Tax Analysts Blog

Healthcare Savings, Green Jobs, and the Tooth Fairy

Posted on Jun 1, 2009

Everything you need to know about financing healthcare is in the Maya MacGuineas op-ed ("Health Reform's Savings Myth") in Sunday's Washington Post. In plain English she details why Obama's healthcare reform is going to cost the government a lot of money even though advocates of reform keep telling us the opposite. MacGuineas concludes: "As much as we might wish it were so, creating an expensive plan to expand coverage . . . will not be sufficient to improve America's fiscal health anytime soon."

Also this weekend the Post took us behind the scenes of the Administration's environmental efforts. The White House's penchant to tell sugar-coated fairy tales is not limited to the economics of healthcare. To give its environmental program "pop" the White House made a conscious decision to market environmental policy as a way to create "green jobs." Again, it's Politics 101: Do this for me and create jobs, but do this against me and you will kill jobs. Simple, but it works. Unfortunately, just as expanding health insurance does not reduce healthcare spending, pushing the economy toward more environmentally friendly activities is more likely to reduce employment than increase it.

The administration's energy program is a series of carrots and sticks. The carrots are tax incentives and subsidies for solar, wind, plug-in hybrid vehicles, conservation, etc. The sticks are restrictions and regulations like the proposed cap-and-trade program for carbon emitters and CAFE standards for automakers. These programs can help the environment and they can transform the economy to make existing businesses greener and even create new industries. Of course it creates jobs in those favored "green" sectors of the economy, but it will kill more jobs in the punished sectors. Their overall effect on the economy (as it is conventionally measured) and on jobs is negative.

Taxes, regulations, and subsidies all introduce distortions into the economy. In most cases these distortions are unambiguously bad for economic growth. But, when the target of the action is fixing an economic externality--like the emission of carbon into the atmosphere-- there can be a positive benefit. But the positive benefits take the form of the reduction of the externality--e.g., the reduction of greenhouse gases--not in net job creation. Before the government intervened, the economy was already at its job-creating maximum. The government-induced distortion reduces the economy's overall efficiency (as we conventionally measure it) in order to improve the environment. This does not mean we should not do it. But it does mean we should not delude ourselves into believing it is win-win situation. There are trade-offs. There is no free lunch. A cleaner environment will costs us--and in particular it will cost those whose jobs are in the "dirtier" industries. No one should be surprised by this.

In the old days when environmentalists advocated for change, they argued in terms of their programs' true merits: cleaner air and water. But the tree-hugging imagery conjured up by this approach did not always sell with the general public. So today's modern advocate talks in terms of creating jobs for hard-hatted electricians and construction workers. The new approach is far more politically effective, but it does not make it true.

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