Sunday, January 24, 2010

The Case for a Climate Bill

New York Times Editorial "The Case for a Climate Bill" (January 23rd, 2010) offers a poor (though vague) economic analysis of a potential climate bill:
The cost to households, according to the Congressional Budget Office, would be small. A good program would create more jobs than it cost.
Job creation is not, in and of itself an economic good. For example, if the government mandated the creation of 100,000 salaried positions for people to count the amount of change thrown in trash cans each day, we would not conclude that this was money well spent. The people employed counting change could otherwise have been employed in activities that benefit society to a greater degree. There is a clear opportunity cost of job creation. Corrections notes this is possible because government regulation and subsidies can create a wedge by which more valuable jobs are bypassed due to implicit or explicit subsidies on government-encouraged jobs.

Also, as a note, even a small "cost to households" that results from any government intervention could easily offset the creation of a few jobs. If the new bill increases yearly energy costs for every citizen (about a quarter-billion of them) by one dollar, the bill would have to create 2,500 jobs paying $100,000 per year to make Americans as a whole unharmed, not including any supply-side calculations or the opportunity cost of that job creation. Ultimately, that a government bill creates jobs does not imply that the bill increases social welfare. A socially optimal outcome is often achieved by the private negotiations of the marketplace.

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