Green Energy -- Will this make a recession worse?

[Viking Prince]

Will President Obama's plans for green energy create jobs? I suspect that raising electricty generation costs through green mandates will cost jobs. I also suspect that coupling government funds with private investments will also redirect investments from more productive opportunities towards subsidized choices and thus also cost jobs.

“THINK of what’s happening in countries like Spain, Germany and Japan where they’re making real investments in renewable energy,” Barack Obama instructed Americans earlier this year. “They’re surging ahead of us, poised to take the lead in these new industries. This isn’t because they’re smarter than us, or work harder than us, or are more innovative than we are. It’s because their governments have harnessed their people’s hard work and ingenuity with bold investments—investments that are paying off in good, high-wage jobs.”

What is more, public investment in green technology brings costs as well as benefits. Taxpayers, for example, will ultimately have to pay for government debt, while prodigious government borrowing makes it harder for businesses to raise money. Spending on renewable electricity, meanwhile, tends to raise the price of power, since wind- and solar-power plants cost more to build and run than coal-fired ones, say. These effects can cost jobs.

In 2006, in a study prepared for a pro-coal lobbying group, Adam Rose and Dan Wei of Pennsylvania State University looked at how increasing the share of renewables in electricity generation at the expense of coal might affect employment. Displacing a third of generation from coal by 2015 would put 1.2m people out of work, they concluded, and displacing two-thirds would raise the figure to 2.7m. The job losses came chiefly as a result of higher energy prices.

Spain’s private sector, on the other hand, creates a job for every €260,000 or so invested, by Mr Calzada’s reckoning. So if the government had left the €29 billion in the hands of the private sector, it would have created 113,000 jobs with it—2.2 times as many. In other words, the government, Mr Calzada finds, is destroying 2.2 ordinary jobs for every green one it creates.

...Mr Obama should temper his enthusiasm for Spain’s “bold investments” in renewable energy. As all the studies discussed suggest, some ways of creating jobs—or fighting global warming, for that matter—are cheaper than others.

The grass is always greener

[Thorn777]

Well, if you really want to jump-start on green energy on some sort of massive scale you will need to subsidize, mostly because the non-profit infrastructure is not compatible, and the high costs at the start would raise the prices for energy, thus crippling growth.

I have high hopes for the sector as do many investors, the problem simply is that it was so fundamentally neglected because of cheap oil, thus makes private investing without subsidizing in "waste-land activitys" to risky.

[BNS]

I always chuckle when people actually believe that massive government investment in green technologies will quickly bring about the immediate creation of new jobs and wealth. When in truth it will do just the opposite, if there really so much to gain from it the private sector would have already heavily invested on it full steam. They take the politicians bait and don't pay attention to the unseen consequences.

[Zephyrus]

I always chuckle when people actually believe that massive government investment in green technologies will quickly bring about the immediate creation of new jobs and wealth. When in truth it will do just the opposite, if there really so much to gain from it the private sector would have already heavily invested on it full steam. They take the politicians bait and don't pay attention to the unseen consequences.

plebeian semper fidelis, sic tyrannis

And that sums up my knowledge of latin.

[Gumpfendorfer]

One has to take into account that the traditional energy industry are getting very nervous, the coal industry have started a massive public campaign in Europe. I would take it with a pinch of salt. They are defending their vested interest. The coal industry like any other energy industry is also subsidized.

Private sector invest massively in renewables.

Before measures are into place and will have an effect the crisis will be long over. So the job loss it's a fake argument. These are investments for the long term, making a country less vulnerable to economic crisis I would say.

[Don in the North]

the economy needs a new bubble similar to the housing bubble.
green energy is just that in more ways than one.

[Thorn777]

the economy needs a new bubble similar to the housing bubble.
green energy is just that in more ways than one.

So in order to become a bubble like the housing-bubble and cpu-bubble, they first would have to grow as big as a "bubble", hence a major source for comical growth up until then.

Thats certainly a good thing from an economical point of view.....

[Don in the North]

given an honest-no-ignorance chance, ive no doubt this industry will grow as others did, particuarly housing.

you see its not just obama doing, it, australias doing it too and its about to expand expotentially. the more accepting people are of good change, the faster the economy can recover and take advantage of this new area while it lasts.

[Zephyrus]

Hey, whatever bankrupts america the fastest, right?

[removeduser_487563287433]

Will President Obama's plans for green energy create jobs? I suspect that raising electricty generation costs through green mandates will cost jobs. I also suspect that coupling government funds with private investments will also redirect investments from more productive opportunities towards subsidized choices and thus also cost jobs.









The grass is always greener

If the US car industry had embraced green cars - fuel economy etc, perhaps they would be less ed now and actually be able to produce an attractive product.

[Viking Prince]

If the US car industry had embraced green cars - fuel economy etc, perhaps they would be less ed now and actually be able to produce an attractive product.

People like the large SUV's or they would not buy them. The error was marking up such huge margins to attempt to paper over the payroll benefits issues that they become overpriced. Once high fuel costs dropped the market out of the used market, the bubble was burst.

I agree that the market options were too narrow when fuel prices shot up. That is a risk with a capitalist system. Pricing signals get messed up when any asset bubble forms. New SUV's were just as much of a bubble as housing. This is not really a green option though.

The silly subsidies for hybrids and battery power are the green aspects that are a huge waste of resources at the moment. Without the subsidies, the prices shoot through the roof. Repeating the error of the SUV pricing scheme except with Federal $$$. These federal dollars applied to the green technologies via subsidy need to be compared to what the money would do in alternative uses. The whole point of the article that I posted the excerpt from.

[Erik]

The error was marking up such huge margins to attempt to paper over the payroll benefits issues that they become overpriced.

Margins are always stretched to the max, it's the core idea of capitalism.

If the payroll benefits were any lower, the car companies would still sell their SUV's at the same price (=market price, as directed by the "invisible hand" himself), they would just give more benefits to shareholders.

These federal dollars applied to the green technologies via subsidy need to be compared to what the money would do in alternative uses. The whole point of the article that I posted the excerpt from.

Unless the problem is demand, in which case you need to compare CONSUMPTION by the government to how much the taxpayers are willing to consume.

[Lee1026]

When in truth it will do just the opposite, if there really so much to gain from it the private sector would have already heavily invested on it full steam.

It is not so simple as that. There are reasons to think that R&D will be a huge component of this, which means that the minimum scale required to break even could be a very large number. Now, in theory, you could have a situation where investment have a huge payoff, and yet, the private industry does not jump in, as it does not have enough capital to meet that minimum scale. In that case, the organization with the most capital would be wise to jump in and take the payoff. Note that I said in theory.

I also suspect that coupling government funds with private investments will also redirect investments from more productive opportunities towards subsidized choices and thus also cost jobs.

Opportunity costs refers to the things that the worker would have been able to get done if he was not working on this project. Now, by even talking about opportunity cost, we assume that the number of jobs is not an issue (and in the long run, it is not). Talking about costing jobs is a bit silly, to say the least.

Simply put, if all you want to do is to generate jobs, you can hire a bunch of kids to smash windows at random and you will generate tons of jobs. Like most governmental orders to build new things, you will generate new jobs. It doesn't really matter what you build.

These federal dollars applied to the green technologies via subsidy need to be compared to what the money would do in alternative uses. The whole point of the article that I posted the excerpt from.

Now, as long as you have excess production capacity, you can print the money, and not worry about taking it out of the capital markets. Before you get on my case about inflation, remember the cause of inflation - too much money chasing too few goods. Excess production capacity implies that too few goods is a condition that will not occur.

[Viking Prince]

I normally try not to jump too hard on the economic illiterate posts. I tend to stray too far off topic. This post has problems that I cannot ignore.

It is not so simple as that. There are reasons to think that R&D will be a huge component of this, which means that the minimum scale required to break even could be a very large number. Now, in theory, you could have a situation where investment have a huge payoff, and yet, the private industry does not jump in, as it does not have enough capital to meet that minimum scale. In that case, the organization with the most capital would be wise to jump in and take the payoff. Note that I said in theory.

Windmills, hybrid cars, etc. -- the R&D is done for what is being discussed. Federal subsidies are redirctions of capital for current period purchases. Your talk of huge break even points are talking off the top of your head. Look at the break even points for normal new automotive designs. The manufacturers seem to tackle these hurdles just fine without government intervention.

Opportunity costs refers to the things that the worker would have been able to get done if he was not working on this project. Now, by even talking about opportunity cost, we assume that the number of jobs is not an issue (and in the long run, it is not). Talking about costing jobs is a bit silly, to say the least.

The opportunity costs being discussed had to do with capital investment and government subsidies for purchases. The arguement was these were to create jobs. If you read the article, you would know that capital to create these jobs could be used for other job creation. Also, to the degree that such green technologies raise prices, the net effect is to reduce jobs and not create jobs. Smoke and mirrors by political design.

Simply put, if all you want to do is to generate jobs, you can hire a bunch of kids to smash windows at random and you will generate tons of jobs. Like most governmental orders to build new things, you will generate new jobs. It doesn't really matter what you build.

A sophmoric idea. This is about sustainable economic processes.

Now, as long as you have excess production capacity, you can print the money, and not worry about taking it out of the capital markets. Before you get on my case about inflation, remember the cause of inflation - too much money chasing too few goods. Excess production capacity implies that too few goods is a condition that will not occur.

I am not going to get into longterm anticipations of paying debt, savings, etc. Sufficient to say there is no such thing as a free lunch. Printing money is a violation of just that. It also has nothing to do with productive use of real resources.

Talk of excess capacity is also silly. The capacity is obsolete or will very quickly become obsolete. The least productive assets are the first to be removed from production. Factories shuttered rarely reopen for this very reason.

[The Devil's Sergeant]

If the US car industry had embraced green cars - fuel economy etc, perhaps they would be less ed now and actually be able to produce an attractive product.

Actually the US government has determined the GM is over relient on small fuel efficient cars.

[Count of Montesano]

Interesting discussion Viking Prince. I would like to add though that there are other factors possibly at play here. One being climate change and the other being peak oil. If either of these scenarios are real - and there's plenty of scientific evidence to show both are quite probable - we could be looking at the end of modern civilization. Or even the extinction of humanity. Best case scenario if both are real? Trillions of dollars and possibly millions of lives lost to wars, flooding, pesitlence, starvation, etc. America - or the world in general - might not have enough time left to wait for an eventual free market solution. Private innovation played a role in America's success during WW II - but so to did a massive mobilization on a national scale.

[Viking Prince]

Interesting discussion Viking Prince. I would like to add though that there are other factors possibly at play here. One being climate change and the other being peak oil. If either of these scenarios are real - and there's plenty of scientific evidence to show both are quite probable - we could be looking at the end of modern civilization. Or even the extinction of humanity. Best case scenario if both are real? Trillions of dollars and possibly millions of lives lost to wars, flooding, pesitlence, starvation, etc. America - or the world in general - might not have enough time left to wait for an eventual free market solution. Private innovation played a role in America's success during WW II - but so to did a massive mobilization on a national scale.

Economists will tell you that we will never run out of oil. The price responds to scarcity and alternatives then become competitive. This is a gradual change that the world can adjust to without destructive subsidies to choose winners and losers.

The same with climate change. Transitions change the competitive nature of alternatives.

Your very argument of the ability to mobalize on a national scale when the issues are clear cut and easily determined are exactly the reasons I would use to argue against the destructive effects of subisdies. I remember a while back when there was such criticism of Korea for messing up their economic growth with subsidies. The same with the Japanese goverment ministries for picking winners and losers and thus losing out to American and European corporations in nnovations that were market competitive. We have such short memories.

[Erik]

Will President Obama's plans for green energy create jobs? I suspect that raising electricty generation costs through green mandates will cost jobs.

To answer this, you have to look where currently the biggest economic problem lies, either:
- Supply: a shortage of resources making it very hard to produce more.
- Demand: consumers aren't buying, so companies can't sell as much as they can produce.

I think demand is the biggest problem at the moment: fuel and commodity costs have gone DOWN during this crisis, not up, but consumers are delaying their big purchases.
So I think increasing demand by boosting/creating government projects at the cost of supply is a good move at this point.

But you have to keep in mind that this is a balancing act, and the second the economy swings the other way (demand increasing with production trailing behind), then it would be wise to slow down these government projects.

[removeduser_487563287433]

People with brains want a car that will run best for the least money. And people with brains have the money to spend to begin with.

[Viking Prince]

@Lee1026

Did you read the cited article? Do you want to discuss the article? If you want another topic to discuss, please open a thread for it or make a challange in the Debate Club.

The article was pointing out the waste of tieing government subsidies to private capital and resulting in lower productive output for the investment or higher costs for the same output. Both results mean fewer and not more jobs. Do not confuse wages with productive output. Productive output must also reward the entreprenuer and the capital investment. Do not bring in every economic theory in the textbook when discussing opportunity costs of capital employed. When the gain in employment is less than the lost jobs from redeploying new private investment plus the resource drain of the subsidy on the economy -- there is and must be a net loss in jobs. The current mantra of stimulus is clouding the discussion.

The current recession is not a Keynsian demand side recession (neither was the Great Depression btw). The current recession is an oversite failure of regulation. Also, it is the failure of government subsidies pushing up asset values so high the new investment can only be profitable if assets get pushed higher (bubble). It is a failure of risk takers creating effective ponzi schemes with financial instruments lacking in transparancy. There are many failures that need to be corrected -- government expenditures and regulation drove the Keynsian stimulus which created many of these failures and applying Keynsian stimulus will not fix the problems.