One of the many advantages of working with a large multi-media company serving the utility industry, such as Energy Central, is that I get to work with very bright, well-educated and creative people who are knowledgeable in a wide range of areas. These include Marty Rosenberg, editor in chief of EnergyBiz magazine, Ken Silverstein, editor of EnergyBiz Insider, Bill Opalka, editor-in-chief of our Topics Centers, Christine Richards, editor-in-chief of our new Intelligent Utility magazine, Kate Rowland, editor-in-chief of our Intelligent Utility Topic Centers and many others too numerous to mention.
These folks are always coming up with new ideas and challenging me to stay abreast of what’s going on in our industry—not just in information technology, which has been my specialty area for many years now—but in broader areas, as well. One of Marty’s great ideas has translated into an EnergyBiz Leadership Forum to be held in Washington, DC, March 8-10. The keynote speakers are T. Boone Pickens, Dan Reicher and James Rogers, all certainly heavyweights in our industry. The purpose of the forum, with
USA Today as media partner, is to discuss and seek future directions in the industry, particularly in light of the current economic situation. You can learn more about the forum here:
http://www.energybizforum.com/agenda.cfm.
At this point, many people in the industry are looking hopefully to the Obama administration to inject spending into utilities for such things as smart grids, advanced metering and green energy, thereby possibly creating a boom for utility IT and other parts of the industry. Ken Silverstein writes about the “Federal Shield” today, referring to the trillions the federal government already has committed to “bailing out” various industries. Utilities don’t really need bail-outs right now, but they are cutting back spending and facing some credit problems as a result of the economic meltdown. So capital injections obviously are viewed favorably by many in the industry, particularly those with environmentalist leanings.
However, I’m less sanguine about the prospects for our industry and the nation as a whole than some of my colleagues and certainly than the Obama administration. The reason is that there are some people very much smarter than I am who have had some major disagreements over the last 50 to 150 years or so about the proper role of government in the economy. Their names are Adam Smith, Milton Friedman, and John Maynard Keynes, generally credited with being the greatest economic theorists of all times. The reason I’m not very sanguine about the prospects for the next couple of years is that Keynes (Keynesian Economics) has been in the ascendency since the Roosevelt administration and that Smith (posthumously, of course) and Friedman strenuously disagreed with Keynes’ theories.
I think the issues we face are more fundamental than just pumping more money into our industry and the economy in general. In my humble opinion, the Obama administration (and the Bush administration) may have been rearranging the deck chairs on the Titanic to try to balance the ship. To Smith and Friedman (and me), the Titanic is Keynesian economics which posits that government can and should "regulate" the economy to produce "moderate" inflation and "managed employment." This flies in the face of Adam Smith's "invisible hand," which embraces free enterprise (free as in the absence of governmental regulation.) According to Smith, the invisible hand is self-interest, which will bring supply and demand into the appropriate balance, albeit with periodic "corrections," which we call recessions. Milton Friedman agreed with Smith. In Keynesian economics self-interest becomes gaming the system for self-interest with government keeping it’s hand on the wheel as it turns. It sounds a lot like what has been going on in the financial industry.
Keynes has been in ascendancy since the 1930s--Roosevelt was a big fan—and his theories came to dominate in the 1960s. The problem is that, as Smith well knew and pointed out, a global economy is far too complex to be "regulated" and will, instead regulate itself with periodic recessions. Smith encouraged savings as a hedge against these corrections. Keynes discourages savings as counter-productive to inflationary "growth." Smith encouraged stable prices, Keynesian economics requires a steady, albeit “controlled” inflation. Smith and Friedman were for saving, Keynes for spending.
What I fear is that Smith/Friedman were right and what we are seeing now is the impending collapse of Keynesian economics--the sinking of the unsinkable, regulated economy. The most impressive empirical evidence of that position is that all of Roosevelt's government intervention and public works did not solve the collapse of 1929, and generally is credited with extending it for another 10 years. Hitler's war ended the Great Depression because it created demand for hard goods--tanks, planes, etc.
I fear our Keynesian friends in the Bush and Obama administrations are going to drive this particular Titanic into the next big wave and it will completely disappear into the depths. That big wave is hyper-inflation caused by government creating money out of thin air--see the Weimar Republic. When Smith’s invisible hand sees that money is becoming worthless, prices fall to try to chase value, a Keynesian terror called "deflation." Deflation and inflation are different sides of the same coin--prices of real goods and services fall with the value of money to the point where it may take $1 million to buy a 50-cent loaf of bread. Adam Smith and Milton Friedman were smart men, Keynes, not so very much, I'm afraid. But he's definitely in the ascendancy in Washington. We'll see if his system can be made to work without the nationalization of everything and hyper deflation. He doesn’t have much room to maneuver, the nation already has mortgaged its entire wealth to future borrowing—isn’t that something like the housing bubble where people were taking on mortgages for which they couldn’t even afford the monthly service, much less ever pay it off?
I had a conversation recently with another smart man, Ed Finamore, a professional engineer and consultant who works with Sierra Energy Group, the division of Energy Central where I work. Ed said something I found very interesting. If I remember the numbers correctly, Ed said the U.S. government has $57 Trillion in unfunded obligations and the total value of U.S. products & services is $55 trillion. In other words, the government owes more than the country is worth—a classic definition of bankruptcy. Obama, in his stimulus plans, proposes to add a whole lot more to the deficit side.
I have little doubt Obama is going to try to pump billions (trillions?) into the economy, including clean energy. My question is how long before the world and U.S. citizens realize it all may be "phony money" and the whole stack of cards comes tumbling down. I don't think it's very long, some of the bubbles already have burst and more seem to pop every day. In other words, yes, I could see great things for the industry if he does what he is proposing, but I don't believe they'll ever come to fruition because the money itself is becoming worthless.
I think we need to include a heavy dose of caution into the euphoria over spending in our industry. Keynesian economics may be about to run up against Adam Smith's "invisible hand" and it has the potential to be a fascinating train wreck. Imagine what's going to happen when the bourgeois realizes that the proletariat-controlled elite (Washington) not only is soaking them for everything, but also driving the whole kit 'n kaboodle over a cliff. From a historic perspective what you usually get out of that kind of mess is a revolution and a nasty dictatorship. The old saw that “you can’t spend your way out of debt” never seemed more true.
Interesting times we live in, especially for a historian.
The current economic crisis is demonstrating the inability of mainstream science and economic analysis to provide promising solutions. Better alternatives are available. Here are two of them.
1. Unconventional energy conversion systems will become available that may prove to be tapping the Zero Point Field, a never previously commercialized, renewable, abundant source of energy. These revolutionary new energy conversion devices are inherently cost-competitive. They can eventually power everything from cell phones and iPods to homes and businesses. They also make practical cars, trucks and buses that need no engines, banks of batteries, or any variety of fuel or battery recharge.
One Proof-of-Concept prototype was said to be analogous to the early work on the transistor, which eventually led to a Nobel Prize and the creation of Silicon Valley.
A generator we are developing is expected to provide sufficient power to demonstrate replacement of the plug needed by a plug-in hybrid car. This will be a harbinger of automobiles that need no conventional fuel. A prototype new energy conversion system is anticipated to replace an automobile engine within three years. That goal might be achieved much more rapidly if development involves four teams of engineers and technicians working on a 24/7 basis. The prototype will open a path to mass production of an entirely new variety of automotive power plant. Electric vehicles powered by these generators will breathe new life into auto manufacturing. Demonstration Devices and toys are a feature of the program. Who will not want to own an electric car, with unlimited range, that never requires fuel or recharge? Car companies will see demand in excess of production capacity. A beacon of hope can be found here for the entire world economy.
See: www.renewableenergywor...
2. A Human Investment Tax Credit program was designed to generate 3 to 6 million new jobs and encourage between 1 to 4 million men and women to become self-employed.
Curing unemployment without creating inflationary pressures is clearly feasible if we view the economy from new perspectives and adopt appropriate tools and policies.
A few decades ago a program of employment tax credits was suggested in a pair of reports I helped prepare for the Commerce Department. A new analysis enlarges upon but in no way contradicts the earlier studies.
Overfull rather than merely full employment may prove possible. Overfull employment, defined as 2% unemployment, was achieved during World War II.
The 1977 job tax credit program, which adopted a few of the recommended incentives, generated almost a million private-sector jobs; twenty percent of all new jobs created that year. It resulted in more jobs in less time than any prior legislation. Only a third of businesses were aware of the little-publicized incentives. A mere third of those eligible utilized the credits. The White House opposed the job tax credit and it was little advertised.
If promoted with all of the suggested incentives, it might have met the original goal of generating three to six million new jobs and encouraging one to four million people to become self-employed. The following year the program was gutted and became the much less effective targeted jobs-tax credit.
The tax incentives in the Human Investment Tax Credit program have been updated and can be voted into law. That should be a first order of business for the new Administration and Congress.
Best,
Warren
As usual you have written a very interesting piece, which has helped me combine it with your last article. As you know, I am not from Berkeley, but I wrote the following EWPC article "IOUs Perverse Communism (please hit the link http://www.energyblogs.com/ewpc/index.cfm/2009/1/1... )," whose summary says: "For free society to face "perhaps the most serious series of crises in the republic's existence, and for our" power industry, we need to introduce as soon as possible the creative destruction of the divine dispensation of IOUs perverse communism."
I think that the perverse communism is very 'scary.'
Thanks,
José Antonio
He thought that OPEC would collapse and the price of oil should be five dollars a barrel...max. As for his 'permanent income hypothesis', I got the impression that he had 'borrowed' it from one of his colleagues, although of course I could be wrong.
As for Adam Smith, a gentleman from Norway gave a long lecture at Uppsala University about a year ago. As he pointed out, and I knew, most of the peope running around trying to quote AS have never read his book.