Market Thinking

making sense of the narrative

Those Green Jobs…Bastiat had it right

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One of the mantras from Politicians of all persuasions about the Build Back Better campaign is that in addition to ‘saving the planet’ it is going to provide ‘thousands of Green Jobs’. Without wishing to sound churlish, a job is usually a cost not a benefit. We could create thousands of jobs by getting rid of all farm machinery and giving everyone a hoe, for example, in the same way we could ban imports of superior quality goods in order to support less efficient, poorer quality local manufacturing. Fortunately we have yet to face the former, even if we have had to resist pressure for the latter, but the obvious ‘jobs’ being created with all this of course are among the ‘Consultarati’.

As the FT announced yesterday with a splash headline, PWC are going to add 100,000 jobs over the next five years in, basically, ESG consulting. This is a service sector equivalent of paying people to dig a hole in the road and then paying a different group of people to fill them in again. It gets recorded as GDP even though no value has actually been added. One set of Consultants create a costly framework ‘problem’ for institutional investors and then another set of Consultants come along and offer a costly framework ‘solution’ to the problem. Millions of dollars are transferred from the pensions of small investors to the capacious pockets of the Consultarati for no discernable end. None of this is new of course, the legal profession in the US has been creating jobs for itself for decades, but it ought to make us question the nature as well as the nominal value of GDP across borders and across time. The fact that in 2018, pre Covid, the US spent 17% of GDP on Healthcare compared to 10-12% in Western Europe does not equate to healthcare being 50% ‘better’ in the US than it is in, say, Switzerland, rather that it is significantly more ‘expensive’, which is obviously not the same thing. In this case around $1trn more expensive. This and the Green jobs is the lesson we should have learned long ago from the great French Economist Frederic Bastiat, and is known as the Broken WIndow Fallacy. Sure, the money spent by the shopkeeper relacing his broken window adds economic activity, but what of that which, as Bastiat puts it, is ‘unseen’? What other use could those resources have been put to? What else could US consumers have spent their money on if they had universal healthcare? In the case of PWC, what other use could the time and talent of all those highly qualified people have been put to? What else could the pension fund savers have done with their money rather than give it to the ESG ‘industry’?

It is this failure to consider what economists call ‘the opportunity cost’ of policy that lies at the heart of many of the problems facing the west at the moment. Elected Politicians are focussed on what affects them personally – one Covid death or the 99 non Covid deaths? Lobbyists know this all too well, which is why a ‘green job’, like the rescue packages of old for collapsing industries rarely makes any economic sense for the wider economy. The contemporary Economist , Michael Hudson, like Bastiat, is far less well known than he deserves to be and talks frequently about the financialisation of the US economy in particular, where economic activity is largely focussed on ‘rent extraction’ – literally rents, but also interest payments and other charges to the Finance Insurance and Real Estate (FIRE) sector. He refers to this as Financial Capitalism at the expense of Industrial Capitalism such as the US in the past, and China today. Investors looking to get a return on their capital need to think carefully about what returns are being generated, and where. Private partnerships like lawyers, consultants and hospitals or private capital may appear to boost GDP by extracting ‘rents’, but savers relying on public markets need to be sure they are in areas generating real returns on capital.

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