With Barack Obama’s budget and stimulus plan, the government is putting a lot of its chips on green, clean, alternative–whatever you like to call it–energy.
The billions he’s pouring into the new energy programs will help lift, and in some cases, create whole new industries. But will his programs replace one problem with another, turning the housing bubble into a “green” bubble? We don’t think so.
Yesterday in the FT, Joseph Stiglitz and economist Nicholas Stern wrote:
The financial crisis originated from the housing market bubble and was preceded by the dotcom boom. We cannot replace these with yet another bubble. The investments necessary to convert our society to a low-carbon economy – investments that can change the way we live and work – would drive growth over the next two or three decades. They would ensure that growth, with accompanying improvements in standards of living, was sustainable. The path that we have been on is not.
They go on to say that investment in green will increase efficiency providing both short term and long term stimulus for the country, but they never really address why we couldn’t see another green bubble.
The hype we hear around green investment, would lead us to think it’s possible, if not inevitable. After all, Merrill Lynch cleantech analyst Steven Milunovich strategist said, the “sixth revolution will be the Age of Cleantech and Biotech,” in an editorial for Greentech Media. (Previous revolutions: Industrial Revolution, Age of Steam and Railways, Age of Steel, Electricity, and Heavy Engineering, Age of Oil, Automobiles, and Mass Production, Age of Information and Telecommunications.) That’s the kind of stuff that makes great cold-calling script material.
A revolution would imply that there is going to be a frenzy of activity that could inflate asset values. In our current bust, any technology that can promise returns would be nice. We, however, don’t think there will be a bubble this time around.
Even though the most recent housing bubble blew up and blew up on the heels of a internet bubble, it’s unlikely to think the nation, the globe, will have lost its taste for bubbles. So, while we’d hope there would be prudence, we know that’s not really our style, so our amnesia-prone minds would induce us to blow up a green bubble.
Where our memory fails us, economics shold kick in, though. The slow thaw of credit will slow investment, which will prevent gobs of money from going to alternative energy projects the way it flowed into ill-fated real estate speculation and construction projects.
And, while the billions from the government will act as a gap for a few years, the one thing we can be sure of is that it cash won’t come swiftly no matter the rhetoric.
Take all that into account, the capital influx into green projects is likely to be more orderly and less so a bubble-inducing grab bag.
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