Obma’s SOTU And His Flawed Green Energy Economics

But — but here’s the thing. Even if you doubt the evidence, providing incentives for energy efficiency and clean energy are the right thing to do for our future, because the nation that leads the clean-energy economy will be the nation that leads the global economy, and America must be that nation.

Transcript- Obama SOTU

“[T]he nation that leads the clean-energy economy will be the nation that leads the global economy.”

Says who?

Any serious economist will tell you that subsidizing green energy is simply a modern version of Frederic Bastiat’s classic “broken window” economic model. Rather than breaking our own window, replacing and it calling this economic activity we are spending vast sums of money replacing existing reliable, functioning and cost effective energy generating capacity with so-called “green energy” (that is less reliable and more expensive). How does this make any sense?

The Cato Institute’s Michael Tanner points out how this picking ‘winners and losers’ is a classic example politicians “fatal conceit:

As the economist F. A. Hayek noted, government’s ability to manage the economy is premised on a “fatal conceit” — politicians’ inability to recognize their own limitations. For example, studies show that not only do government “green jobs” policies create few jobs, but the ones they do create often come at the expense of existing jobs. To cite just one finding: A study by Gabriel Calzada of the Juan Carlos University of Madrid found that every green job created by the Spanish government destroyed an average of 2.2 other jobs, and that only one in ten of the “green jobs” created was permanent. The fact is, if these industries were viable and profitable, the private sector would be rushing to invest in them. The very fact that they require government subsidies demonstrates that they are not the road to future economic growth.

As long as our government insists on picking winners and losers in the market place. And, as long as they continue to divert large amounts of capital from productive areas of the economy to non productive areas, our economy will not return to robust growth.

Further reading on the subject @ MCT:

  • Martin January 27, 2011 at 9:30 am

    Excellent post. I am reading Bureaucracy by Ludwig von Mises which approaches the same issue even more dispassionately than does Hayek. He contends that because government is not driven by profit it cannot make decisions based on sound economic principle. It tends towards centralization with an eye towards achieving “other goods” than economic ones – public safety, national defense, etc.

    When government tries to extend into economic policy it is out of its depth and proper sphere. Because it is not driven by profit, it is not driven by the efficiency of needing to pay its own bills. I cannot be decentralized in the sense that a business can with each division head responsible for P/L.

    The fatal conceit of mixing dubious social engineering with economic policy is intrinsically doomed to fail.

    • steve January 27, 2011 at 4:46 pm

      Thanks for the nice complement. I’ll have to check out the Mises book. Sounds very interesting.

    • theCL January 28, 2011 at 9:46 pm

      I couldn’t possibly recommend that book enough. I get happy just hearing that others are reading it! If just 10% of America read Mises, the world would be a better place. When your done, and you give your brain some time to absorb it all, read Mises’ Liberalism. It is the best, most precise description of Jefferson’s political philosophy, or what we now call classical liberalism.


      All of Mises books are available via free pdf downloads at mises.org.