The Heritage Foundation's critique of the new Clean Air Act jobs study: wrong again
Posted February 13, 2011 in Curbing Pollution, Health and the Environment, Solving Global Warming
Last Thursday the Heritage Foundation was quick to publish a blog post, “What happens when economists skip econ 101,” criticizing a report released only two days earlier by Ceres and the Political Economy Research Institute (PERI). The report estimated employment impacts over a five year time period resulting from implementing two EPA air emission standards reducing arsenic, mercury, and other life-threatening pollutants. It found large job gains resulting from new electricity generation capacity, as well as some losses due to retirements of older coal plants. The authors concluded that approximately 1.46 million jobs would be created over the five year time period. For a summary of the report, click here.
The Heritage critique mistakenly contends (1) that private investment in one sector of the economy must come at the expense of spending elsewhere - i.e. it 'crowds out' other expenditures and the jobs associated with such expenditures; (2) that the study failed to distinguish between jobs and 'job years'; and (3) that the analysis did not consider the negative consequences of compliance costs.
The Heritage critique is wrong. Taking each point in turn:
1) “Econ 101” does not in fact say that new investments made in one sector of the economy must crowd out investment in other sectors. The only condition under which this has to be true is when the economy is operating at “full capacity,” i.e. when all labor and raw materials are currently employed elsewhere. However, present reality is significantly different. Unemployment is at historically high levels and one glance at the data on the financial sector, such as that provided in the flow of funds accounts, shows that lending has not recovered. Mobilizing idle resources through new investments does create jobs, since the resources were not productively employed in the first place.
2) Contrary to Heritage’s assertion, the study does not attempt to mislead the reader by obfuscating the difference between “job years” and jobs. This is either a misrepresentation or mis(non?)reading of the report. The distinction is indeed critical, and unfortunately some reporting on the study’s findings have failed to make it. But the report itself is quite explicit: over the five year period examined, “capital investments in pollution controls and new generation will create an estimated 1,457,885 jobs or about 291,577 year-round jobs on average (p. 2 of report; emphasis added).” Surprise! 1,457,885/5 = 291,577.
3) Contrary to Heritage’s assertion, the authors do estimate potential employment losses resulting from compliance costs. Specifically, they estimate losses resulting from retirements of older, coal-fired plants - including indirect losses in the coal industry, transport industry, and related activities. Therefore, consideration of the negative impact of compliance costs is a central aspect of the study, as detailed on pages 12 and 13 of the report.
As a separate matter, one could be concerned about potential increases in electricity prices, but there isn’t any historical evidence showing that modernizing the electric sector leads to substantial burdens on businesses and consumers. Indeed, since the 1990 amendments to the Clean Air Act were enacted, price trends from the U.S. Energy Information Administration show that the price of electricity, adjusted for average inflation in the economy, fell steadily as the electricity sector made sizeable investments in new capacity and pollution control technologies. Recently, real electricity prices have increased, particularly after 2004, but this increase was driven by price hikes in energy markets, not by air pollution standards.
It’s interesting that the Heritage Foundation felt the need to jump on this study and try to discredit it, though not surprising. Maybe they are worried.
They should be.
After extensive research and documentation, we now know that the Clean Air Act and other life saving regulations have brought dramatic environmental improvements and prevented countless deaths and illnesses; at the same time they have created jobs, increased the productivity of the workforce, and increased economic output. And public opinion is starting to catch on (click here and here).
