Job creation doesn’t need economic growth. | Brussels Blog

Job creation doesn’t need economic growth.

posted by on 29th Jan 2012

James Hansen‘s Cowards in Our Democracies, includes a summary of his ‘carbon fee’ proposal:

a gradually rising carbon fee should be collected from fossil fuel companies, with the money distributed uniformly to legal residents. This would stimulate the economy, making it more efficient by putting an honest price on fuels, incorporating their costs to society.

But why are government economists ignoring Hanson’s advice? Perhaps because they are so focussed on economic growth they dismiss the sheer urgency of climate change.

My preferred option is to tax carbon to subsidise jobs. While this is on the edge of political possibilities, it is more feasible than Hansen’s scheme, particularly in Europe, where unemployment rates are dangerously high. I am sure that Hansen’s carbon fee would have a beneficial effect on employment by allowing people to work for lower wages – without actually starving – but it has a less direct effect on employment than using the carbon fee to create employment directly.

Employment is part of the fabric of our societies. Today the Observer reports:

Plans to commit €22bn to tackling the scourge of youth unemployment across Europe will be considered by EU leaders on Monday as international pressure mounts for action to help young people chart a way through the deepening economic crisis.
The difficulties of young people leaving school for a world that offers ever more limited job opportunities were highlighted last week when youth unemployment in Spain reached 51.4% among those aged 16 to 24.

What a good use for a carbon tax. As most economists say: Tax bads subsidise goods. But sadly the report continues:

Christine Lagarde, managing director of the International Monetary Fund, held private talks in Davos with union leaders to discuss unemployment. She said on Saturday it was vital to kickstart growth in the eurozone. “Growth is critical for many reasons – for the jobs issue, for fiscal consolidation and to encourage value creation.”

Here we have a blind acceptance that growth is the lever to create employment. Too often growth in GDP is assumed to be uniformly good. But consider these counter examples:

1. Saving energy is bad for growth.

On the recent fall in economic activity Phil Orford said to ShareCast

You can also factor in to the equation two days of public sector industrial action, and a 4% drop in energy consumption due to the mild autumn.

The mild autumn has caused us to use less energy and so sap economic growth. Saving energy is bad for growth.

2. Forest fires are good for growth.

Recently in Sheffield the Greek MEP, Kriton Arsenis, pointed out that the  massive forest fires that broke out in several areas across Greece throughout the summer of 2007 caused a growth in Greek GDP.

So forest fires are good for growth.

3. Car accidents cause economic growth

In their economics classes students at Syracuse University are taught that car accidents cause growth:

For example, after a car accident, the costs to repair the car, provide medical treatment to the victims, pay for lawyers, etc. all add to GDP.  But, has the car accident really increased welfare?

Wasting energy, forest fires and car accidents are all bad so how is it growth is so good?

The answer is that growth – an increase in GDP – is not intrinsically good or bad but because it is the sum of “good things” and “bad things”.

GDP is a poor measure of human welfare. As explained in tax carbon to subsidise jobs it is not necessary to rely on growth of GDP to create jobs. (And Jeff Rubin explains we have little chance of growth this century anyway.)

“Growth” is too crude a measure for policy making. Let’s recognise it for what it is a artificial construction of little practical use.


This is what it is all about. Great piece, Geoff.

Neven ( August 23, 2012 at 10:42 pm )

I believe you are confusing short-term GDP growth with long-term GDP growth. The classic ‘broken window’ proposition is well known to be bad for long-term economic growth.
To keep the jobs and increase welfare, you need more efficient economic activity.
In terms of your characterization of economists as supporting taxing bad and subsidizing good, you are half right. Taxing activities with negative externalities is efficient. Subsidizing an activity that the government thinks is ‘good’ is not efficient and consistent with why socialism is such a poor policy choice, in terms of economic growth or welfare.

Jack O'Fall ( December 21, 2012 at 5:14 am )

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