PERI Study: Ill-Conceived Analysis of Non-Existent Legislation

via: Heritage

A recent report by Robert Pollin, James Heintz and Heidi Garrett-Peltier of the Political Economy Research Institute purports to study the “economic transformation” the American Recovery and Reinvestment Act (ARRA) and the American Clean Energy and Security Act (ACES) will harmoniously bring about. The analysis begins with the three “objectives that will define the entire enterprise” and concludes with the need “to promote an aggressive policy agenda now to defeat global warming.” This tips the reader to the fact that this is not an objective analysis. However, the suspension of logic and analytical inconsistency is a disservice to policy makers.

The study investigates the question of how many jobs would be needed if $150 billion were invested in clean energy over the next 10 years versus how many jobs would be needed if the same amount were invested in carbon-based energy industries. This is not any policy currently being debated today, and therefore is irrelevant to the debate. Secondly, this tells us nothing about the overall economic effect of borrowing money and using it to build clean energy capacity. Instead, they assume the money comes from a helicopter drop in the sky.

While the methodology of the study tells us nothing about overall job creation, it did quite effectively demonstrate that it takes 2.5 million workers to get the same amount of energy from renewable fuel that 800,000 workers produce using carbon-based fuel. That is, the authors found it will take 1.7 million more workers to generate 4, 618 billion kwh of electricity in 2020 if 15 percent of it must come from renewable sources mandated by ACES versus the current mix (pg. 49).

Yet, while the authors reiterate the loss in efficiency throughout the study, they seem unconcerned by the loss of economic growth and lower wages implied by basic economic principles. They completely ignore the negative rate of return on “investment” they are pitching to Taxpayer Venture Capital, LLC.

For example, on page 51, Pollin & Co. explain:

the number of jobs needed to produce a given level of BTUs in solar would be very high compared to the number of jobs needed to produce that level of energy production through coal. This would have simply been due to the fact that the cost per BTU for solar power is still much higher than the cost per BTU of coal.

Economic Translation: the cost per BTU is higher in large part because it takes more workers to produce the same amount of energy; i.e., we need to use more of our scarce labor resources to get the same energy, so the cost will be higher. It is not cost driving the number of workers, it is the number of workers that is driving the cost.

The authors could have saved themselves the whole analytical exercise if they’d simply recognized the economics that were driving their result, but it was good of them to formally prove it. To their credit, they do not hide what is driving their result. They explain on page 31:

Relative to spending within the fossil fuel industries, the clean-energy program…utilizes far more of its overall investment budget on hiring people, and relatively less on acquiring machines, supplies, land…

Economic Translation: clean energy utilizes labor less productively and continues to make people work harder, not smarter, and therefore keeps us all poorer.

Pollin & Co. repeat:

The relatively high level of domestic content in clean energy products and services is – along with high labor intensity – a major factor generating the higher level of job creation relative to fossil fuels for a given level of spending.

Economic Translation: the study pretends to “create” jobs through lower wages and lower worker productivity.

The authors claim that future generations, who are forced to work harder and longer to eke out the same existence, will thank us because:

the overall welfare costs, and especially the real dangers of an irreversible environmental crisis that could result through allowing carbon emissions to continue unchecked … transcend the issue of whether such costs and risks are captured within our conventional GDP statistic.

Economic Translation: ignore the economics; trust us, this is “for the good of the enterprise.”


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