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Monday, February 2, 2009




California's 'Green Jobs' Experiment Isn't Going Well

Stephen Moore from the WSJ says California's green policies have not only failed to create more jobs but seem to have exacerbated the crisis.

. . .

The Sacramento Bee, which has editorialized in support of the new regulations, was aghast at CARB's twisted science. We have to "be candid about the real costs of the transition," a cautionary editorial advised. "Energy prices will rise, and major capital investment will be needed in public transit and new transmission lines. Industries that are energy intensive will move elsewhere."

. . .

Meanwhile, the state is losing jobs, a lot of them. California's unemployment rate hit 9.3% in December, up from 4.9% in December 2006. There are now 1.5 million Californians out of work. The state has the fourth-highest housing foreclosure rate in the nation, has lost more businesses than any state in recent years, and is facing a $40 billion deficit. With cap and trade firmly in place, the economic situation is only likely to get worse.

Other states are plundering the Golden State's industries by convincing businesses to pick up stakes and move out before the cap-and-trade earthquake hits. Governors and Washington politicians who want to reduce their "carbon footprint," but are worried about the more immediate crises of cascading unemployment, unbalanced budgets, and the housing-market collapse, would be wise not to follow California's lead. Green policies have a tendency to push states into the red.

Source: The Wall Street Journal

Given that so much of Obama's "stimulation" is about creating green jobs, the stimulus packages may fail to set the US on the path to recovery, though they are certainly helpful if America is serious about burying herself under a huge pile of debt. Of course, I was always arguing for a massive fuel tax to be introduced in the US (and actually everywhere), but we should distinguish between fuel taxes and such stuff as cap-and-trade schemes. Fuel tax makes a lot of economic sense for reasons I have explained here, but, still, this does not mean the desired effect will be produced immediately. We can only be reasonably sure that within two-three years after introduction of new taxes on gasoline and diesel, the rogue states and would-be empires would be sufficiently defunded for America to afford to cut its foreign policy and defense spending.

Another thing is that it appears that Latin American ethanol, which is claimed to be competitive at $40-50 for barrel, provides a cheap enough alternative for oil. There also exists a chance that the gas tax will break OPEC's grip on the market with an added benefit of having the retail price of gas much lower than the original price and the tax together. This means that even the purely economical costs of moving the market away from oil are not very high. Combined with the oil's massive geopolitical costs, fuel tax becomes a sure win-win though, as I said, this may require a couple of years.

The situation is rather different with coal and electricity. Of course coal has its own externalities if you believe in global warming. But the bulk of these externalities is yet to happen. And coal does not have any geopolitical costs, while its alternatives seem to be way away from being competitive. This fact casts a big doubt on this green New Deal. Right now America is spending and borrowing as if there is no tomorrow. But tomorrow will come. And even today is not over yet. At some stage Obama will have to tackle the banks and toxic assets and these bailouts may easily swell into trillions. Just attempting to either suck such sums off the markets by selling bonds or make them up by printing money is bound to disrupt the markets. It will hurt just about everybody else in the world. In fact, the spreads on US bonds seem to be already increasing.

Under such conditions, it's imperative that stimulus packages make sense, America just can't start throwing money around for nothing. If Obama is so serious about the green part of his program, he should concentrate on oil. And even here Obama should better proceed cautiously. A one time big increase in fuel taxes is unavoidable, but the rest can be achieved by piecemeal increases over years. It's important that such a plan is adopted and provided with a clear time frame. That's more than enough, the anticipations count just as much, if not more, as the actual tax. Otherwise, going too wildly after reducing carbonic emissions may easily become yet another step in bringing America to final bankruptcy.

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