WWID: Not growth policy?

In Chapter 6 of What Works in Development, Abhijit Banerjee of JPAL recaps the ineffectual history of research on economic growth and concludes that "it is not clear that the best way to get growth is to do growth policy of any form." Perhaps it would be better, he says, to focus on keeping our house in order - maintaining social stability and building human capital - so that we can take advantage of the growth "spark" when it occurs.

I sympathize with commentator Peter Klenow, a micro-oriented macroeconomist, who responds:

Beyond accounting, macroanalysis has contributed a slew of robust correlations that help guide microexperimental work. Correlation need not imply causality, of course, but certainly does not rule it out... It is up to theorists and microexperimentalists to flesh out the causal mechanisms behind these correlations.

Bill Easterly - editor of the book, and reserving the last word for himself - makes three main points:

1. Macroanalysis established the negative effects of extreme policies and outcomes (e.g. land expropriation and hyperinflation in Zinbabwe); it was only in cases of moderate variation where the conclusions broke down completely.


2. "Macroeconomists have earned their ignorance the hard way," largely "because the demand for explanations of growth was so intense."


3. RCTs "do not really offer a serious alternative to how to achieve 'growth success'", because the small interventions they test in specific situations could never scale up to meaningful increase growth on a macro scale.
   

I think Easterly is being too pessimistic here, and Klenow is closer to the mark - the right answer has to be a middle ground where RCTs are one of many tools in the toolkit, microexperimental work complements and is informed by macroanalysis, and we keep on trying to crack the mystery of growth, counter to Banerjee's skepticism that we ever can.

More on green jobs

In addition to me, Tyler Cowen, and Bastiat, here are a few other credible voices weighing in on green jobs.

Environmental Economics:

“We’ve reached another milestone as we move to a clean energy future,” Mrs. Boxer said in a statement, “creating millions of jobs and protecting our children from dangerous pollution.”

Cap-and-trade won't create millions of jobs in the way that a naive reader might perceive that statement. Jobs will be created in certain industries and we'll be able to point a finger at those and count them up. Jobs will also be lost elsewhere as a result of regulation and these will be more difficult to point out and count up. The net effect will be minor noise in the symphony of cyclical, structural and frictional job market. In other words, don't expect the unemployment rate to fall as a result of cap-and-trade.

Styles:

When legislation like the Kerry-Boxer climate bill, which includes many provisions that would make energy more expensive for consumers and businesses, is marketed as a jobs bill it merits a skeptical reception. Stimulating jobs in the 6-10% of the economy devoted to energy seems unlikely to compensate for the loss of jobs that would ensue throughout the broader economy, if climate legislation caused energy costs to soar. That may, however, be a necessary evil, and the question we should really be asking is not how many green jobs such legislation will create, but whether on balance its provisions are truly justified in order to address climate change--even if they resulted in a net loss of employment, as I strongly suspect they would. Unless the answer is an unequivocal yes, we could be setting our long-term energy policy on the basis of a metric that is only a minor contributor to either energy costs or total economic activity, for reasons that seem unlikely to stand the test of time.

P.S. Did not intend to back-handedly praise my "credibility" by association...

The green jobs argument, circa 1845

From Bastiat’s candlemakers’ petition against the sun, which I mentioned here but is too good not to excerpt on its own:

First, if you shut off as much as possible all access to natural light, and thereby create a need for artificial light, what industry in France will not ultimately be encouraged?

If France consumes more tallow, there will have to be more cattle and sheep, and, consequently, we shall see an increase in cleared fields, meat, wool, leather, and especially manure, the basis of all agricultural wealth.

If France consumes more oil, we shall see an expansion in the cultivation of the poppy, the olive, and rapeseed. These rich yet soil-exhausting plants will come at just the right time to enable us to put to profitable use the increased fertility that the breeding of cattle will impart to the land.

Our moors will be covered with resinous trees. Numerous swarms of bees will gather from our mountains the perfumed treasures that today waste their fragrance, like the flowers from which they emanate. Thus, there is not one branch of agriculture that would not undergo a great expansion.

The same holds true of shipping. Thousands of vessels will engage in whaling, and in a short time we shall have a fleet capable of upholding the honour of France and of gratifying the patriotic aspirations of the undersigned petitioners, chandlers, etc.

But what shall we say of the specialities of Parisian manufacture? Henceforth you will behold gilding, bronze, and crystal in candlesticks, in lamps, in chandeliers, in candelabra sparkling in spacious emporia compared with which those of today are but stalls.

There is no needy resin-collector on the heights of his sand dunes, no poor miner in the depths of his black pit, who will not receive higher wages and enjoy increased prosperity.

It needs but a little reflection, gentlemen, to be convinced that there is perhaps not one Frenchman, from the wealthy stockholder of the Anzin Company to the humblest vendor of matches, whose condition would not be improved by the success of our petition.

Hap tip to the inimitable Tyler Cowen.

The danger of the "green jobs" argument

“Green jobs” is, for better or worse, becoming the rallying cry and focal point of the fight over climate change legislation in Congress. I’ve generally had reservations over this approach because:

1. The point of the climate bill is climate, not jobs, and it is hard to do both at the same time
2. I worry that the green jobs argument is being oversold
3. If the case that the bill will create jobs is shown to be flawed, it tremendously weakens the public argument for the bill (even though it loses none of its urgency)

Given that preamble... Tyler Cowen links to a study on the cost of green jobs in Spain. Here are some choice quotes from the study:

Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.

The study calculates that since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job.

And here is Tyler’s commentary:

To be sure, there are very real benefits from limiting climate change. But if it takes more jobs to produce "green energy," that is a net cost to the economy, not a benefit... We're dealing now with something beyond the Keynesian short run and so those extra jobs are a drain of resources from elsewhere. If you wish, sub out the word "energy" and sub in the word "agriculture" and then reevaluate the sentence from the vantage point of 1900. Would it truly create net jobs -- much less good jobs -- to trash tractors and industrial fertilizer? The ideal situation would be a technology where very few jobs were required to create and distribute the nation's energy supply.

The idea that directed government spending is important to private sector job creation in the long term flies in the face of most capitalist ideology and economic theory. It is, in effect, economic populism with socialist implications (and with all due respect to socialism, I don't think that's what most American voters would aim for if the argument were laid out transparently). But the green jobs meme is so attractive politically, given the state of the economy, that it’s lured lawmakers like a Siren... and I worry how things will turn out once the economic evidence is examined in the light of day.

Tyler also links to Bastiat's candlemakers' petition against the sun, which is both quite funny and quite apropos.