Heritage’s Broken Conclusions On A Green Recovery

Our guest blogger is Dr. Robert Pollin, Professor of Economics and Co-Director, Political Economy Research Institute (PERI), University of Massachusetts-Amherst.

SolarIn a November 5 blog post, Dr. David Kreutzer, Senior Policy Analyst for Energy Economics and Climate Change in the Center for Data Analysis at The Heritage Foundation, claims that policy initiatives to advance a green investment agenda necessarily hurt economic growth and employment. In particular, Kreutzer claims the report I co-authored, Green Recovery, suffers from a “broken windows” fallacy:

The authors of this study fall prey to the classic “broken windows” fallacy whereby spending money creates jobs as the expenditure multiplies throughout the economy. The fallacy comes from ignoring the equally large destruction of jobs (actually larger because of something called “deadweight loss”) from taxing the $100 billion, which eliminates a similar cascade of job creation elsewhere.

Kreutzer reaches this broken conclusion by ignoring all the findings in Green Recovery. Contrary to Kreutzer’s claim that green jobs require the “equally large destruction of jobs” in other sectors, green investments are all potent sources of net job creation relative to spending on traditional fossil fuels, including oil, coal and natural gas. Our research found that green infrastructure investment program would create nearly four times more jobs than spending the same amount of money on oil energy resources. For each $1 million of green investments paid for by cutting oil subsidies, a net 12.5 jobs are created. Green investments produce net job creation because their labor intensity and domestic content are significantly higher than investments in fossil fuels.

Labor Intensity: With green investments, more money is being spent on hiring people and less on machines, supplies, and consuming energy. Imagine hiring construction workers to retrofit buildings or install solar panels, or bus drivers to expand public transportation offerings, as opposed to drilling for oil off the coasts of Florida, California, and Alaska.

Domestic Content: When we retrofit public buildings and private homes to raise their energy efficiency, or improve our public transportation systems, virtually every dollar is spent within the U.S. economy. By contrast, only 80 cents of every dollar spent within the oil industry remains within the U.S.

Through public investments in energy efficiency and renewable energy, we overturn the long-held conventional wisdom reflected in Kreutzer’s critique — that we can have a green economy or a growing economy, but we can’t have both. In fact, not only can we have both, but green public investments to fight global warming are, at once, a powerful engine of job creation and a necessary instrument for achieving environmental sustainability.

Read an extended response from Dr. Pollin, in which he also discusses the question of energy costs and how Kreutzer overlooked the economic impact of global warming.

UPDATE: At Climate Progress, Joe Romm offers a detailed critique of Kreutzer’s blog post, writing that it is a “truly bizarre disanalysis that conflates greenhouse gas regulations with a green recovery or green economic stimulus.”