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The U.S. economy is a bubble economy -- going from bubble to crash to the next mania -- and the new bubble is likely to be clean energy, says Wall Street insider Eric Janszen in the cover story of the February Harper's.
We've seen two bubbles, internet and housing, within a decade, writes Janszen, "each creating trillions of dollars in fake wealth."
"There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle."
Here's why Janszen thinks the necessary next bubble will be clean energy. The new bubble sector must:
1. already be formed and growing as the previous bubble (housing) deflates. Check.
2. have in place or in the works legislation guaranteeing investors favorable tax treatment and other protections and advantages. Check.
3. be popular, "its name on the lips of government policymakers and journalists." Check.
4. "support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell." Is that coming? Janszen is quite expansive in his definition of clean energy, including a massive retooling of the country's transportation and power infrastructure.
Janszen, a one time venture capitalist and serial entrepreneur, thinks the financial sector is driving the U.S. economy (and, per force, much of the global economy). The financial sector gets behind whatever new thing they think can provide the hyperinflated returns they require. And they bring to bear massive political influence, well lubricated by money, to insure whatever public policy they require.
Advocates of renewable energy might say bring on this bubble. But Janszen cautions: "Bubbles are to industries that host them what clear-cutting is to forest management. After several years of recession, the affected industry will eventually grow back, but slowly."
In an email interview I asked Janszen if a clean energy bubble was a good thing — bringing massive investment to vital new industries — or bad, leaving those industries struggling in the wreckage of the inevitable crash down the road.
"The term ‘bubble' is pejorative," he replied. "The alternate title for the Harper's piece was ‘The Good Bubble.' These are changes we need but lack the political ability to make due to the inertia of entrenched interests...Employment of the bubble system that was responsible for the tech and housing bubbles may be the only means available both to fight the impact of the debt deflation recession that started in Q4 2007 and also to deploy resources on the scale required."
In this scenario, the big losers will likely be the investors or taxpayers, as in the housing collapse.
But will the inevitable collapse hurt clean tech? "...it's hard to say that (it) will be worse than the impact of not focusing entrepreneurs and capital on the problem now." As for winners and losers: "it's up to the political system and markets to determine the distribution of gains and losses," Janszen says.
Janszen's job at the Jeffrey Osburn venture capital firm during the tech boom was to watch for the peak — and get his investors out in time. He delivered. His contrarian web site, itulip.com, has created a buzz in the mainstream business media. The name, you might have guessed, derives from the 17th century tulip bulb mania that swept Europe and resulted in regulation and enduring caution toward speculative bubbles. Now, according to Janszen, they are business as usual. He is not alone. Similar views are shared by economic writers such as Paul Krugman of Princeton and the N.Y. Times and Robert Kuttner, author of "The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity."
One comes away from Janszen, both in print and email, not knowing whether to welcome or put some kind of net over this bubble.
In our interview the author posed the question: "What deregulation or regulation is needed to make sure investors will not lose their shirts on alternative energy the way they did after the 1970s? You'd look for a shift away from tax breaks and other government subsidies of the oil industry to more creative win-win regulations that help both incumbent and insurgent interests."
A floating tariff on imported oil might be the win-win, suggests Janszen. "What if by tariff imported oil was held at $100/bbl no matter what the actual FOB costs and gradually increased to $200, over say three years?"
Looking back to the birth and death of the 1970s clean energy industries due to cheap oil, I'd have to say Janszen may have something there. But does Wall St. have the political juice to buy itself insurance for expensive oil in a nation that demands cheap? My answer would be speculative, and Janszen's may be hyperinflated.
Mark Braly was energy advisor to the mayor of Los Angeles during the 70s energy shock, author of the city's prize-winning energy plan, and president of a State of California non-profit corporation which made loans to renewable energy businesses. Now retired, he is a City of Davis, California, planning commissioner working on the city's zero-carbon program.
The information and views expressed in this article are those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on its Web site and other publications.
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23 Reader Comments
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2 of 23 |
January 23, 2008
The clean energy boom will be more like the computer tech boom of the 80s & 90s than the internet bubble of the late 90s, or even the housing boom of the 00s. I say this because clean energy technologies have not yet achieved the scale necessary to dramatically reduce costs, but once they do (and i believe they will within the next 5 years) they will change the energy markets the way computers changed the labor markets of the 80s & 90s.
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3 of 23 |
January 23, 2008
I have been telling people this for months. If you look at the Dow Jones average in every decade beginning in the 1960's, it will peak in about year 1 (1971, 1981, etc), be followed by a recession of various lengths, then a rebound through the mid years of the decade, a hiccup in year 7 or 8, followed by very rapid growth through year one of the next decade setting all time highs. This decade has followed in lock-step. Bank on it.
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4 of 23 |
January 25, 2008
Jonathan, spoken like a true libertarian - a Ron Paul voter. Welcome to the club of minorities. Since the majority will not accept the contrary view (sorry - should have been the mainstream) I would rather have a clean energy bubble for now, rather than a prolonged depression. If the govt can enact in whatever garb, laws to perpetuate pubic transportation, clean energy, reduced oil dependency and jump start another bubble - I would rather dovetail for now. Much has been learnt in this last two bubbles that this last (hopefully) bubble would transform the dollar economy into some thing more self reliant. |
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5 of 23 |
January 25, 2008
The words of Franklin Delano Roosevelt come to mind: "We have always known that heedless self-interest was bad morals; we know now that it is bad economics." http://lightontheearth.blogspot.com/
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6 of 23 |
January 25, 2008
If the clean energy revolution falls into this same trap, we are finished. Because this is one issue which is not simply about consumerism, or the latest trend or the coolest new gizmo. This is about survival. If we don't truly allow the innovators to rise to the top, then we can kiss civilization goodbye, because the alternative is depopulation on a massive scale. James Lovelock, author of the Gaia hypothesis is predicting that this depopulation will kill off 5 1/2 billion people, leaving the earth with a sparsely populated impoverished habitat. He is also predicting that it is inevitable. He may be right if we don't clean up our act in terms of the systems that we use to solve our problems. This means government and economics.
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7 of 23 |
January 25, 2008
Since I have education in business and economics, I have to weigh in on this one. First of all what Mark Braly is describing is not the healthy functioning of the economic system. It is actually what happens when the system is pervaded by corruption. These vulture capitalist tendencies are not a part of what sustains a free market economy. They are what destroys it. The excessive, non-economic profits, (as they are called in business school) are making ruthless, immoral people fabulously wealthy while robbing society of its vitality. Don't get me wrong, I support a free market economy that operates within bounds that reflect the values of fair play, and healthy societal functioning. But when we get desensitized to the shady operators and dirty tricks that are at the root of these bubbles we are writiung the epitaph of a free, prosperous society. Continued on next comment |
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8 of 23 |
January 25, 2008
How about combination of renewable energy and mass transportation?
Mass transportation includes high, medium and slow speed trains and buses driven by renewable energy. Their fuel efficiency is higher than cars and tracks which produce a lot of CO2 and NOx. Production of trains in US will make another bubble because US train industry is now small. Hitoshi Maruyama |
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9 of 23 |
January 25, 2008
US's plicy to buble housing price to growing their national GNP and collection 3-6 times properties tax! since 2001 -2006 right now the Bush's government just cut down interesting rate again and deduct a small amount of income tax...... we do not know all of these are fair for market? good for US ?? |
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10 of 23 |
January 25, 2008
I could not agree more with Mr. Janszen regarding the floating tariff on oil with a gradual long term predictable increase of real end-user prices. This will force both companies and individuals force to invest in the most economic manner to reduce energy use. What we try now in Europe, particularly in Germany, is providing long term investment security for alternatives, which is a good thing, but it also implies that some technologies are overstimulated and others loose ground. Not to speak about all the side effects, as we see with biofuels. I discussed this several times with politicians, they do not like it, as it's too simple, or as they call it "politically" not possible. Maybe the Americans can go back to their roots and do what they can do so well, Keep It Simple Stupid. I wish you can! It will put the USA back on the world map as a leading and constructive country. Reynier Funke Dutchman in Germany. |
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11 of 23 |
January 26, 2008
J Cole, Solar is economical for consumers buy and run but not for producers to market, sell, install, etc. Is there no business model that works for the industry? Solar vs oil/gas is the difference between buying commoditized audio products (made in China) from a retail distributer at the local mall or the high end audio solutions (Made in USA) at the one high end audio reseller in a region. It comes down to demand, economies of scale, cost, price, cost benefit, marketing costs, cost of sales, etc. If oil were $200/bbl many home builders would include your solar products as a feature and an add on option for existing homes to reduce dependence on grid electticity would take off. Also, with economies of scale, off peak solar can feed back into the grid. A floating tariff that raises imported oil gradually to $200 will make this business model work for your industry. |
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12 of 23 |
January 26, 2008
I am not a Libertarian or any other kind of ideologue. I am a student and practitioner of innovation, business, economics, history and a developer of solar energy technology for 26 years. I have a Masters degree in business and have built numerous highly successful solar energy products and installations. Because of this experience I conclude that the main impediments to implementing the transition to a solar/renewable energy economy occur because renewables do not easily fit alongside the highly vested monopolistic interests of our current energy providers. As a result I have been developing products that will take these monopolistic dinosaurs out of the loop. Competition is the only thing that will force them to change. http://lightontheearth.blogspot.com/
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13 of 23 |
January 26, 2008
These are the kinds of energy, transportation, and communications projects I have in mind. Get government out of the business of subsidizing industry directly as it does the real estate industry today. Invest in infrustructure to make the whole economy more efficient. Participants are government, private industry, private equity, individual investors, and Wall Street. Shift the tax burden back onto the FIRE sector, especially real estate and other non-productive assets. The economy will shift its focus from debt-financed consumption and asset price inflation to equity financed production. Gross over-consumption will decline along with the energy intensity of the economy, reducing the carbon and ecological footprint.
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14 of 23 |
January 26, 2008
Why can’t the US have the best auto industry in the world, leading with the best next generation technology? Why not build a national high speed rail network where you can work as if you’re in your office as you head to Texas, Florida, Chicago, or California from Boston or New York? Why not build safe and simple pebble bed nukes for local electricity and hydrogen fuel production for local personal transportation and wean ourselves off imported fossil fuels, and use these in addition to wind and solar? Why not install fiber to ever home to enable communication tools that vastly reduce the need for in-person contact and commuting. Why not deploy exiecting lighting technologies such as LEDS to vastly reduce electricity consuption? continued... |
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15 of 23 |
January 26, 2008
Hitoshi Maruyama,
You have the essence of my idea. My philosophy is that it’s not enough for me to identify how screwed up things are and how bad things are going to get if I don’t also have constructive solutions to offer; that’s really what the Harper’s article is all about. As the economy and financial markets devolve over the next few years as the debt financed FIRE Economy unwinds, we all going to be looking for ways to get things going again and I’m hoping we go the re-industrialization route without the global depression, de-globalization, and war that followed the collapse of the last major debt financed asset price inflation, back in the 1920s. To help readers see what I see, a number of questions. |
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16 of 23 |
January 28, 2008
Eric is right that the new energy bubble -- or the less pejorative"new energy economy" - has to be much more that CF lighting, solar, wind and the technologies coming along behind. It must include a remake of the economy's infrastructure. Otherwise, it doesn't deliver the climate and economic benefits that we need. Whenever I look at the studies projecting jobs and economy growth for the renewable energy industries (e.g., Apollo Alliance) I find them disappointing. I'd like to see them combined with the jobs and growth of rebuilding the nation's infrastructure. i think the National Academy of Science recently released such a study. If anyone has a link, please share it. I don't think this is going to happen without a change in our industrial policy. yes, we have one and it is not giving us what we need.
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17 of 23 |
January 28, 2008
Eric Janszen What you say is true that "It comes down to demand, economies of scale, cost, price, cost benefit, marketing costs, cost of sales, etc." However that is a general statement that does not address the specifics of how products are engineered to serve the user purpose as well as the economic purpose. At this time, all solar electric installations are one-of-a-kind custom designed installations. Like the early days of the automobile industry where every car was coach-built. How many cars would be sold today if each one was unique? Until we mass produce modularized energy appliances with low installation & maintenance costs, and high durability, we cannot make the change to distributed (the most efficient) solar electric systems. http://lightontheearth.blogspot.com/ |
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18 of 23 |
January 29, 2008
Once you've investigated this to your satisfaction, please let your readers here and elsewhere know whether or not you agree with these conclusions and why. I frequently hear very intelligent and well-meaning people express (often with some remorse) that they think we've got to expand our use of nuclear power. Given that we have no truly satisfactory solutions for the dangerous and incomprehensibly long-lasting radioactive waste that would be generated, I believe we must avoid nuclear power. Knowing that new wind power is already significantly cheaper than new nuclear power, this becomes an easy choice. Dane Cobble |
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19 of 23 |
January 29, 2008
Quoting directly from this critically important, well-researched paper: "New nuclear plants would deliver electricity at about 2–3 times the cost of new windpower, 5–10 times that of new gas-fired cogeneration in industry and buildings, and 10–30+ times that of efficient use, so they won’t be built, with or without a hydrogen transition. Any hydrogen produced from their electricity would be 4–7 times costlier in energy content, or about 2–3 times costlier per mile, than oil at the highest prices ever observed." continued... |
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20 of 23 |
January 29, 2008
Eric Janszen, Thank you for making so clear the workings of our FIRE sector driven bubble economy. I am in near complete agreement with your constructive solutions. I disagree with you only on your support of nuclear power. Amory Lovins and the Rocky Mountain Institute published a paper, Twenty Hydrogen Myths, that is highly relevant to much of your solution set. Find it at: http://www.rmi.org/images/other/Energy/E03-05_20HydrogenMyths.pdf In it Lovins conclusively demonstrates that nuclear power is not necessary and is utterly uneconomical, without even factoring in the critical issue of what to do with radioactive waste. continued... |
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21 of 23 |
January 29, 2008
Both housing and internet are bubble type industries, because: 1) Housing, by its nature, should be a depreciating asset (accept in isolated areas / moments of high demand, like Silicon Valley), so there is NO growth that can EVER be sustained. Homes do NOT create wealth of themselves. 2) Internet, by its nature, delivers greater efficiencies, but is NOT a wealth creator of itself. Market saturation was inevitable, as brick and mortar stores used the internet to increase sales at lower costs. Renewable energy systems CREATE wealth, so while saturation may weed out some providers, it will never CRASH, because everyone involved partakes in the wealth created by converting sunlight, wind, geothermal, hydro energy into electricity. This is an unbeatable foundation for a growth industry that won't burst like a bubble. It will slow and consolidate, like the auto industry, but it won't burst. |
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22 of 23 |
February 7, 2008
You guys all seem like such smart businessmen, so why not wait until we have $200 oil for real in the market and then get on with a new paradigm. Why do we need the government to continue to take a disproportionate share?
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23 of 23 |
March 3, 2008
You saw it first on this blog An english co ITM Power claim they can make an electrolyser for 2% of the cost of the selling price of the lowest price unit on sale today in north america dont take my word for it check it out yourself they will be at the NHA in Sacramento on 31 March 2008 These units when fitted to adiesel car can inject hydrogen on demand thus eliminating emissions and increasing mpg by a minimum of around 15%
Likewise when their fuel cell is ready next year it will cost less than a 100Kw petrol engine at around $60/Kw
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Continued...
Clean energy will soon be as cheap as conventional energy (within the coming decade) and inevitably it will become cheaper than fossil fuels. At that point, energy supply will no longer constrain growth, nor will we permanantly damage the evironment for every additional unit of energy. Where the housing bubble (and the internet bubble) rested on asset price inflation, the clean energy boom will rest on deflating energy costs, just as computer tech continues to deliver lower computing cost/$.