Monday, October 18, 2010
Thomas Shevory, Ithaca College
I keep thinking about an article I read a couple of years ago, written in reaction to the then collapsing U.S. economy, by venture capitalist Eric Janzsen. He argued, in Harper’s Magazine, that the U.S. has now moved from a business cycle to a bubble cycle economy. The difference is really one of numbers and intensity, what physicists might call amplitude. The first bubble in European history, according to Janzsen, was the tulip mania of the early 17th century, which inflated the value of tulip bulbs at several hundred times higher than the average middle class salary, helped to create futures markets, and finally ended in collapse (a collapse which did not, of course, end the international trade in tulips.)
The existence and consequences of such bubbles are now widely recognized, given the appearance of the internet bubble in the 90s and the housing bubble of the last decade. Bubbles form and explode because the markets around them are unregulated or deregulated, and investors, including the most sophisticated, fall prey to claims that the commodities involved, whether digital or tangible, have reorganized the economy to such a degree that historical rules of economic succession no longer apply. In 2007, economist Harry Dent was forecasting a Dow at 20,000 by 2009.
Janzsen offered several possibilities for the next bubble, one of which is alternative energy. I would push this a little more broadly, though, and include the entire green economy, of which, energy is only one part (albeit central). In broader green capitalist thinking, already in place, a whole array of goods will be created and marketed in ecologically sustainable ways, so as to transform the enterprise of capitalism itself. Of course, one problem for the green bubble (at least it terms of its environmental impacts) is that consumers can’t always be sure what constitutes green. Bubbles are always created in relation to both the commodities and the hype. And nowadays we have plenty of hypesters, from columnist Tom Friedman to natural gas exponent T. Boone Pickins.
There are plenty of commodities as well. Four years ago the film Who Killed the Electric Car? outraged audiences. Today we have The Volt, the Leaf, the Tesla Roadster, the Xebra and an array of hybrids. Google has recently chosen to invest $5 billion in a 350 mile undersea cable to bring power from offshore windmills to East Coast cities, from wind turbines that have yet to be built. Will these investments lead to American industrial revitalization?
When bubbles burst, they leave ruined economies and lives in their wake, but they also leave usable infrastructure that can have long-term economic and possibly even eco-benefits. Given the complexities of advanced economies and environmental decline, it’s hard to predict winners and losers in advance. But when TLC starts featuring Trading Green Spaces, it’s probably time to sell.