John Stossel yesterday put his finger on the economic fallacy behind Obama’s promise of green jobs. Read the whole thing.
Governments create no wealth. They only move it around while taking a cut for their trouble. So any jobs created over here come at the expense of jobs that would have been created over there. Overlooking this fact is known as the broken-window fallacy. The French economist Frederic Bastiat pointed out that a broken shop window will create work for a glassmaker, but that work comes only at the expense of the cook or tailor the shopkeeper would have patronized if he didn’t have to replace the window.
Creating jobs is not difficult for government officials. Pharaohs created thousands of jobs by building pyramids. Our government could create jobs by paying people to dig holes and then fill them up. Would actual wealth be created? Of course not. It would be destroyed. It’s like arguing the hurricanes create jobs. After all, the destruction is followed by rebuilding. But does anyone seriously believe that replacing destroyed buildings creates wealth? . . .
Neither Gore nor Obama can know how the money should best be invested. Investing is about predicting the future, and the future is always uncertain. We know from experience that people who have their own money at risk — who face a profit-and-loss test and possible bankruptcy — are much better predictors than people who play with other people’s money. Just compare North and South Korea.
One reason decentralized markets are preferable to government central planning is that human beings are fallible. Mistakes are inevitable. Some investments will be errors. Mistakes in the market tend to be on a comparatively small scale. If one company invests in plug-in hybrids and it goes bust, only a relatively few people suffer. The assets of the bankrupt firm pass into more capable hands.
But decisions by government, especially the federal government, affect all of us. When government makes a mistake, the bureaucracy can’t go bankrupt. Instead, it will use its failure to justify increased appropriations in the next budget.
If “green jobs” make so much sense, the market will create them. They will be created by private entrepreneurs and venture capitalists who are eager to profit from winning investments. The best ideas will rise to the top, and green energy will gradually replace coal and oil.
If politicians were serious about creating jobs and cleaner technologies, they would step aside and let the free market go to work.