from Energy, Security, and Climate and Energy Security and Climate Change Program

Is It Possible to "Win" The Clean Energy Future?

January 28, 2011

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Economics

I am not a huge fan of the Sputnik Moment / Win the Future / Sky Is Falling rhetoric that President Obama invoked in his State of the Union and that his team have been using to sell their clean energy strategy. But I’m also growing weary of reading contrary economic analyses that seem to believe that economic policy is all about win-wins and kumbaya.

The latest intervention, which is representative of the genre, comes from Northwestern professor Lynne Kiesling, who in a post titled “Dear President Obama: You Don’t ‘Win’ Economics” writes:

“My students are all very clear on a concept that I’m afraid President Obama has forgotten … or at least that his rhetoric contradicts: economic activity is not a win-lose relationship…. Economic activity is grounded in mutually beneficial, voluntary exchange, and thus creates gains from trade….”

There’s a lot of truth in this, and a lot of wisdom in the longer post. But the professor is neglecting some important things about how real markets work.

First, the argument holds only for a genuinely free market. Perhaps achieving that should be the administration’s goal . The combination of Chinese market power and industrial policy, however, makes the current situation far from free. (And China’s far from the only distorting influence.) But it takes two (or more) to create a “win-win” scenario. If the other party refuses to cooperate, it’s quite possible to end up in a zero-sum game. In that case, it’s usually wise to try to win.

Second, even if the free market maximizes aggregate global wealth, there may be other outcomes that, while resulting in less total wealth, leave the United States better off than in the “ideal” case. (If you don’t believe that this is possible, think about what life looks like to a monopolist: it often has an interest in increasing its profits at the expense of aggregate welfare.) One may find the pursuit of such outcomes, which are not optimal from a global perspective, distasteful. But from a national standpoint, they count as trying to “win”.

Third, economics isn’t always just about economics. National security scholars use the term “relative gains” to refer to the fact that “winning” is often about how you do relative to a rival, rather than about how you perform in an absolute sense. The United States and China are jockeying for power and influence in the 21st century. It is not unreasonable to occasionally benchmark U.S. economic performance against Chinese success.

Of course, in clean energy, there’s a big win-win potential out there: progress would help us with climate and energy problems. But that is not about economic opportunity (despite what many progressives insist) – it’s about an opportunity to deal with a pressing problem. That, as much as any market magic, is what makes clean energy a potential win-win.

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