One of the best headlines in recent memory was the Onion’s, “Recession-Plagued Nation Demands New Bubble To Invest In.” The article lampoons the artificial wealth cycle of US capitalism, but also points to a more important question: what’s the next big thing that is going to pull us out of this hole?
And my oh my the hole is big and getting bigger… Two years ago I wrote about the immanent bubble bursting, but I had no idea how big the fallout would be in the financial sector: $300 billion in writeoffs this year by various banks and expected to hit 1 trillion and beyond. Fannie and Freddie alone will likely be bailed out by you the taxpayer to the tune of $300 million.
I often like to joke that this wealth was never real in the first place, but for those people who were irresponsible enough to lose their house, or whose 401k was decimated because of not-so-clever financial products built on bad loans, it sure does seem real. Money is an abstraction, and our particular brand of capitalism depends on a constant cycle of spending and capital liquidity to convert the momentum of our culture of crazy ideas, products, services, and technology into financial wealth.
Greed got the best of our financial sector and now everyone is paying for it. If this is isn’t an argument for better market regulation (or absolute deregulation), then I don’t know what is. Maybe Alan Greenspan’s ideas of low interest rates fueling growth in real estate and construction would have been tenable if:
- The fed would have known when to say when and raise rates. In every case, the fear is always that it will impede growth and is unnecessary if inflation is at bay. Maybe the fed should stop being a one-trick pony and start considering other factors besides GDP and inflation: if the market is too hot, as Greenspan kept saying again and again at the points when both the .com and housing bubbles were already precariously inflated, then why not raise the rates?
- If the growth had been bridled by wise regulatory choices. There are a variety regulatory measures that could have been implemented during the bubble that could have helped to control irresponsible lending, and the invention of unsound financial products based on bundles of junk loans.
However, even with regulation, enough cheap money leads to unrealistic valuation of assets, and regulation almost always ends up causing problems for market systems. Cheap money for too long was the fundamental cause, and the washington reaction to add red tape is missing that point. Furthermore, massive investment into Fannie and Freddie by global capital, and the subsequent amassing of most of the country’s mortgage debt would never have happened without the implicit backing of the US Government. Both are Government Sponsored Enterprises.
See what government intervention leads to?
So what now? We do indeed need a new growth cycle, and it needs to be green.
The reasons for investing in green innovation are growing daily. National security, global warming, lower energy costs, etc etc. With enough competition and reward, we will see incredible leaps forward in energy technologies, the most important being electric.
We need an incentive program that is so attractive to capital, that the energy sector will explode with growth in alternative energy such as wind, solar, and beyond.
Think about how effective Bush’s 100k tax deduction on large vehicles was for the completely irrational SUV boom. The Bush administration knew exactly what they were doing with that little piece of legislation: helping the domestic auto industry and oil industry while screwing the environment and import auto manufacturers.
Using tax cuts alone, we could spurn a huge rally in our economy to develop our electrical infrastructure with solar, wind, hydroelectric, and nuclear power. This grid of clean energy could fuel the growing demand for hybrid plugins that use little to any gasoline.
Solar panel roofing tiles on old homes, new factories to build electric cars or plugin hybrids, new charging stations cropping up at gas stations everywhere, private and public development of better electrical infrastructure.
The future of the United States is a bright one, and it is powered by clean green electricity. Despite the setbacks we are facing right now, there is one important factor that will help us continue to lead in the world: the American spirit of enterprise and innovation.