America’s Energy Policy Reality #4: Use the Bust to Plan the Next Boom

Energy Boom and Bust Business Cycle

The energy business has always been a boom and bust place to be.  Driven by supply and demand fundamentals we always seem to repeat the same behaviors that got us where we are. Since we served energy, utility and investment banking clients at Henwood Energy Services, then Global Energy Decisions, then Ventyx as the business grew over time, we learned to live with that boom and bust cycle and build our product strategies around it.

If you studied the lessons of the fundamentals you learned that the seeds of the next boom are sowed just as the market peaks and begins to slide toward the inevitable bust.  Traders never seem to get it, but students of the fundamentals understood this logic seeing the market as a giant continuum with waves of bliss and terror interspersed with a few bouts of normal.

The bottom of the energy business cycle was the time we used to build the products or improvements to our software we expected would be needed when the build-up and then recovery in the energy business cycle lead us to the next boom.  By studying the lessons of the last cycle to assess its excesses and failings we could anticipate the needs that would drive the next stage of the business cycle.

We also learned that our growth depended upon having products and services that were needed by customers at each stage of the business cycle learning from their pain points at each stage to prepare for the next.

So what is this about?

I was reading an Op-ed piece by Larry Summers in Financial Times entitled “How to Avoid Our Own Lost Decade” where he describes where we are now in the recovery process and why we should choose strategies to avoid the slow growth purgatory that befell Japan.  I confess I have always found Larry Summers a little too ‘Harvard’ always willing to spend someone else’s money to advance his social aims.  But Summers has a way of getting himself in trouble by blurting out random truths in moments of frustration, and this op-ed is one of them.

Summers argues that the problem we face today is a lack of confidence has reduced demand and our slow economic growth is being driven by the pessimism about the future that is caused by the lack of confidence today.  His prescription is very Harvard—-spend to stimulate demand and if you spend enough for long enough the sum of that stimulus will ripple through the economy to create demand by restoring the confidence of those benefiting from it.  Summers build this concept into the President’s economic strategy but confidence has been down so far for so long that his good strategy has turned foul-smelling as the pain of slow growth persists.

I’d argue that Summers’ mistake was not a bad strategy but good politics.  That is his strategy of building in the downturn to stimulate demand and restore confidence is still a good strategy but the Administration ‘pissed away’ a lot of money on politically correct spending pandering to his base that did little to re-invest in stimulating the next boom. So now we are in the trough of our economic disillusionment with the stimulus having failed but confidence still sucks so Summers says stimulate more.

We need an economic shock and awe strategy boost

Going back to my business and product strategy of using the bust to retool and reposition for the next boom that is exactly what the energy industry and our economy more broadly must do today.  The great irony is the President could actually achieve his political objectives of remaking America’s energy infrastructure into that clean energy economy he seeks by doing so by using this time in the trough to build into the next boom.

What would it take?

Define a Clean Energy Economy Vision We Can Believe in that includes expanding America’s domestic energy productive capacity to fuel the next stage of American economic growth, reforming our tax laws and regulations to make America a magnet for investment and to bring jobs back home closer to consumers to reduce costs, reduce emissions, and improve our economic performance.

What the President needs to get re-elected and Democrats want:

  1. Reduce emissions by reducing dependence on coal for power generation
  2. Adopt a national clean energy standard to grow renewable energy market share
  3. Improve energy efficiency and accelerate smart grid technology deployment
  4. Grow jobs in the clean energy economy

What the Republicans want and fear the President might do to take their election issues away:

  1. Improve America’s energy security by expanding domestic energy production
  2. Rein-in regulatory excess that is creating uncertainty across the economy
  3. Require an honest balancing of economic and environmental interest in regulations
  4. Reduce government spending and unleash private sector spending to grow the economy

What Independents want or they are going to vote out all incumbents:

  1. Quit the partisan bickering and work together to solve our problems
  2. Get the government off our backs so we can grow again and create jobs
  3. Make America the strongest, most competitive economy in the world again
  4. Give us back the American Dream creating jobs and a future for our kids

Surely there is a political deal here somewhere!