Wednesday, May 06, 2009

Carbon caps and the broken window

I recently saw a TV ad from the Environmental Defense Fund advocating for the introduction of caps on carbon emissions, which it says will help provide well paying blue collar jobs. Politically it's brilliant. By focusing on the steel town of Braddock, Pennsylvania and its mayor, John Fetterman, the EDF is able to cast the carbon emission debate as a boon for the type of guys that probably don't make regular donations to environmental causes.

Economically, however, it's a mess. The EDF's logic goes like this:
Capping carbon pollution encourages the growth of renewable energy and energy-efficient industries. It brings customers to these businesses, which in turn will create good jobs and help revitalize American towns.

...Imagine a place like Braddock, Pennsylvania with new investments to supply clean energy industries. Once workers start bringing home paychecks, they start buying again. Making wind turbines is hungry work. The diner and the grocery store get busy again. The diner and grocery hire more workers. Those workers need clothes and cars and computers. Suddenly a dying town is a thriving community again.
This is an absolutely classic example of the broken window fallacy. The short version of the fallacy is that a broken window spurs economic growth by spurring business for the glazier who in turn shops at the baker, who in turn purchases from the cobbler, etc. A seeming setback is actually good for the economy. The problem, of course, is that it doesn't take into account what the person with the broken window would have otherwise spent the money on had they not been forced to use it on repairs.

So too it is with carbon caps. Carbon caps will make alternative energy more attractive by forcing reductions in usage of traditional sources such as oil. Oil is cheaper than most "clean energy sources." People will therefore find it necessary to use more expensive alternative energies, forcing them to cut back expenditures elsewhere. While we can readily point to beneficiaries of carbon caps such as the guys in Braddock, more dispersed and less seen are all the people that will lose jobs because energy costs have reduced the disposable income of people that normally buy their products.

That's what the EDF doesn't want you to know.

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