Second Thoughts on Green Jobs (and Economists)

Second Thoughts on Green Jobs (and Economists)

Here's how page one of Saturday's Wall Street Journal covered the big climate news from the EPA:

 

"The Obama administration declared Friday that carbon dioxide and five other industrial emissions threaten the planet. The landmark decision lays the groundwork for federal efforts to cap carbon emissions—at a potential cost of billions of dollars to businesses and government."

The question of cost will dominate the climate debate in the weeks and months ahead. We're mostly done arguing about climate science, thank goodness. Climate change is real. It's here. It's probably worse than most people understand. (As the amazingly prolific blogger Joe Romm wrote last week.) The questions now are all about money. If we choose to curb emissions, what will it cost? Who will pay? What will mean for to gasoline and electricity prices? What about jobs? These questions will decide one of the biggest fights Washington has seen in years.

Last week, I offered a few thoughts on the jobs question in a blogpost called "The Phony Green Jobs Debate" that made its way around the Internet and caused a kerfluffle. I argued, essentially, that the claims of environmental groups that climate regulation would create a wave of green jobs (especially in a couple of 30-second TV ads) were overblown and that it would be both more honest and more effective to engage people in a discussion of the costs and benefits of climate regulation. David Yarnold of the Environmental Defense Fund responded with his own blogpost. Folks in NRDC's climate operation were displeased, as was economist Bob Pollin of the Political Economy Research Institute (PERI) at the University of Massachusetts, who has written widely about green jobs. (Disclosure: I've done freelance work for EDF and NRDC.) Evidently, I touched a nerve.

In retrospect, I think I was unfair to EDF, NRDC and to Pollin in at least one respect and for that I'm sorry. I lumped together the EDF and NRDC 30-second ads and Pollin's analysis with a study from the Heritage Foundation and a report called "Green Jobs Myths" from the University of Illinois College of Law. The fact is, the Heritage study has been discredited (which I noted) and Pollin himself wrote an extensive rebuttal to Illinois study (which I didn't know, because I didn’t ask him about it). By email, Pollin said:

"In my view, the role of good journalism is not simply to seek out a safe middle position between contending positions, and quote someone who presents that safe, if unsubstantiated middle position. The real job of serious journalism is to try to figure out whether one of the positions is right. I haven't seen anyone, including you, refute the main findings of my research."

He also wrote:

"building a clean energy economy is a big source of job creation relative to spending money on fossil fuels. The reason has nothing to do with "green" anything in particular. It rather has to do with the shift to relatively more labor intensive activities, and to activities that have a higher domestic content and lower import content. These basic results from my research have nothing to do with forecasting per se. They fall right out of the industrial surveys of U.S. businesses, as organized by the Department of Commerce in their input-output models."

Both points are well taken. Pollin's work is carefully done and as best as I can tell (see, I've learned my lesson) he's right that no one has refuted him. So it stands to reason that any climate policy that moves us away from fossil fuels and towards clean energy and efficiency will be a net creator of jobs. What's more, to the degree that a stimulus package or cap-and-trade program promote energy efficiency, they will help companies and individuals become more productive and less wasteful. That, too, should help create jobs. Of course, jobs will also be lost along the way -- just not as many, if Pollin is right. Some manufacturing could leave the U.S. for countries without carbon caps or taxes. Building more Priuses might mean building fewer Hummers. More solar jobs might mean less coal jobs. Or so we can hope.

Having said that, I'm going to stand by my two main arguments about climate change economics. The first is that we need to be mindful about how little we understand about the economy, and how hard it is to forecast the future. That's because unlike, say, physics or medicine, economics is a "science" in which it is all but impossible to do controlled experiments on a grand scale. There are too many moving parts. Economists still can't agree on how and why the Great Depression ended. No wonder they didn't forecast the Great Recession. On even as "simple" a matter as forecasting the price of oil -- where you can extrapolate demand and know a fair bit about supply -- their track record is horrible.

Peter Coy of Business Week had a big story the other day with the headline "Hey Economic Geniuses! What happened?" Among other things it said:

"The rap on economists, only somewhat exaggerated, is that they are overconfident, unrealistic and political. They claim a precision that neither their raw material nor their skill warrants. Too many assume that people behave like the mythical homo economicus, who is hyperrational and omniscient …

"Critics are scathing. Nassim Nicholas Taleb, the scholar of rare events who wrote Fooled by Randomness and The Black Swan, says: 'We have to build a society that doesn’t depend on forecasts by idiotic economists.' Says Paul Wilmott, a quantitative finance expert: 'Economists' models are just awful. They completely forget how important the human element is.' "

I'm not suggesting we ignore economists. Most of the ones I know are smart and well-intentioned. Some of my best friends … oh, never mind. But I am saying that we approach them with a skeptical mindset, especially on an issue as fiendishly complex as the economics of climate change.

Bob Pollin pointed me to an appendix (PDF available here and surprisingly interesting) of one of his jobs reports where he makes a similar point:

"Conducting economic forecasts through formal econometric models can produce useful information and predictions. However, by necessity, all such models must work with strong simplifying assumptions, since the actual operations of the U.S. economy are far too complex to be represented in full by any model. The difficulties in working with such models are compounded by the attempt not merely to describe the economy as it functions at present, but to attempt to predict how its operations will evolve into the future. The reason this is so difficult is because basic features of the economy’s future growth path are simply un-knowable at the time the forecasts are produced."

He goes on to write that "these problems deepen in the case of attempting to forecast the effects of cap-and-trade legislation on the U.S. economy over time." So beware of economists bearing forecasts!

I'm also sticking with my second argument: That it's a mistake for environmental groups to suggest or imply that climate change regulation will be cost-free. Now hold your fire, NRDC and EDF -- I'm aware that you do serious work that acknowledges the costs of climate regulation. I'm a regular reader and fan of NRDC’s Switchboard and EDF’S Climate 411 where I learn from people like Laurie Johnson and Andy Stevenson and Gernot Wagner.

But in their political communications -- emails, press releases and 30-second ads -- the rhetoric can get overheated. So much so that the environmental groups could be putting their credibility at risk. Some headlines and excerpts from NRDC, EDF and the Blue Green Alliance, an enviro-labor coalition:

Green Investment Creates Enormous Economic Opportunities: New Report Says U.S. Can Create Two Million Jobs in Two Years with Green Investment

Capping carbon is … an investment in our economy that will transform our energy sources and create millions of new jobs.

The President’s plan [on auto emissions standards] — including the next step of a cap on carbon pollution—means more new jobs, a rebirth for the American auto industry, and less global warming pollution.

A rebirth for the American auto industry! What's next? Cap-and-trade as a weight-loss aid?

Environmentalists like to say that cap-and-trade is a win-win-win. Reduce the threat of global warming. Create "green" jobs. And lessen our dependence on foreign oil.

All true, but it's also true that cap-and-trade will raise the price of gasoline and electricity. That's what people mean when they talk about "putting a price on carbon." That’s a good thing. It will encourage people and companies to use less coal and oil, and it will make low-carbon energy sources like wind, solar and nuclear more competitive.

Maybe I'm sounding too much like a reporter here. I'm asking advocates for cap-and-trade to acknowledge that the policy will cost some people their jobs, require others to stretch their household budgets, runs the risk of putting U.S. companies at a disadvantage if China and India don't go along and, worst of all, might not even do the job of avoiding the worst impacts of global warming.

Guess what? We should do cap-and-trade anyway because, whatever the costs of action, the costs of inaction will be higher. As economist Frank Ackerman of Tufts said the other day on an NRDC call, the question of whether we should spend money to fight global warming isn't like the question of whether you should spend money to buy a new car this year or wait until next. It's more like the question of whether you want to repair the ever-widening cracks in the foundation of your house. This is serious, folks, and delay or indecision will only raise our costs. You don't have to be an economist to know that.