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The Obama administration claims the government can “create jobs” through technology, particularly green technology. The president argues that the technology is there, and all it needs is a “nudge” from the government. He does not explain why private interest does not do the “nudging” if that is in fact the case.
Clearly, the private sector does not believe these technologies are ready for prime time.
Hence, the “green jobs” require subsidies (higher taxes), otherwise they already would exist. Furthermore, the government must block or crowd out private sector jobs in order to keep the cost of the subsidized jobs under control.
The government can only make room for green energy by restricting existing energy sources; that is, limit exploration for oil/gas and prevent the building of nuclear power plants. If the government does not block these high-paying private jobs, the size of the subsidy required for green energy grows exponentially. The government can only make green energy work by reducing the supply of conventional energy. The opportunity cost of green jobs is the loss of conventional energy jobs.
Like all myth-making, the “green jobs” initiative starts with a kernel of truth and then spins an illusion. The myth can be propagated only if voters do not understand the relationship between basic science, invention and innovation.
Research in basic science is the fountain from which technology flows. The problem with basic science is it rarely has immediate or obvious commercial applications. It is very much about learning for learning’s sake. No one in basic research can know how their discovery, when coupled with someone else’s discovery, might lead to a startling new invention. Hence, government heavily supports basic science research; no commercial enterprise has the resources or patience to back research that is not targeted toward commercial applications.
So, basic research may not get done without government support.
Invention is the creation of a new machine, process or product, while innovation is the process by which these new machines, processes or products get turned into a commercial reality. Just because something is invented does not mean it will become reality.
For example, during the 1970s and 1980s, the U.S. energy industry spent hundreds of millions of dollars trying to make gas produced from coal a commercial reality. The coal gasification plants were invented; but, they were never successfully innovated.
There are three steps in the process, and the hurdles to be cleared are different at each step. Since the hurdles are different, the skills required to solve the inevitable problems also are different. By the way, do you see any legitimate role for politicians in this process?
When the government intervenes in the invention or the innovation process, things go wrong. Political interference in defense contracting leads to wasteful defense spending. Recent examples of interference in the innovation process are ethanol and windmills.
It takes more energy to produce ethanol than it yields. The industry cannot survive without subsidies, and it has enormous unintended consequences on food costs. The same is true for windmills. They cannot compete without government subsidies, as Spain has learned to its regret. Once these “new industries” get started, they never die and the subsidies just get larger. Finally, politics intervened in the commercialization of nuclear power in the 1980s, and we are all paying a severe price for that now.
When the government directs innovation, it substitutes politics for economics. The intervention creates multiple opportunities for political corruption. If the government leans against market forces, it creates vested interests that profit by paying politicians to do what they want.
If the government stands aside and lets the marketplace decide what works and what does not, the politicians lose control and then lose the opportunity for graft.
Politicians are heavily biased against free market forces and towards government control.
Can you really imagine Congress choosing our children’s technological future?
Bob Martin is emeritus Boles Professor of Economics at Centre College.