There isn’t a reputable economist that I know, nor a student in my benefit-cost class at SFU (that wants to pass) that does not understand the difference between economic impacts and real economic benefits. Nevertheless, industry lobbyists and all-too-many government officials never cease to point to economic impacts — the number of jobs a project may generate or amount of investment that might be made — to justify whatever it is they want to do.
Last week it was the economic impacts of the recently approved Prosperity mine that were put forward to justify a project that will destroy a natural lake, significantly add to B.C.’s greenhouse gas emissions and impose a multi-million dollar cost on BC Hydro each year the mine operates.
Today, it was the economic impacts of independent power projects (IPPs) that were touted in an op-ed in the Vancouver Sun. By 2020, there could be $26 billion in investment and 90,000 person years of construction employment in the IPP industry. The numbers, one presumes, are meant to speak for themselves.
The problem, however, is that these impacts are not benefits. More than anything else, the jobs created by the Prosperity mine will attract mine workers from other provinces and countries. There will be some benefit for British Columbians, but it will be limited and offset by the costs imposed by the in-migration and especially the mine itself.
As for the IPPs, the impacts they generate aren’t benefits at all. Rather they are a reflection of how much money BC Hydro is being forced, by an ill-considered energy policy, to pay for projects it largely does not need.
The great British economist Lord Maynard Keynes did say that you can generate economic impacts by digging holes in the ground and filling them in. And the more holes you dig the greater the amount of impact you will have. And in times like the Great Depression, and if there is nothing better to be done, there could be some merit in that. But we aren’t in a great depression, or at least don’t expect to be over the next ten years, and in any event there are many better things that can be done than forcing BC Hydro to buy high cost, low value independent power projects we do not need.
If we want real economic benefit we need to stop thinking about impacts; rather we need to consider the value of whatever is produced in relation to the full economic and environmental cost of producing it.
In a carbon-constrained world we need to shift away from greenhouse gas and energy intensive industry like mining. We certainly shouldn’t be subsidizing new mines because of the jobs they may create. And if we are moving to greater dependence on electricity as we shift away from fossil fuels, we need to think about the most efficient ways of producing it — not the most expensive because of the larger investment and number of jobs it will entail.
It applies in economics as much as the rest of life: Less really is more!
Tom Kertes // Jan 24, 2010 at 10:17 pm
Our aim should be to maximize public benefits through sound policy and investments in the things that benefit the community, and through limits and restrictions on things that don’t. That’s why paying more for buses built in Canada, or paying the operating costs for park facilities and no considering these as “loses”, or providing below-market-rate (a.k.a. “affordable”) housing is the right thing to do.
G. Simpson // Jan 20, 2010 at 7:44 pm
These kinds of things are symptomatic of a government desperate to create the illusion of economic activity. The problem is we all pay to create the illusionary benefits which the government thinks are being created. It would seem to me that it is better to tax the people directly to top up the provincial coffers, rather than to create unproductive jobs to develop unnecessary infrastructure or industry projects. As a further case in point, my understanding is that the old bug bear of expanding the Waneta Dam is being put forward by the crown agency Columbia Power Corporation as a project that would be in the “provincial interest”. At the cost of almost a billion dollars to generate 300 MW of capacity and 700 GWh/yr of low value freshet energy, this project surely could not pass any economic efficiency test. Yet, I understand that BC Hydro is being pushed into negotiating a purchase contract with Columbia Power to buy this energy, which Hydro truly doesn’t need. The best we can expect is that our electricity rates keep going up while the government continues to tout the value of such projects for economic development. Digging holes and refilling them would seem to me to be a better option.