What Happens When Economists Skip Econ 101

Suppose the government forces a company to take all the money it would have paid person A and use it to hire person B instead. How many jobs have been created? If you said, “One direct job, one indirect job, and a number of uncounted induced jobs,” call the University of Massachusetts, because you qualify to do economic analysis at their Political Economy Research Institute (PERI).

The trick to the perverse PERI analysis is to ignore the cost of taking the money from person A and from the people who support person A (for instance, people who supply materials and people who deliver the materials and products). This is a long-recognized economic error called the “broken windows fallacy,” and it requires a belief in free lunches.

On Wednesday, Environmental Protection Agency (EPA) head Lisa Jackson quoted this study to support her assertions the EPA regulations are net job creators. Under this logic, all regulations that have compliance costs create jobs.