March 14, 2010

Energy and the Next Big Economic Thing

Geoff Styles makes a common point that usually comes up when talking about the clean energy "race":
While we shouldn't be shocked if another country leads in some aspects of energy technology, we also shouldn't lose sight of the larger context, because energy isn't an end in itself. Even if clean technology turned out to be the computer industry of this decade--in reality and not just hype--and we didn't come in first in the cleantech race--a result I'm not prepared to concede, yet--energy remains the servant of the rest of the economy. That's where the race that matters most will be won or lost.
Megan McArdle says something similar when talking about green jobs. I've always been puzzled by this argument, though, which can be restated thus: Staking an economic boom on energy is misguided because our focus should be on lowering the proportion of our economy devoted to energy production, not raising it; we could, after all, solve our employment problems by putting people to work on farms, but that wouldn't be a net gain for our economy.

What's puzzling to me about this is, couldn't you say this about any sector or industry? The health care sector, for example, grew from being a trivial part of the economy to a massive part in the last century; and while getting health care costs under control is necessary, no one, I think, would deny that at least some of that past growth has been a good thing. You don't, of course, want growth in one sector to choke off others: Rather, you want all of your sectors to become more efficient. Thus, for example, farming used to take up the majority of the US economy, and now its share is very tiny. That's not because it was "choked off" by manufacturing or whatever, but because the US economy grew, developed new markets, and saw enormous productivity gains, along with the rest of what is now the developed world. Even farming has benefited from these changes: Modern farms yield far more crops than those in the 19th century, even though there were far fewer people and much more available land.

The question, then, with respect to building out green energy, is: Does making large-scale investments in renewables, efficiency, etc. entail putting people and capital to less productive uses? In other words, is the analogy between green energy and the computer industry that Styles mentions not valid? I have my doubts about that assertion: If there were another potential source of major economic growth in the offing, at least in the developed world, that would be reason to have some pause about the green economy as the next big thing. On the other hand, the last two economic booms in the US have turned out to be based on speculative bubbles; and unlike the tech boom, the last one didn't have much in the way of side benefits -- just a lot of exurban houses that no one can afford. So making energy the focus of our economic labors doesn't strike me as a bad idea. And that's not even considering the moral case for greening our energy supplies, which is the topic for another blog post.

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