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Home Publications Blogs Beat the Press David Brooks Is Being Ignorant on the Economy Again

David Brooks Is Being Ignorant on the Economy Again

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Tuesday, 06 September 2011 04:03

David Brooks told readers today that there are no jobs in the green economy. While many political figures may have oversold the prospect for green jobs, the case that Brooks musters is much less clear than he suggests. For example, he tells us that:

"California was awarded $186 million in federal stimulus money to weatherize homes. So far, the program has created the equivalent of only 538 full-time jobs."

While that may sound like a pretty bad spending to jobs ratio, if we go to the article that Brooks references, we see that the main problem is that only a bit more than half of the money has been spent. If we say that $100 million has been spent to get us 238 jobs, that translates into $186,000 a job. That's not great, but if we had the same ratio for the whole stimulus (counting the AMT) then it would translate into 4.2 million jobs. Given that this money comes at essentially zero cost right now (the real interest rate on government debt is negative), this doesn't seem like too bad a way to reduce greenhouse gas emissions.

He then tells us that:

"executives at Johnson Controls turned $300 million in green technology grants into 150 jobs — that’s $2 million per job."

Okay, this is big-time sloppy. Most of the jobs created when people buy a GM car are not at General Motors. Most of the jobs created when people buy an iPad are not at Apple. If Brooks wants to find out how many jobs were created by this $300 million in green technology grants he will have to go beyond the executives at Johnson Controls and talk to suppliers. Who knows what this will uncover (they may all be in China), but the fact that Johnson Controls did not create many jobs really doesn't tell us anything.

However, the best story in Brooks' arsenal is his complaint about the Smart Grids Initiative. Based on a story from the Washington Post, he tells us that:

"the Smart Grid, while efficient and environmentally beneficial, will be a net job destroyer. For example, 28,000 meter-reading jobs will be replaced by the Smart Grid’s automatic transmitters."

If we turn to the piece, we see that the Smart Grid is creating jobs now, as workers are hired to install it. However, a few years down the road it will be a jobs destroyer, exactly as Brooks says, since workers will no longer be needed to read meters.

Okay, what's the problem? Right now we have an excess supply of labor. We need things for people to do to give them jobs. Installing the Smart Grid does that. However, we expect to be back at full employment at some point in the future. At that point, we will value efficiency. If we don't have to send tens of thousands of people around to read meters then they will be available to do other productive work. (Remember the retirement of the baby boomers and the shortage of workers this creates? Efficiency is a good thing.)

Being serious about this story, green jobs were in a fact a relatively small part of the stimulus. Recovery.gov shows $9 billion going to the main environmental program. There was also roughly the same amount used for energy-related tax incentives. If we say that a total of $20 billion went to green projects either through direct spending or tax incentives and we assume an average of cost of $200,000 per job, then we should expect to see 100,000 green jobs. 

It's not easy to determine whether we got these jobs or not. These are construction workers who are installing energy efficient windows, the workers in the factories that produce not just the windows, but the materials that go into the windows, the truck drivers who transport the material and the windows, and the sales clerks who take the orders and do the billing at every company involved in the process.

It is also important to remember that we are in a downturn where the economy is operating below full employment. That means that we are wasting resources by not spending money. Money that is spent inefficiently, but puts people to work, is better than just leaving workers idle. If there are more efficient ways to spend the money, then that is even better, but Brooks didn't give us his list.

Green jobs will not be a panacea that will fix an otherwise sick economy. If we want manufacturing jobs (green or otherwise) then we have to bring down the over-valued dollar. If we allow a parasitic financial sector to persist then it will be a drain on the economy no matter how green it is. But there is no reason to think that energy-saving industries will be any less effective in generating employment rather than energy-using industries.

Comments (12)Add Comment
How inefficient before becoming ridiculous?
written by Chris, September 06, 2011 7:22
> Money that is spent inefficiently, but puts people to work, is better than just leaving workers idle.

While I do think we should be spending money to put people back to work, it would be useful to hear some sort of upper limit on just how much a job is worth to the economy given the present conditions. Is $200,000/job reasonable? It sounds high although perhaps it pays for itself over the next decade. Obviously at some point it must become too much, but how to determine that?

I understand that this will depend on a host of factors, including what sort of value the job creates towards future growth, above and beyond circulating money in the economy.
"bring down the over-valued dollar"
written by Paul, September 06, 2011 9:59
Really? How does that work?

Do the Chinese, Japanese and Europeans simply agree that the U.S. needs more jobs and economic growth so therefore they will sacrifice their jobs and economic growth for us?

I have never seen that happen before and since it is completely contrary to Keynes, I have some doubts.

"But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours. There would still be room for the international division of labour and for international lending in appropriate conditions. But there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour, not because this was necessary to enable it to pay for what it wished to purchase, but with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour. International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage."
The General Theory of Employment, Interest and Money, p.382.
But what else did the money provide?
written by EMichael, September 06, 2011 10:05
What is the value of the work done besides the jobs created?

A very conservative nephew of mine was complaining about an ARRA funded highway improvement in his home city. He also used the "it costs $250K for each job created" thing.


Ten minutes later he was talking about how his commute time had been reduced by 30 minutes a day due to the highway improvement.

He failed to notice any connection.
Forbidity Trap: The Sound of One Hand Clapping at a Zero Discount Rate
written by izzatzo, September 06, 2011 10:38
However, we expect to be back at full employment at some point in the future. At that point, we will value efficiency.


When the discount rate is zero the value of future and present goods are the same, therefore producing and consuming more goods now is claimed to cost nothing in the future. Not producing and consuming more goods now is presented as a waste of unused available resources.

Living in the short run like this is deadly, which is the message from Brooks. When money is available at essentially a zero real interest rate, the government can borrow the principal now and pay back the the same amount later at effectively a negative opportunity cost when more growth is created through spending.

This is the road to serfdom. In the short run we're all dead. We must prepare for the long run or there won't be any short runs. The zero discount rate touted by Baker is a socialist illusion designed to pull the uninformed into a Forbidity Trap that doesn't value efficiency.

Be worried. If you don't feel crowded out you're likely sliding into the Forbidity Trap and should find some trade-offs somewhere - anywhere, like for the sound of one hand clapping add another hand to crowd out the first hand and so forth.

Stupid liberals.
...
written by skeptonomist, September 06, 2011 11:05
It has become very fashionable to talk about "free money", but this is very misleading. Izzatso actually makes a good point here. The money may appear "free" now, but that debt will not be repaid and most of it will be turned over at future interest rates. Calculating the cost of government borrowing at current interest rates is bad economics - better to take some kind of long-term average.

Not that Brooks is really arguing this - his column is just silly carping about spending money, and he gives no alternatives.
What road?
written by EMichael, September 06, 2011 11:06
Personally, I think the road to serfdom is paved with unemployment mixed with low and stagnating wages.

Stupid RWDWs
WWII Debt Paid or Faded?
written by EMichael, September 06, 2011 11:34
" The money may appear "free" now, but that debt will not be repaid and most of it will be turned over at future interest rates."

Yep, and 2021(fill in the year)dollars will be the same as 2011 dollars.......or not.
But wait, there's more!
written by EMichael, September 06, 2011 11:47
In 2001, Grover Norquist called a national sales-tax holiday “exactly the kind of immediate stimulus our shell-shocked economy needs now.” Norquist went on to quote George W. Bush’s chief economist, Glenn Hubbard, saying we needed stimulus “sooner rather than later.” Sen. Olympia Snowe (R-Maine) introduced a bill to that effect.
Around the same time, Rep. Paul Ryan (R-Wis.) held a hearing in which he invited Kevin Hassett, a conservative economist based at the American Enterprise Institute, to make the case for a fiscal stimulus. “The economists who studied this were quite surprised to find that fiscal policy in recessions was reasonably effective,” Hassett testified. “It is just that folks tried a first punch that was too light and that generally we didn’t get big measures until well into the recession.”
Ryan was delighted by his answer. “That is precisely my point,” he replied. “That is why I like my porridge hot. I think we ought to have this income tax cut fast, deeper, retroactive to January 1st, to make sure we get a good punch into the economy, juice the economy to make sure that we can avoid a hard landing.”
WWII Debt Wiped Out by Inflation
written by Paul, September 06, 2011 11:48
At the end of WWII, the CPI was 18. Today it is 226 which means that more than 90% of the value of that record debt has been wiped out by inflation.

http://research.stlouisfed.org/fred2/data/CPIAUCNS.txt

We are now paying less than 2% interest to finance the remaining value of that debt. So, was fighting and winning WWII worth the enormous debt that was incurred, or should our grandparents have been more concerned about the terrible debt burden we have to face today?

I'm sure izzatzo would disagree, but personally, I am glad they embraced the debt.
...
written by skeptonomist, September 06, 2011 12:03
I should say that current interest rate should not be a critical factor in deciding whether or not the government spends money. If economic resources are not being used and the private sector is failing to spend, then the government should spend. For government spending, interest rates are something which affects the long-term expense, and over the long term rates tend to even out. Also overall growth rate is more important.

In general economists are excessively concerned with interest rates. They are not nearly as important in actual economic decisions (outside of finance industries) as economists think they are.
Interest rates are irrelevant.
written by Ralph Musgrave, September 06, 2011 4:04


Dean Baker’s argument is stronger the he realises, and the reason is that the entire interest rate argument is IRRELEVANT. As Keynes and Milton Friedman, amongst others, pointed out, a monetarily sovereign country does not, repeat not need to borrow in order to fund stimulus: it can simply print money. So if the current rate of interest was 10%, that would be irrelevant. Government can simply print and spend (and/or reduce taxes).

And for the benefit of the economic illiterates who think that printing money automatically leads to excess inflation, the latter outcome only materialises if the AMOUNT printed is significantly more than is needed to raise demand and effect a recovery (i.e. solve the problem). As David Hume pointed out in his essay “On Money” two hundred years ago, money supply increases only have an effect ONLY TO THE EXTENT THAT THEY ARE SPENT and raise demand. It’s a pity the human race has learned so little about economics in the last two centuries.

I could take a leaf out of izzatzo and end with some phrase like “stupid Republicans” or “stupid conservatives”. But I don’t want to sink to izzatzo’s level – well not on Dean Baker’s site anyway.
...
written by Jethro, September 06, 2011 10:14
How many jobs have economists created ?
Henry Nothhaft has an interesting opinion piece in the Wall Street Journal (not that anyone here reads that BAD paper) weekend edition on this topic - JOBS - (it should have been titled "Why big business likes big government")- I would link to it but what is the point, no one will agree with him (he knows how to create jobs - he has done it before)and my post will get negative ratings.....

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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