that EPA regulations will add nearly 1.5 million jobs over the next five years (Note: They have completely confused a job and a job-year, which multiplies the errors in their results.) However, because these regulations increase energy costs, they cut consumers’ income while raising manufacturers’ costs of production. The net effect is both job and income losses.

    In a great irony, under PERI logic, regulations without compliance costs would not create jobs; only regulations with compliance costs generate employment increases, because it is the expenditure on compliance that creates the jobs they count. More amazingly, under PERI logic, the greater the cost of complying, the greater the job increases.

    To recap: The PERI logic projects more job creation when regulations are more onerous. If Jackson’s endorsement of this line of thinking is reflective of the Obama Administration’s thinking, America’s very sluggish employment rebound is not surprising.

    Posted in Energy [slideshow_deploy]

    3 Responses to What Happens When Economists Skip Econ 101

    1. George Colgrove, VA says:

      Try this – in the same light – had Keynesian Economics worked here is where we should be:

      In 1981 when Reagan started his presidency, the deficit was $1 trillion dollars. We have added more than $13 trillion to that in 30 years. The GDP was $3.1 trillion in 1981. Assuming Keynesian economic theory, the current GDP should be at least 3.1 + 13 = $16.1 trillion (assuming no private sector growth and no residual growth due to federal deficit spending – unrealistic.) The current GDP is $15.3 trillion. We have not even made the difference just by adding those dollars yet alone the residuals that should have come from that deficit spending or private sector growth. If Keynesian economic theory worked the GDP would equal $3.1T (1981 GDP) + $13T (Federal deficit spending) + (The residual growth in the private sector from the deficit spending) + (Private sector growth) >> $16.1 Trillion!

      Simply put Keynesian economic theory did not work. Now we need to remove upwards of a trillion dollars every year to pay the debt and interest back over 25 to 30 years! The reckless spending will hurt this nation for generations to come.

      All things being the same in 30 years we will need to remove that money from the economy at an initial interest cost of roughly $400 billion a year. If we use the same fraudulent explanation of the federal workforce, we will have a GDP of less than $1 trillion after paying back the principal of the debt. It will be a negative GDP after the interest payments. We had better "hope" the private sector has the freedom to crank on their end!

    2. Wildcat from Dallast says:

      Only a Progressive who believes in Keynesian economic theory would believe government regulations, mandates and policies actually create meaningful jobs.

    3. Pingback: Cooler Heads Digest 11 February 2011

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