Wednesday, April 18, 2012

The Obama Economy

Three years ago President Obama promised us a new economy based on green energy, health care, and education. Unlike the previous economy it would not be based on boom and bust cycles. With Obama coming up for reelection, let's see how he is doing on that new economy.

Green energy has been a bust. Several factors have gone into this. A big one is natural gas. With new drilling techniques we now have a glut of natural gas which has pushed the price to historic lows. This is a big blow to green energy since it was already expensive. Gas burns cleaner than coal which removes some of the urgency for green power.

When Obama refers to green power he usually means solar and wind. Solar has the obvious problem of night. Wind has similar problems with availability. Both need back-up gas-fired generators in order to deliver constant power which pushes up the cost even more. In addition, there are transmission problems with both. Both need big open spaces. Wind generators are noisy and have to be away from nearly everyone. This means stringing a lot of power lines and building a lot of switching equipment. Up to half of the power generated this way is lost in transmission.

Green power, especially solar, has been through a speculation bubble. Originally a lot of Silicon Valley investors got in on it figuring that they were smart enough to solve all of the problems. These are people who expected a return on investment within three years while industries like solar need at least ten year cycles. A huge difference between the software that these investors were used to financing and manufacturing processes is that manufacturing does not necessarily scale well. The only way to find out is to build a factory and see if it works. That's where the money went with Solyndra.

Even if everything worked, green power does not generate many jobs. Ten years ago we were exporting wind generators to China. Now they build their own and market them to the rest of the world.

Spain cut back support for green power after a study found that it destroyed 2.5 jobs for every job created.

What about health care? President Obama was not forthcoming about it but insider books such as Confidence Men show that what he means is jobs nursing an aging Baby Boomer generation. In economic meetings early in his administration, Obama considered this his great solution to the fact that manufacturing jobs are not coming back.

Then there is education. The President is a great believer in higher education but this carries an ever-growing price tag. The overhead of student loans is already slowing the economy. Many graduates continue to live with their parents for years after graduating because of the cost of their student loans.

Student loans were a focal point of the Occupy Movement last Fall. Many of the protestors demanded forgiveness for their loans. the President even mentioned rising tuition costs in his 2012 State of the Union speech, threatening universities if they don't keep down costs.

Clearly we have not made the transition to Obama's new economy and many parts of his goals are hurting the overall economy rather than helping it.

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