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Brooks Wilson's Economics Blog: Wind Farms and Economic Biases

Thursday, February 11, 2010

Wind Farms and Economic Biases

Jonathan Karl's abc NEWS article, "New Wind Farms in the U.S. Do not Bring Jobs" focuses on the number of jobs created by "green" energy wind farms through funds provided by the American Recovery and Reinvestment Act.  This is a fair line of inquiry because the Obama administration sold the Act as a stimulus to create jobs.  It is a reminder that the press corps generally does not think like economists.   
Nearly $2 billion in money from the American Recovery and Reinvestment Act has been spent on wind power, funding the creation of enough new wind farms to power 2.4 million homes over the past year. But the study found that nearly 80 percent of that money has gone to foreign manufacturers of wind turbines.

"Most of the jobs are going overseas," said Russ Choma at the Investigative Reporting Workshop. He analyzed which foreign firms had accepted the most stimulus money. "According to our estimates, about 6,000 jobs have been created overseas, and maybe a couple hundred have been created in the U.S."

Even with the infusion of so much stimulus money, a recent report by American Wind Energy Association showed a drop in U.S. wind manufacturing jobs last year.

Sen. Chuck Schumer, D-N.Y., called the flow of money to foreign companies an outrage, because the stimulus, he said, was intended to create jobs inside the United States...
Several of the large European turbine manufacturers had limited manufacturing facilities in the United States, but there was nothing in the stimulus plan that required that the turbines, or any other equipment needed for the wind farms, be made here, said Rogers. There are strict "Buy America" provisions in the Recovery Act, but this Green Energy Stimulus initiative turned the existing tax credits into cash grants, bypassing the "Buy America" provision.
Karl implies that more jobs would have been created if the government would have forced the government to buy American produced wind turbines and that would have been good for the economy. 

Bryan Caplan calls the tendency of noneconomists to focus on job creation make work bias ("The Myth of the Rational Voter").  Even during a recession, many economists focus on increasing productivity.  Efficient investment leads to increased productivity and economic growth.  Job creation follows economic growth.  Economists deal with tradeoffs.  Economists who opposed the stimulus noted that the funds will not be spent efficiently resulting in lower future economic growth.  Economists who supported the stimulus argued that the loss from an inefficient allocation of resources would be smaller than the losses incurred by leaving resources unemployed.  This is an issue worthy of debate and empirical investigation. 

Economists know that everything has an opportunity cost.  The stimulus was financed by expanding government debt.  Other things equal, as government expands debt, interest rates rise crowding out private investment.  What opportunities did we collectively forego to fund the wind farms?  Would those foregone opportunities have been more or less productive than those made through the stimulus?

Senator Schumer expresses a shocking amount of "antiforeign" bias, the tendency to underestimate the benefits if economic exchange with foreign entities, a second bias identified by Caplan.  We buy wind turbines from Spain.  They earn dollars.  What do they do with the dollars when they are based in a country that uses Euros?  They can import U.S. goods or services thus decreasing the trade deficit, or they can invest in the United States decreasing net capital outflows.  In either case, the dollars are returned to our country and create jobs. 

Schumer, and Karl also fail to ask what would happen if the buy American provisions were stronger.  Other countries would retaliate by passing their own trade restrictions and remember that the Smoot-Hawley tariffs deepened the Great Depression.

The media can produce stories that ask bad economic questions because most Americans do not have enough foundations in economics to realize that we, through the media, are asking the wrong questions. 


  1. If you are interested in the socio-economic impacts of wind development there is research information is being made available here:

  2. Wind and photovoltaic energy are actually contributing to net losses of overall welfare, as the energy is ten to more times more expensive as other electricty (and there are a host of other reasons).

  3. Jenna14 I feel that the only positive affect on the wind farms is that it's able to give electricity to many people on a low cost over years! It may cost alot in the beginning but the money you are able to save from the energy companies you should be able to pay off the mill! The only problem to buying a windmill is the cost upfront!

  4. The American Recovery and Reinvestment Act was a wonderful idea for a stimulus. It would have been even better had it worked out the way Obama planned; however, as was stated in the blog, the employment went to the overseas workers, not Americans. Even so, it was better for this stimulus to have been passed than not at all. Even though the stimulus didn't produce as much employment as we all wished for it to, there were still some employment created from the stimulus. Not only that, but wind energy is a lot more environment friendly than any of our old methods of energy production.

  5. Alejandra Olivas5/9/10 5:42 PM

    I agree that the government should have bought some wind turbines in the U.S in order for the economy to have a greater opportunity in increasing jobs. This is an example of a trade-of it probably increased more jobs and the markets in the outside countries where the wind turbines where bought from but all of it was just to help out the economy in the U.S. Which probably did but not as much.

  6. Unfortunately wind farms have suffered the same faith as other forms of energy, such as nuclear and coal burning power plants. Peoply have the "not in my backyard" syndrome regarding these two options, either the fear an nuclear meltdown at the plant or they fear the pollution that a coal plant could produce. The same mindset can be said about windfarms. People do not want their view ruined by the numerous wind turbines or they fear "noise pollution" that the turbines could generate. One should be concerned by being naysayers to various forms of energy, that this could result in power brownouts or blackouts and curtail severely economic growth in this country.

    Lance Haltom