H/T The GWPF
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Green technologies that were known money-losers before the pandemic are still money-losers today.
There’s a curious idea floating around that the COVID crisis undid the principles of economics, says Ross McKitrick.
Nobody puts it exactly like that, but it’s implied in the various proposals for restructuring the post-pandemic economy so that it will look very different from the one we experienced up to the end of January.
Amid the buzzwords about “Resilient Recovery” and “Building Back Better” are proposals for an investment push into green technologies and new environmental policies, including initiatives that failed to pass standard economic tests before the pandemic.
So how, exactly, did the pandemic change the criteria for evaluating policies, investments and major public projects?
The short answer is: it didn’t, and any claim otherwise is untrue.
The recovery from the pandemic shutdown should not be seen as an “opportunity” to make bad investments and policy decisions. Bad ideas prior to the pandemic are still bad ideas today.
Policies that failed cost-benefit tests before the shutdown are even more likely to fail such tests now that unemployment has soared, public debt has exploded and business investment is faltering. Green technologies that were known money-losers before the pandemic are still money-losers today.
The only thing that’s changed is that we have even less money to work with, so the need to avoid wasting it is higher than ever. It’s critical to choose investments that will lead to real growth and job creation.
When it comes to choosing good investments, the guiding principle is profit. Will the new capital generate a revenue stream greater than the cost of acquiring it? If yes, the jobs that accompany the capital investment will be sustainable, at least as far as we can reasonably surmise. If no, the project will lose money and will either end quickly or will require subsidies funded by adding costs elsewhere in the economy.
“Sustainability” does not mean using fewer resources or cutting energy consumption, though it can involve those things. It means value-creation in a competitive marketplace where the concept of value can be expanded to include (but not consist solely of) natural and environmental capital.
A profitable investment is one where, after all costs are paid (including environmental costs), the outputs are worth more to society than the inputs, including the labour costs. Profitable investments are sustainable. Unprofitable investments are not.
This principle has long been the foundation of economic analysis for both policies and projects. The pandemic did not change it. The only thing COVID-19 might have done is make it even more valuable for society to increase employment and decrease non-essential demands on the public purse.
Full article here.
via Tallbloke’s Talkshop
August 23, 2020 at 04:42AM