Obamanomics on Steroids: Renewable Energy and Job Creation | Eastern North Carolina Now

    Publisher's note: This week's "Daily Journal" guest columnist is Dr. Roy Cordato, John Locke Foundation Vice President for Research and Resident Scholar.

    RALEIGH     According to a self-serving report paid for by the North Carolina Sustainable Energy Association, $72 million in government subsidies received by their members in the solar and wind power industry have "created or retained" over 21,000 "job years" since 2007.

    If slippery phrases like "jobs created or retained" and "job years" sound familiar, it's because they are right out of the Obama stimulus package playbook. And, no surprise, they come from the same sleight-of-hand mode of analysis. These are numbers based on magical multiplier effects and the assumption that government spends money more effectively than private consumers and entrepreneurs.

    Ultimately, the "21,000 job years created or retained" that the NCSEA is touting should be viewed with the same skepticism that most people have when hearing about claims that President Obama made regarding his stimulus plan. Remember in 2009 when we were told that the unemployment rate would never get above 8 percent and that by now we would be enjoying a rate of about 5 percent?

    As with Obama's stimulus plan, the basic assumption behind the NCSEA number is flawed and, to any thinking person, illogical. Basically it assumes that politicians can take money from taxpayers and utility ratepayers throughout the state, transfer it to special-interest groups, and the spending of that money by these groups will be more productive than if it were left in the private sector.

    In fact, in this case we are to believe that government subsidies to so-called renewable energy companies are actually being spent over 19 times more effectively than the dollars would have been if the government left them alone to be used by those of us who earned them in the first place.

    Allegedly $72 million in wealth transfers, i.e., subsidies, have created over $1.3 billion in new wealth and income. This is the magical multiplier effect. NCSEA is making the absurd claim that the multiplier is over 19. The government spends a dollar of taxpayer money, and magically it creates $19 of economic growth in the economy. Even Obama's court economists would not lower themselves to make such an outrageous claim.

    Staunch Obama supporters like economists Paul Krugman and Christina Romer believe that the multiplier is only about 1.5. In other words, if the government spends a dollar, it generates about $1.50 of economic growth in the economy, not $19. Furthermore, according to the Krugman/Romer/Obama theory, these wind and solar power subsidies would have to have been financed with deficit spending even for their relatively small multiplier effect of 1.5. Since North Carolina requires a balanced budget, this has not been the case.

    Another way that the NCSEA study arrives at its suspicious conclusions is to assume that there is almost $300 million in cost savings that private-sector entrepreneurs have missed, but the state's politicians have somehow spotted. In analyzing the NCSEA study, Dr. David Tuerck, chairman of the economics department at Boston's Suffolk University, observed:

    The baseline assumption any reasonable economic analysis should make is that private firms maximize profit. If it were the case that cost-savings of this magnitude were available, then private energy firms would have been leaving hundreds of millions of dollars on the table - that is, definitely not maximizing profit - for no apparent reason. If the authors believe they have overturned the fundamental basis for microeconomic theory, they should specify why.

    Of course, Professor Tuerck is right. The most basic economic assumption when analyzing business behavior is that companies seek to keep costs as low as possible and revenues as high as possible, i.e., they maximize profits. The NCSEA-sponsored analysis turns Econ 101 on its head. While the credentials of the study's authors are not revealed, if in fact they have degrees in economics, they may have a malpractice case against the institutions that granted them. If they do not have economics degrees, then one wonders why they would have been hired to perform this kind of research in the first place.

    The NCSEA analysis of taxpayer- and ratepayer-funded renewable energy subsidies invokes the same flawed economics that was responsible for the vast waste of resources known as the Obama stimulus plan. Consequently, the claims that the special interests are making about their impact on "job years created or retained" should be treated by legislators and the public with the same level of suspicion that they have had toward President Obama's claims about "jobs created or saved."

    Obamanomics has given us anemic economy growth nationally, and there is no reason to believe that it can do any better for North Carolina.