Government is not an efficient entrepreneur

Barack Obama thinks that government can pick a winner and his industrial policy suggests that green jobs will help grow the U.S. economy.

At last month's DNC, Obama claimed that he will “invest $150 billion over the next decade in affordable, renewable sources of energy” creating “five million new jobs that pay well and can't ever be outsourced.”

Not so fast with those job numbers says John Stossel who takes on Obama's major premise that government directed "investment" to create Green Jobs is something that he should be proud of. Obama's claim misses the larger point: government is a lousy investor subject to the push and pull of politics.

1.) Stossel reminds us "Alaska Rep. Don Young claimed the infamous "bridge to nowhere" would create jobs." Digging a hole then filling it is also creates jobs, but people would not consider that a benefit.

As BHI research economist Ben Powell has noted numerous times, “Jobs themselves are not a benefit; if they were, workers would be paying their employers for the privilege of working, rather than vice versa! It is the value created by performing those jobs that is the benefit, while doing the job is the cost an individual must pay to obtain a benefit.”

2.) Stossel also questions the idea “that Obama knows how best to 'invest' the $150 billion.” I have always held a firm belief that entrepreneurs invest much better then any politician. The entrepreneur risks their own money, and therefore will suffer any costs of a poor investment, encouraging them to measure the risk very carefully. The government risks my, and your, money so the costs are merely passed onto taxpayers. McCain suffers from the same issue, saying he “will support projects to advance technologies that capture and store carbon emissions,” funded via federal revenue. He is careful to say he is for “support,” as he is against “subsidies." Six one way, half a dozen the other.

Green jobs are touted as a welcome byproduct of climate change legislation. In truth it is taking money out of the private sector and putting it into a government that take a cut. When an indepth look is taken and the hand waving and populist rhetoric has been pushed aside, current climate change strategies that consist of a mixing of heavy handed government regulation often fail to meet the basic criteria of cost-benefit analysis.

More of this line of critique can be found here at BHI:

The Faulty Economics of Colorado's Climate Change Action Plan: A Peer Review

The Economics of Climate Change Legislation in North Carolina

Peer Review: Minnesota Climate Mitigation Action Plan Cost-Benefit Analysis

Another Failed Government Stimulus Program

Martin Feldstein says the last federal stimulus plan didn't work nor will a future stimulus plan or tax rate increase:

The small rise in spending in response to these tax rebates is similar to what previous studies of one-time tax cuts found. It also corresponds to what both basic economic theory and common experience imply. Although someone who receives a permanent annual salary increase of $1,000 typically would increase his annual spending by an almost equally large amount, a $1,000 rise in wealth caused by a share price increase or a tax rebate would raise spending only gradually over a number of years.

All of the evidence on one-time tax rebates implies that the Obama plan to send $1,000 rebate checks would do little to raise consumer spending and stop the decline in employment. If the past is an indicator of what would happen, the $65 billion he proposes to spend on this plan would raise consumer spending by only about $10 billion, or less than one-tenth of 1% of GDP.

The distinction between one-time tax rebates and permanent changes in net income is also important for the debate about Mr. Obama's proposal to raise income and payroll taxes. Because those tax increases would be permanent, they would cause a substantial reduction in consumer spending and aggregate demand. Moreover, as taxpayers begin to focus on the possibility of such a future tax hike, they will reduce spending without waiting for such legislation to be enacted. If Mr. Obama is looking for a way to stimulate the economy, he could begin by discarding his proposal to increase future taxes.

Here is more on Senator Obama's tax plans.

HT: Greg Mankiw

Senator Obama's Capital Gains Tax Plan

Presumptive Democratic presidential nominee Senator Barack Obama (D-IL) supports raising the capital gains tax from 15% to 25%, an increase of 67%. Economic growth is determined by a nation's investment in both human and physical capital. An increase in the capital gains tax will reduce investment in the stock market and reduce future economic growth.

Many believe that an increase in the capital gains tax will only affect the "wealthy" or Wall Street stockbrokers. However, virtually all citizens are affected by an increase in capital gains taxes. Pensions and 401k plans are directly affected by the capital gains tax and the direction the stock market takes in response to the tax. All citizens are affected by lower economic growth that results from low investment. If Senator Obama wants to raise the standard of living for Americans, he should abandon his plan to raise the capital gains tax.