The broken-window fallacy in action

Matt Ridley on How Expensive Green Energy Destroys Jobs, While Cheap Shale Gas Creates Jobs

Matt Ridley masterfully applies Bastiat's "broken-window fallacy" to green energy jobs, writing last December in City AM, a UK financial newspaper:

"When is a job not a job? Answer: when it is a green job. Jobs in an industry that raises the price of energy effectively destroy jobs elsewhere; jobs in an industry that cuts the cost of energy create extra jobs elsewhere.

The entire argument for green jobs is a version of Frederic Bastiat’s broken-window fallacy. The great nineteenth century French economist pointed out that breaking a window may provide work for the glazier, but takes work from the tailor, because the window owner has to postpone ordering a new suit because he has to pay for the window.

You will hear claims from Chris Huhne, the U.K.'s anti-energy secretary [he was recently forced to resign and faces criminal charges], and the green-greed brigade that trousers his subsidies for their wind and solar farms, about how many jobs they are creating in renewable energy. But since every one of these jobs is subsidized by higher electricity bills and extra taxes, the creation of those jobs is a cost to the rest of us. The anti-carbon and renewable agenda is not only killing jobs by closing steel mills, aluminium smelters and power stations, but preventing the creation of new jobs at hairdressers, restaurants and electricians by putting up their costs and taking money from their customers’ pockets.

 Contrast that with news from the United States that, according to a report from IHS Global Insight, the cheap shale gas revolution now in full flow has created 148,000 jobs directly within the gas industry and – by making energy cheaper – has created at least another 450,000 jobs elsewhere in the economy. By 2015, the total impact of shale gas will be 870,000 new jobs, says the report.

Back in 1800, Britain was becoming the richest country in the world with the fastest economic growth and the fastest job creation – the China of its day. That was not because we had suddenly become cleverer than everybody else at inventing things. It was because we had stumbled upon limitless, dense and above all cheap energy in the form of coal, and harnessed it to mechanize industry, cheaply amplifying the labor productivity of each person so much that he could be paid high wages.

That lesson – that cheap energy is an employment multiplier, while costly energy is an employment divider – has been forgotten. Please let us recall it before the green jobs myth causes more unemployment."