Myth No.3

Myth number three is the notion, assiduously peddled by ministers in the present government, as it was by their predecessors, that policies to promote the replacement of carbon-based energy by substantially more expensive renewable energy, notably wind power, will bring great benefit to the British economy and in particular create millions of so-called "green jobs".

Now I have to confess that, having looked very carefully and thoroughly at the issue, I find the government's global warming policy intellectually incoherent — irrespective of the science, on which I keep an open mind. But even if the policy were justified, the claim that the promotion of renewable energy, whether by the provision of massive subsidies or by the prohibition of carbon-based energy, would have the added benefit of giving the economy a boost and creating millions of — or indeed any — additional jobs is economic illiteracy of the worst order.

To take the jobs issue first: as Adam Smith well understood, it is not the purpose of economic activity to "create" jobs. The purpose of economic activity is to satisfy the material needs and wants of the people. Or in Smith's own words, "consumption is the sole end and purpose of all production". As the great 19th-century French economist, Frédéric Bastiat, pointed out, if jobs are your yardstick, you might as well go round breaking windows so as to create jobs for glaziers. The history of economic progress has been not about the creation of jobs in any given sector but rather the dispensing with jobs, so that labour is released to meet new needs. It is known as increased productivity.

Indeed, the government's mantra is nothing more nor less than a revival of Luddism. The Luddites, it will be recalled, were concerned that the advent of mechanisation would lead to unemployment, as machines replaced men. So they smashed the machines in order, as they saw it, to preserve jobs.

The "green jobs" argument is no different. Both are variants of what economists call the "lump of labour" fallacy. In a reasonably well conducted economy — and I cannot believe that ministers believe that economic policy will not be reasonably well conducted by the present government and indeed by the Bank of England — there are, over time, jobs for virtually all those who wish to work. Hence the equilibrium or "natural" rate of unemployment.

So the question is one of where the jobs are. The government of the day can certainly influence that, most simply by enlarging the public sector of the economy. But what matters is how genuinely productive, in terms of meeting people's needs, any such employment is. And to return to wind power and all that, to engineer at great cost a switch from the production of relatively cheap carbon-based energy to very much more expensive renewable energy, may arguably be justified (although I disagree) on climate change grounds, but it cannot possibly be justified on either employment or broader economic grounds. There is the argument sometimes advanced that the world is fast running out of fossil fuels, so that we have to rely on renewables (and nuclear energy). That, too, is a myth, which I encountered when I was Energy Secretary some 30 years ago. But since it is not primarily an economic myth (although it does display astonishing innocence of both technological advance and the significance of the price mechanism) it does not belong here.