My fellow Americans, we are going to provide sustainable energy and lots of jobs for you by junking the automobile and all other fossil-fueled engines and going back to animal power.  We also are going to make all coal-fired electric power plants illegal, so if you want electricity, you are going to have to depend on windmills or just live in the dark.

Needless to say, the speech would be greeted by something other than thunderous applause (except from Al Gore and the Sierra Club headquarters), and the Obama’s presidential career would be quite short.  However, the policies coming from Washington these days, while not quite as draconian as what I described, nonetheless are bad and are going to make us poorer.

For years we have been bombarded with the “clean energy” line, the idea being that electricity that comes from burning of fossil fuels is “dirty,” while electricity that comes from windmills, solar, or “geothermal” sources or anything else that meets with Gore’s approval is “clean.”

(Gore has a website that claims that in the next decade, the United States can switch entirely to what he calls “clean energy.”  This is sheer fantasy made worse only because the President seems to believe it, or at least wants that to be our energy future.)

Unfortunately, the government does seem to be pushing hard to force Americans to accept energy sources that are going to make us much poorer, retard (if not eliminate) the economic recovery, and make our lives much more difficult.  Let me count the ways.

First and most important, it is true that switching to windmills will “create” jobs in that particular industry.  No one is denying that.  However, there is this little problem that occurs whenever government destroys wealth: It also destroys meaningful employment opportunities.

What the government is going to do is to count every job in an “alternative energy” field as proof that its energy policies are “creating jobs.”  What the government won’t do, however, is report the employment opportunities that are lost because the authorities have artificially forced up the costs of efficient energy sources.  In other words, in net terms, this whole thing is a loser.

Second, the issue is not jobs per se but rather economic growth.  The government could give us all “jobs” tomorrow by telling us we had to scratch out a living by hand.  For that matter, one can argue that Pol Pot and the Khmer Rouge created “full employment” in Cambodia during their murderous regime three decades ago, but the “employment” was not particularly desirable.

The real problem is that the energy proposals this administration is demanding, from “clean” (and extremely inefficient and costly) energy to ramping up the corn-based ethanol fraud, will make fuel and electricity much more expensive, which is going to result in much slower – or even negative – economic growth.

To put it another way, this country cannot have both enactment of these energy proposals and a robust economic recovery.  They are mutually exclusive, and there is no way around this point, no matter how much rhetoric President Obama and his supporters may use.

The great Henry Hazlitt once wrote that each generation has to learn the economic lessons all over again because it is easily seduced by what he called (after Frederic Bastiat) the “broken window fallacy” — the failure to understand that in a world of scarcity, resources commandeered by government are diverted from the uses that consumers and entrepreneurs would have chosen. Indeed, if any fallacy can be applied to the notion that forcing this country into a “horse-and-buggy” energy future will be an economic plus, it is the fallacy of the broken window.

This error also involves individuals. It holds that what is true for one individual will be true for all others.

The example has often been given of one who stands up during a football game. True, he will be able to see better, but if everyone else stands up too, the view of many individual spectators will probably worsen.

A counterfeiter who prints a million dollars will certainly benefit himself (if he doesn’t get caught) but if we all become counterfeiters and each print a million dollars, a quite different effect is rather obvious.

Many an economics textbook speaks of the farmer who is better off because he has a bumper crop but may not be better off if every farmer has one. This suggests a widespread recognition of the fallacy of composition, yet it is a fact that the error still abounds in many places.

The good economist neither sees the trees and ignores the forest nor sees the forest and ignores the trees; he is conscious of the entire “picture.”

In looking at policies coming from Washington, D.C., I employ this fallacy in two ways.  First, I apply it as written; second, I show how economists and pundits wrongfully apply this fallacy, and make false claims with it.

The latest “stimulus” package has governors, mayors, farmers, college presidents, auto and steel executives, scientists, and other interest groups lining up.  Auto executives claim that bailing out domestic producers will “save American jobs.”  The “alternative energy” crowd does one better: they claim that they will “create new jobs.”

Indeed, new government money given to these groups will benefit people who receive the dollars first.  One benefactor is Al Gore, who is a partner in an investment fund that helps bankroll these subsidized industries.  Obviously, he believes that these subsidies are “good for the country,” when, in fact, they are good only for a small group of people with a huge public relations machine.  Those who are forced to pay higher energy costs (in order to buy inferior ethanol fuel and high-priced electricity) are made poorer, and no amount of rhetoric can change that sorry fact.

However, the wrongful use of the “Fallacy of Composition” also must be addressed.  Perhaps the worst example is the “Paradox of Thrift,” coined by Keynesians, but really goes back to the Mercantilists of the 16th and 17th centuries.

The “Paradox of Thrift” states that saving money might be good for a few people, but if everyone saves, then it retards economic growth and drives the economy into recession.  (The Wall Street Journal recently had an article blaming savers for not spending “just as the economy needs their dollars the most.”  The article referenced the “Paradox of Thrift” as though it were legitimate.)

Obviously, economists and pundits who cite this faux “paradox” are ignorant of how capital formation occurs and how a boost in the savings rate will lessen the impact of a recession and help bring about a real recovery.  These economists, however, are looking at only the immediate impact of spending and saving (I will deal with “short-run” thinking in a future column), not the longer-term effect of capitalization and economic growth.

Economists tend to be divided into two groups.  The first sees the economy as a perpetual motion machine that magically grows even as people consume down the capital stock (which replenishes itself and even expands on its own, just as long as consumers continue to spend).  The second sees economic growth occurring only because people save for the future and create new capital that matches with consumer needs and desires.  It does not take a genius to recognize the “bad” economists and the “good” ones.

Not surprisingly, the “bad” economists fall over the Fallacy of Composition on both ends.  They fail to recognize it when it comes to government spending and misuse it when examining consumer behavior.

Next week: The Fallacy of “Money is Wealth.”