The linchpin of American energy independence is the mechanism for bulk distribution of energy from coast to coast.  That is a national electricity grid- a backbone of very high voltage electricity lines designed not to go 10s of miles inside of the region of a utility, but to go interstate distributing energy from solar and wind farms in the west to large population centers in the northeast. 

Such an electricity grid will have powerful enemies.  When regions are isolated, utilities have market power, but when a grid connects them, energy can be purchased from other providers, driving up competition and driving costs down.  A bulk electricity transmission grid is a threat to big fish in small ponds, because when all ponds are connected, one large fish is unable to control what goes on in the pond.

The central job for any energy czar will be construction of the national grid.  It need not interfere with established systems within regional authorities, anymore than an interstate highway system dictates what states may do with their own state highways, and cities do with their own arterials. 

Such a czar will be subjected to intense political and psychological pressure to trim the giant agenda not just with the energy grid, but in establishing petroleum and vehicle policies that will revolutionize the oil and authomotive industries. 

The person must have a formidable will, already be intimately aware of energy policy, especially the building of power transmission infrastructure with a demonstrated ability to face down energy industry adversaries and be unafraid to be decisive.

It is a challenging list of requirements.  Is there anyone in America that could rise to the challenge with vigor?

There is: Arnold Schartzenegger. 

One side benefit- the vacated governor spot goes to democrat John Garamendi, endorsed by Sierra Club, Al Gore, etc.  There will be a lot of infrastructure $$$ to California, and a democrat ought to get the political payoff for the next election in 2010. 

Harold Ford proposed on MSNBC's 1600 Pennsylvania yesterday that one idea for assistance to the auto industry would be the tax rebates for "plug in hybrids".  He mentionned that more fuel efficient vehicles cost between $2300 and $3000 more.  Mr. Ford suggested that the money go to consumers rather than car companies since money going directly to companies might be mispent. 

Arms length interaction with the economy has been the previous rule for the relationship between government and industry, and Mr. Ford is going one step further at indirection.  But note that the arms length rule and the voodoo religion of self interest has even been repudiated by Alan Greenspan, so I have to disagree with the general idea that we let the market decide how the money flows in a classic laissez-faire fashion.  The auto building activity generated from such incentives could just as easily take place in GM factories in China.   Where is the rule or the federal representative that has the power to halt such a move dictated by the logic of corporate self interest?

As a counter proposal, we need to specify production in the US, and provide for intrusive oversight by observers knowlegable about automotive engineering.  Further, since consumers aren't buying and won't be for a few years, it is sensible alternative to build inventories of components for future models.  It is money in the bank and it keeps factories open in the US.  Note that this inventory while financed by the US government represents capital that can be recovered when the compenents are used.

Mr. Ford was working off an idea from previous congressional hybrid car legislation that has been vetted, and that is the cautious thing to do on national television.  However, his aides need to work harder.  There is a huge difference between hybrids and plug in hybrids.  Plug in hybrids are not built by any of the majors (US or Foreign).  The Ford Escape hybrid SUV manufactured in the US is currently upgradable by a US (Hymotion-a123systems) product to a PHEV for $32K, and this would be cheaper if done in the factory.  No doubt the same could be done for hybrids built by GM.  Second.  While it is true that a "Hybrid" vehicle will cost $2300 to $3000 more per vehicle, for a plug in hybrid compact, the battery alone necessary for a 40 mile all electric range costs $10,000.  GM's target is to get the cost down to 63 cents per watt, but current costs are around one dollar per watt, so the 12KWH battery needed for compact cars like the Volt or Prius will require in excess of $10K.

Financing PHEVs can be done with a revenue neutral program to self pay these batteries by surcharging the electricity needed to fuel the cars as if they were being fueled by gasoline.  This leverages the higher price of gasoline (electricity in most of the US represents 89 cent per gallon "gasoline" (electricity at national average of 10 cents per KWH that will take current technology PHEVs the same distance as an gasoline equipped vehicle).  This is revenue neutral if the cost of gasoline is at $3.50, a price point which will return to when the global economy is booming again.   Further details on this particular revenue neutral plan may be found at policypedia.

But the question is, how do we know that GM, Ford, or Chrysler will build the fuel efficient vehicle in the US?  Currently, GM is closing factories in the US and building them in China.  Koppel had a special on China that noted that the most successful car company in China is GM (along with VW), and that more Buicks are being sold in China than America (Because it was a favorite of the emperor and the former ruling elite, it is the prestige car ahead of Mercedes and the like).  

The point is, if Congress incented only electric vehicles, they would be paying for Toyotas and Renaults made in the third world.  If they narrowed it to GM, Ford and Chrysler, why wouldn't these be manufactured somewhere else besides the US?   If we want these factories kept open, Congress needs to directly specify that the money be spent to build electric car components in the US. 

Rather than provide capital that auto company management may use in ways that are contrary to the purpose of the stimulus, we should do the following in order to keep the auto companies functioning.

The federal government should buy Volt technology from GM, and pay auto companies to keep auto factories open building a large electric car component inventory for use when the economy recovers and consumers are ready to buy cars again.  This stimulus is net revenue neutral because the components are just financed, and the money comes back into the treasury as the inventories are drawn down.

Note:  If you have a suggestion, please go to Change.Gov and post it there first, then come back here if you'd like to discuss an idea.  This is intended to be an ongoing discussion thread referenced by the Change.Gov Blog here on Partybuilder.  Please post responses to this agenda item even if weeks have passed since the last comment.  For other agenda items on Change.gov, please quote and link the items, for example as done in the following discussion.  

Regarding agenda item: Energy and Evironment, "1 Million plug in Hybrids"

The current agenda item reads: "Put 1 million Plug-In Hybrid cars -- cars that can get up to 150 miles per gallon -- on the road by 2015, cars that we will work to make sure are built here in America. "

We need much more aggressive plug in hybrid (PHEV) production targets.  1 million PHEVs by 2015 is less than one half of one percent of the US car fleet.  We will never get to our energy independence and global warming targets by such timid toe testing of the water.  The goal needs to be that half of US passenger car sales must be PHEV20 (20 mile range on electricity only) or better by 2015.  Since consumer demand is low and the US auto industry is ailing, the federal government should keep the factories open by financing the production of electric vehicle componenents that will be warehoused and sold back to auto companies in the coming years.

Here is why the bar is set to low: In 2006, 427,000 Camry sedans were sold in the United States.  Since the Chevrolet Volt begins production in 2010, if GM alone sold electric vehicles, their total production would have to be only one half of what Toyota does in one year with the Camry alone.  Can GM jump that bar?  Of course it can.  It's like sending a knight to chop down a tree.  You don't inspire anyone to greatness that way.   The current goal of 1 million PHEVs by 2015 is an unworthy goal and setting easy goals is foolish management. 

Dog paddling against a tidal wave: There are 250 million registered vehicles in America today, so at this rate, we won't have the fleet, so if it takes 5 years for each million, the fleet won't be transformed for a thousand years.  It is very difficult to believe that America cannot do better given 5 years, and given that GM has the necessary technology today. 

Leadership consists of setting the bar high enough to challenge a people to do their best.  FDR was confident that the aggressive wartime production goals he set were achievable and waved off his skeptical staff's objections.   

What would be a more aggressive goal?  How about that by 2015 that half our car sales are PHEV? That means 3 million per year.  Is it plausible that there are federal intervention schemes and manufacturing capablity to pull this off?  Sure, but Kennedy did not tell von Braun how to get to the moon.  He talked to the scientists and knew the goal was achievable.   It might mean buying PHEV technology from GM and licencing it to all American car manufacturers.  It might mean paying for the cost of the batteries by phasing in a gas tax- 15 cents per year until the price reaches $3.50 per gallon.   That might mean providing self paying loans for the added cost of the batteries that pay themselves off by electricity surcharged at a rate equivalent to $3.50 gasoline. 

By 2012, we need to have a standardized metering communication interface for PHEV vehicles, to facilitate commerce in electricity recharging at work and in public places.  This might be something similar to interfaces  that V2green has develeoped, and might take into consideration standards for smart charging that would aid grid stabilization.

Still hearing a huge lack of imagination on the Stimulus packages being considered.

One proposal for a stimulus package is to pay people to take training in green jobs- installing solar panels, insulation and other "negawatt" drilling- Generating new energy by slowing the massive energy waste that most folks don't even notice.

There is a demand driven approach, and was used very successfully in Germany.  The idea was that entrepeneurs will beat a path to your door if they see a profit in it.  Contractors don't need to be told how to get training for a skill they need.  If they see huge dollar signs from installing wind turbines and solar panels for businesses- by golly they will figure out how to get into that racket. 

What Germany did was guarantee that electricity would be purchased at a high enough price that they could make money like crazy, and banks would quickly approve loans for the panels/ wind turbines. 

Under this scheme, the incentive program would provide federal low interest loans for alternative energy systems, mandate that all utilities must buy excess energy from homes and businesses, and set a minimum rate that they must be paid. 

There would be a resulting boom in construction spread everywhere in the US.  Unlike other mega projects such as the National Energy Transmission Grid, or federal guarantee of loans for solar and wind farms, this stimulus would reach everywhere in America.  Note that Germany has the higher penetration of solar than the US, and they on average receive less sun than Anchorage, Alaska.

There was a great deal of doubt that Bush would sign the fiscal stimulus bill that Pelosi has been advocating for a lame duck session of congress. 

That is, until today.

Federal Reserve chairman Ben Bernanke advocated today an additional immediate stimulus package, and the white house indicated its openness to a stimulus.

As Nobel Prize winning economist Paul Krugman pointed out in his NY Times opinion piece last Friday, any stimulus package should include infrastructure spending.  The usual argument against infrastructure spending is that by the time construction starts, the slump has past.  Not this time.  Krugman points out that all indications are that the slump will be prolonged and that substantial government spending on infrastructure will provide sustained stimulus to the economy. 

Earlier this week I advocated spending on a national grid for bulk transmission of electricity.  Yet there is spending on Green Stimulus that can be achieved much more rapidly.  There is a huge need for training and paying people to take such courses could be done almost immediately.  Skills needed cover a broad range from energy conservation to transmission and generation system installation.  For example, there aren't enough skilled installers of solar panels for electricity and hot water.  Photo voltaic system installation requires a superset of skills beyond what a licensed electrian understands.   Regarding transmission- the national High Voltage DC electricity network will be a coast to coast web of lines requiring substantially more lineman and high voltage power construction crews than the nation currently has.  Unemployed construction workers should be attending schools on the skills needed for retrofitting buildings to substantially reduce energy utilization.

So training can be rolled out immediately.  Students would be paid to attend the courses, and that alleviate load on unemployment benefits currently weighing on the states.  The second part of the stimulus would be authorization of projects- offering low cost loans to build solar panel factories, and contracts for large numbers of panels.  These would be offered to homeowners as something that is paid back via their electrical bill- they pay their electrical bill as they always do, but all electricity generated from the panels goes to pay them off.  In 10 to 15 years depending on how heavily sunlight hits their corner of the country, the panels would be paid off.

Installing this number of panels will require a large workforce of installers, and large numbers of PV factories.  However factories can be built in 6 months- about the time it will take to get enough trained installers in place.  Because usage of solar at the home and business does not require the national transmission network, there is no need to wait for the national infrastructure to come on line.

If $4 gasoline makes people get rational about energy independence (article), then do we all go back to snorting heroin again now that gasoline has dipped below $2.99?

It's the old amnesia again, and the incentives to become independent of foreign energy have disappeared.

By late 2010, America will be able to mass produce electric vehicles that are competitive if gasoline costs $3.50.   We need to phase in a price signal to direct the markets to a sane outcome.  We need to use game theory to tilt the playing field so that markets innovate in directions that benefit our national security interests in energy independence.

What Congress must do is give the Federal Energy Regulatory Commission the authority regulate the price of gas through taxes so that gasoline is at a price floor of $3.50 by late 2010.  Revenues collected will not go into the general treasury, but shall be applied by the FERC to apply to subsidies for qualifying alternative fuel vehicles such as using electric and fuel cell. 

Just as Congress cannot be entrusted with the authority to regulate monetary supply by legislating interest rates, Congress must cede authority over gasoline price regulation to an agency with the independence of the Federal Reserve.  It must have its own cash flow independent of the national treasury, and its commissioners must have long terms similar to those for the Federal reserve governors.  This approach was suggested by Tom Daschle in answer to a comprehensive health care solution.  The approach should be applied to energy policy.

There is a chicken egg problem with energy independence.  There are vast energy sources from wind, solar, and wave located in states that are distant from energy consumers.  No one wants to invest in building generation if there is no way to transmit the electricity in bulk to customers in distant locations.  No one wants to build the transmission without the generation capacity that could utilize it.

With the Fed having expended nearly all its bullets in the form of rate cuts, all eyes are on Congress to for a massive fiscal stimulus that would inject $300 billion into the economy so that we will not slip into a deep depression that will cost the country trillions in lost GDP.  Lots of ideas on how to blow that much money.  Lets take a moment and think about actually getting something back for our money.  Rather than pay the money out as tax rebates (why send the money back via Wallmart to China?), we could pay for a national electricity transmission grid capable of moving electricity in bulk from coast to coast.  The project would be massive, along the lines of Eisenhower's construction of the national system of freeways.  Large number of construction, steelworkers, and linemen will be required.

The benefits are multiple.  This is not a make work project- we clearly all understand by now that relying on our own energy means we will stop hemorrhaging money to pay for energy from outside the US. 

More importantly, the project will pay for itself.  By surcharging electricity transmitted on this national grid, the system will be made to pay for itself within a decade.  That means 300 billion need not be added to the national debt. 

The requirements for building the massive number of towers- the steel and aluminum cabling required will require a Herculean effort from our industry.  It will generate a million jobs short term. 

After the November election, let's put Congress back to work and ramrod through a bill to build the  National Electrical Transmission Grid.

Included must not just be authorization for the money, but authorize the federal project to override the authority of state and regional agencies to hamstring or otherwise delay the project.  This is an interstate commerce issue with economic recovery and national security implications.  Nothing must be allowed to stand in its way.

Department of Energy (CERTS) report "Our National Transmission System Today and Tomorrow"

Cleveland.com article "Transmission grid limits wind power's potential"

What we have to realize was that the US economy was based on unsustainable consumer buying binges utilizing dramatic home price appreciation and very easy credit.  Our economic activity was higher than we can support in normal conditions.

Here is the key point- even if home prices were level, and credit availability was at a normal level, we would have too many stores and too many businesses than our economic activity can support.

Needless to say, conditions are not neutral but negative.  Home prices are in a death spiral and credit is so tight that the state of California can't get a line of credit to make its payroll.  Aggressive action of injecting capital into major banks being taken in Germany in the UK, to be followed in the US are being recieved in the markets very well this (Monday) morning. 

The longer term issue is how to make sure that the recession will not be deep and sustained. 

Stimulus in job creation is possible, and not just in construction repairing infrastructure.  Currently, we have no way of transmitting large amounts of energy to our coastal cities from future electricty generation in great plains wind farms and desert states' solar farms.  This new grid, researched by the DOE is an enormous undertaking.  As for power generation, while availability of turbines is a bottleneck placing an upper limit on growth of wind and wave power, the same is not true of solar PV.  Multiple US corporations have cookie cutter assembly lines that they can build to quickly ramp up production.  Enormous production capacity could be online within a year employing tens of thousands of workers.  Massive solar farms can be built in 6 month time frames compared to decade long schedules required for nuclear.   And not only large companies but small businesses can compete equally by installing Photovoltaic panels on business warehouse rooftops as well as homes.

The armies of workerers needed for this massive energy independence program will be paid by the 700 billion we will not be sending oversees for oil.  The switchover of our oil burning car fleet will not take place overnight, but General Motors has technology that all American car companies should be using to rapidly switch over production to electric powered cars by 2010.  This will require capital injection into Ford, GM and Chrysler, but the alternative is to allow one or more of these companies to fail resulting in the loss of millions of jobs.

The republicans will resist these massive interventions in the US economy, but without an aggressive response to generating jobs, America may well suffer the kind of two decade economic stagnation that Japan suffered after its credit asset bubble popped.

It's tough not to notice how the markets seem to be in a death spiral sweeping aside the 700 Billion bailout and the half point coordinated cut in interest rates as if they the efforts of infants.

Forget about McCain's Economic proposal of the hour- Paulson surprizingly signalled today that the US may well follow the UK lead and take the option that Congress gave but that he said at the time that he didn't want.

Forget about reverse auctions and buying up the bad debt.  The US is going to buy shares of the banks and start injecting capital like crazy to head off a world economic collapse of a magnitude greater than that of the depression.  Ironically, Lehman was allowed to fail as a last affirmation that market fundamentalism would solve this.  It may have proven to have been the trigger of the rapid collapse of what Soros called the "Super Bubble" in his last book.  (The New Paradigm for Financial Markets: The Credit Crisis of 2008)

Start learning to grow food in the back yard folks.  It will be a long long time before we are back to where we were just 4 weeks ago. 

If this dire picture is correct, then President Obama is going to have to pour in a lot more than 15 billion into his green jobs initiative in his first term.  This is going to require massive public works projects to get people back to work if direct capital injection fails to turn this crisis around. 

It is a miraculous challenge for the nation- the impetus for the World War II level of effort to get the nation off of fossil fuels in the next decade.  Before this, it was hard to see how the nation would accept the need for such sacrifice.  Now it may have come.  It is a miracle.  We have the leader, and we have the crisis necessary to galvanize a nation. 

 Let's get to work.

Paul Krugman's Op Ed : Moment of Truth

Commentary: Is this the start of another Great Depression?  UCB economist and historian of the Great Depression

Buffet warns that the $700 billion rescue of the American economic system is being oversold- He claims it should not be viewed as a panacea. (CNN Money article)

Here's why. 

According to the most recent Fed reports, there is $62 trillion in debt assets on the balance sheets of US financial institutions.  About $14 trillion of that is home loans. 

What is troubling is firstly the "target fixation"  on sub prime- why should we assume that the contagion is limited to home mortgage backed securities and is not part of a wider asset bubble as many economists have been asserting for some time? (Nouriel Roubini  and George Soros, once shunned as doomsayers are two famous examples.), and   Secondly, the Paulson solution dilutes the capital impact of the 700 billion.  Metaphorically, Mr. Paulson's idea uses the $700 billion of saplings to graft in place of deadwood illiquid debt on trees, rather than use the saplings to grow new orchards.

For capital markets to recover sufficiently to propel growth in the US, it is clear that real estate is tapped out for new sources of securitized debt.

Interestingly, there is a source from the transportation sector in excess of  $145 billion of high quality debt per year.  Electric vehicles are substantially more expensive due to the cost of the battery required to go 30 miles on electricity only.  This additional cost  can be erased via a federally backed loan whose repayments are recovered over the life of the vehicle by surcharges on the electricity used to recharge the vehicle. (More on this here.)  The cost of energy is no more than what consumers pay for gasoline for the same distance traveled.  Since repayments come directly from utility bills, the loans present a low risk that can easily be tranched into AAA rated CDO securities.  These are like Treasury bills but return higher yields and in turn would be sold on interntational markets to Japan, China and Singapore.  Besides a new source of reliable securities to park US dollars, Sovereign Wealth funds will find it attractive to do this for national strategic reasons.  The influence of these loans will be to drive down the price of petroleum, but helping the US cut consumption dramatically.

With 18 million vehicles sold in the US per year, the conservative figure for debt would assume the smallest battery for all vehicles- about 13 kilowatt hours of capacity.  The most aggressive wholesale price is 63 cents per watt-hour of capacity (GM's target price for the Chevy volt- a goal they have not yet achieved), so this means at a loan of at least $8100 per vehicle is required simply to defray the wholesale cost of the battery.  So the theoretical maximum source of new debt is 18 million times $8100 assuming compact cars with 30 mile range batteries (GM states the figure is $10K for their Chevy volt that will go 40 miles in all electric mode on a charge).  This yields $145 billion per year theoretical maximum with conservative assumptions about battery size.

More likely, Americans will be buying from all vehicle classes requiring larger batteries, so this and other factors would mean the average loan would probably be closer to $12K per vehicle.   Depending on how aggressively the nation moves on energy independence policy, use of these loans could be anywhere from 20% to 70% of new car sales by 2011. 

That's an injection of between 43 to 150 billion per year of solid credit assets onto ledger sheets of financial institutions.  With leveraging, there is a significant multiplier on how much liquidity that adds to credit markets. 

As credit becomes more easily available, businesses can return to a growth cycle in an accelerated time frame.

What is the upper limits of the pool of potential debt available to add to balance sheets of credit market institutions?  The maximum pool of debt required for the entire fleet of 250 million registered vehicles is 2.9 trillion using the $12K per vehicle figure.  More likely, innovations in battery technology will drive the price of the battery lower, but even with double and triple efficiencies, the pool of potential debt is significant.

This adds to the perfect storm of hope in the battle for energy independence and a return to prosperity for the US.  However, the US public will need to asked to sacrifice.  They need to step up and buy electric vehicles instead of gasoline vehicles, and it is likely that a price floor of $4 per gallon of gasoline (achieved with federal gas tax that is tied to increase as gasoline wholesale prices are driven down).  This will prevent gas vehicles from becoming more competitive with electric vehicles as Iran, Russia, and Venezuela drive prices lower to increase demand for oil.

My belief is that America is ready to roll up its sleaves and pitch in to turn the country around.

We have heard much of the Perfect Storm of Doom on Wall Street.  How rapid deleveraging of exotic financial instruments has led to the demise of 2 of the 4 investment giants on Wall street, and how that in turn is cascading out into the real economy where small businesses no longer can get lines of credit they have always relied on to keep their businesses running.  Closure of these businesses means more unemployed, therefore fewer consumers, therefore less purchasing, therefore more businesses closing.  It feeds on itself.  It is the Storm of Doom largely brought on by the voodoo economics of the deregulation and something-for-nothing tax cut and deficit spending theology of the right wing.

Today, Paulsen proposes that the government buy up the bad debt of these investment banks.  Over the last 6 years, investment companies have been successful in hiding the fact that much of their highly leveraged assets were based on exotic financial instruments that had very low real value.   Unwinding the leverage of these assets was leading to a death spiral where lower value of these assets meant that loans based on their former high value required further collateral which required further selling which required further revaluation of other assets. The dominos were falling, Bear Sterns, then Lehman, then Merril Lynch, then AIG.  Next up could come Washington Mutual- all once regarded as impregnable institutions.  So the government is stopping the death spiral by buying the bad debt.  It will cost hundreds of billions of dollars, and investment firms will be let off the hook for concealing the bogus value of their assets.  Because these companies are so tightly tied to the jobs and income of everyday workers, we have little choice and must submit to the blackmail of wall street.  They were free to take enormous risks which ultimately was with tax payer money, and they were successful at lobbying the government not to watch what they were doing. 

To keep the consumer economy going, government has rapidly injected capital in the form of consumer rebates.  This keeps stores selling and factories building.  But economies aren't magic.  The government can't indefinately sustain the economy by borrowing money to inject capital to pay for bad debt sins of wall street and to keep money in the pockets of consumers.  There are more than a few jokes about how that injected capital is going to WalMart (Chinese goods) and Gas Stations (foreign oil).  Little of this money is staying in the US employing workers. 

So how long can the Federal government keep printing money? 

What we need is a sustainable fiscal stimulus.  One that pays for itself, and keeps the majority of the capital in the US.  Lawrence Summers brought this up on Charlie Rose a few nights ago.  The former treasury secretary under Clinton urged public works projects at a massive scale.  The good news is that the such FDR scale projects is not busy work, and they will pay for themselves.

Take the Bonneville Dam, built in the depression, that created tens of thousands of jobs.  Although it was not designed as a revenue neutral project, it easily could have been.

We don't have a lot more rivers we can dam, but we do have a lot of windswept land that can take wind turbines, and we have a lot of sun baked desert in Nevada and Arizona that can generate terawatts of power to supply electric cars built by Detroit.  To pave the desert with solar panels is not difficult, it just requires the capital.  And at current energy prices, such a mammoth project of constructing large numbers of solar panel plants will pay for itself while creating hundreds of thousands of jobs either directly or indirectly.  We have several US companies that can build these plants inside of 6 months. 

All they need is the capital to do it.  All we need is the political will to do it.

Sure, it would be tough to become energy independent in 10 years as Gore proposed.  It would require massive mobilization unseen since FDR.

Until September 15th, there was little stomach for such a massive project.  Now there is the perfect storm of Hope to address not only the unemployment tidal wave before us, but our energy independence.

If you listen to Bob Lutz, he'd have you believe the reason why Detroit has suffered is because regulators prevented American car manufacturers from doing what they do best- in his mind, building big muscular cars. 

Listening to him on Charlie Rose the other night, it was difficult to not be dismissive- after all, his words had the absurdity of a Road Runner cartoon where the Coyote runs off the cliff and keeps running on air.   In fact, Car companies and Labor were successful in halting fuel efficiency standards for 20 years after Reagan road a populist reactionary wave and swept energy programs aside as arrogant expressions of "big gubmint" that supposedly were too naive and or incompetent to tell free enterprise what to do.  The fundamentalist belief was that unfettered markets lead us unerringly to the holy land.  Instead, it was a fiasco.  The reason why GM is in such dire circumstances is precisely because they were successful in defeating government initiatives to direct industry away from building gas guzzling cars that one day no one would want.

Lutz excuses himself and his peers by complaining that no one could have predicted this crisis- after all, everyone was buying the big cars, and the customer is always right- right?  Besides such vehicles were highly profitable and the board would kill anyone who said, hey- let's not build the profitable cars and instead build these small cars with equally small margins.  He points out rightly that it would have been professional suicide, but uses it to make the case that anyone suggesting another outcome is possible doesn't understand business.  Lastly, he asks rhethorically- Who could have known that Oil prices would double?

Who?  Well Jimmy Carter for one, who 30 years ago squarely put the country on the road to energy independence with aggressive fuel efficiency standards and other energy programs.  His experts knew that the supply of oil would peak and that it was inevitable that cheap oil would be a thing of the past.  In the 30 year interim, low gasoline prices "proved" the Carter energy experts wrong.

Well, they didn't.  The big 3 had 30 years of breathing space and they squandered it.  Now they complain that no one could have predicted this.  Well, they dismissed the warnings then as unamerican hystery. Now they seek to dismiss history. 

The absurdity is obvious to those whom Lutz dismisses as radicals.  But it's not a political conspiracy.  In the last 4 months, GM stock has plumetted to one third its former value.  Is GM a victim of political reactionaries irrationally selling their stock?

It would be easy to write off Lutz's sonambulism as another example of big business  complacency, where overpaid executives are concerned with little more than their stock option package.  But the typical knee jerk demonization of business types is foolish.  Lutz is neither dumb nor complacent.  But just as in the sub prime mortgage fiasco, such smart, highly motivated executives consistently made the bad calls.  And this wasn't just the republicans and their lobbies either.  Lutz had plenty of company among democrats.  When asked about his failures in Energy policy, Clinton stated that he should have done more with CAFE standards.  He pointed out that the problem was formidable becuase he was up against a coalition of the AFL-CIO as well as the automakers. (video interview)

That's right.  Labor made the decisions that would lead to the loss of millions of jobs.  Millions more, if one or more of the big 3 collapse.

Unlike the Americans, Toyota and its labor focused on the long term fundamentals and is now the largest in sales in the US.  It's not just the Japanese.  BMW, Hyundai and others have done very well.  But this also is not a new observation.  Countless articles in Time and Newsweek in the 70s and 80s decried the fact that foreign car makers were eating the Big 3's lunch. 

What explains the persistency about this delusion with transportation?  Today, we have politicians who like McCain stand in front of a crowd of enthusiasts with their roaring motorcycles exclaiming "You hear that?  That's the sound of Freedom."  Jon Stewart responded, "No, it is the sound of 700 billion dollars leaving the United States every year".

It's no different than what politically Reagan did to Carter.  If nothing is done, the same themes will replay again after the Obama administration.  Today, everyone is convinced that changes are needed with energy policy, and it is the politically popular thing to pass legislation on.  The hard problem is how to sustain that focus in the business and political community over the multi decade time period required to fundamentally solve the problem.

McCain can't even begin the process not because he doesn't want to.  As a proud patriot, you can believe that from the depths of his soul he doesn't want America to be controlled by those who control the oil.  Bush's response was to attempt to control the countries that control the oil.  McCain is smart enough to know that Bush's (Cheney's) is a losing strategy, even as McCain postures on oil platforms.  Instead, McCain is unable to lead on this because he is fundamentally conflicted, a heroic Hamlet doomed to inaction.  On one hand he believes ideologically in laissez faire, but on the other hand must solve multiple national crisises that laissez faire created.  Deep down inside he believes along with George Will that if government has its hands full running Amtrak, it has no business attempting to run energy policy.  So McCain is doomed to take half measures and vascillate on the bold government initiatives that have to be taken.  Grandstanding in front of roaring motorcycles, and making vacuous quips on top of oil platforms only reinforces the message that he has no intention to use government power to fundamentally restructure our energy economy.

Obama will vanquish McCain, but the McCains, Bushes, and Reagans of the world will return.  They will use the same themes of populist "return to American greatness", libertarian deregulation etc. and they will dismantle the energy independence initiatives. 

Even Bush's man on alternative energy, Andy Karsner realizes this.  He said the new President ("for all his vaunted leadership skills") must:

"say what needs to be done for the hard, multi-generational lifting. That’s not going to be sloganeering; it’s not going to be the tired, old policies that we bicker back and forth with every election cycle. It’s going to be two things, a price signal that is carbon-weighted and includes security externalities that is technology-neutral and it has to be incorporated across the board in an institutional revolution that scales capital formation to fund these industries and turn over the capital stock at a timeframe and at a scale that is of the magnitude of the challenge." (source see page 357).

The problem is, republican appointees like Karsner cannot enumerate what that institutional revolution needs to be, what the theoretical basis is for the massive market intervention needed, or how to politically defend that theory from concerted assault from the Right.  Karsner points to a price signal, and that's swell.  How long will such interventions last under a future republican president and congress? The programs sound great: Carbon cap and trade system  Feed in tariff that allowed Germany to surge forward in solar capacity, purchace incentives for plug in hybrids.

How do we make them last so that this "multi generational lifting" is accomplished.  Why won't these programs go the same way as Carter's which were swept aside in the 80's and could not be reasserted in the 90's by a centrist democratic president?  Clinton in the 90's proposed an energy tax that had the support of oil and coal.  It was defeated by democrats, not obstructionist republicans.  So let's be honest that this is not about those "nasty republicans".

Stamina- That's the hard problem, and Karsner only hints at the solution- that we need "independent institutions" that are "not subject to the erratic, unreliable whims of Congress".

Okeydokey.  It sounds very reminiscent of the idea Daschle advanced on his recent book on Health care.  Tom's idea proceeds from the notion that it would be insane to allow congress to set interest rates.  Today we have an quasi autonomous institution like the Federal Reserve that has the wisdom and independence to resist pressure to do the politically expedient.  So if we don't manage the cash supply this way, why should we manage the energy supply this way?

It's insane.  Until we have an independent energy regulatory agency with commissioners with 10 year terms, we are going to get jerked around with idiotic gas tax holidays, production tax credits (PTCs) to companies with the biggest lobbies, etc. etc.  The foundation economic theory (known as "Mechanism Design") is solid and unconflicted unlike typical republican pablum.  It's basically game theory that decides rules that are not prescriptive for particular outcomes (as with the Synthetic Fuels Corporation), that industry is then free to work within to create the optimal solutions.  The rules are designed to channel industry efforts towards a general goal (EG. not sending 700 billion overseas every year for energy), penalizing counterproductive activities in a dynamic fashion so that markets are unable to game the regulators.

But I will admit that political theory for these semi- autonomous institutions is less than ideal.  I am troubled by the notion that democracy must be protected against its worst tendencies by an unelected elite. 

Both McCain and Obama advocate energy independence, and by definition this means that they advocate government intervention in business. 

In the literature of politics, the narrative is that republicans do not intervene in markets, and as the tale goes democrats do intervene, and do so to ruinous economic results.  While the WSJ and other journals that are sources for economics reporting cannot be faulted for needing to write in a way that sells newspapers, this blind spot in coverage is exceptionally odd.

Take for example Stephen Power (Wall Street Journal Energy Correspondent) questioning David Sandalow (Obama Energy policy advisor) on CSPAN last sunday (8/17).  His most penetrating question was a generic repetition of a free market fundamentalist refrain that no one, not even McCain or Pickens ascribe to.  His question suggested Sandalow's proposals were foolish because government interventions often have "unintended consequences", and anyway "wouldn't markets simply readjust to the imbalance created by the government intervention"? 

Sandalow's response unfortunately played into the script, and he offered what could easily be spun as an apologist rationalisation of leftist economic theory.  He led with the fact of massive government support of oil trade in the form of military activities in the Gulf, but this is a weak lead because few in the orthodoxy view military policy as a form of market intervention.

Sandalow's lead should have been to forcefully point to the emperor's non existent clothes in the premise of the question.  McCain and Pickens, two individuals not known for leftist economic positions also state that the federal government needs to take action to end reliance on foreign oil.  Is this not market intervention on a massive scale?  The market, left on its own trajectory of achieving equilibrium will send $700 billion out of the US next year alone.  What McCain and Pickens suggest is that somehow that problem will be solved while staying true to a political philosophy that says government cannot solve market problems.  It's just plain silly that reporters allow themselves to be willing participants in a communication where republicans are allowed to spin such nonsensical stories.

In fact, there is no one on the national stage that is not advocating government intervention to deal with our dependence on foreign oil.  So the premise of these generic questions posed to democrats are not accepted by anyone- even those on the right.  Government will intervene in these energy markets.  We will do this despite the fact that we know there will be unintended consequences, and that markets tend to re-establish equilibrium. 

The question is whether we walk into this with our eyes wide open.  Republicans attempt to delude themselves that somehow they aren't really intervening and fall into the same economic traps.  Alternatively, we can walk into it not in a sonambulist "free market" haze of self deception, but do it fully aware of the limits and dangers of intervention.  Being forthright that we are taking the position that government will correct a market failure means that we can perform the interventions thoughtfully and carefully, drawing on our successes in past interventions and rigorously filtering proposed schemes to eliminate those with similarities to approaches that have failed. 

The key failure in responding to these false premise questions is to base communications not simply on factually supported argument.  That is insufficient and can doom the communication to failure.  Effective communication requires sophistication in the appreciation of the literature of politics.  What are the themes and roles that are being constantly replayed?  What role do you wish to be cast in?  Is the character you are creating a new one?  If so, have you developed that character for the audience so that they can identify with that hero? 

Don't take this as cynical manipulation of message for propaganda uses.  Great literature is simultaneously regarded as the source of the greatest expressions of truth known to man, but self-evidently fictions- untruths. 

As technocrats knowlegable of the details of policy, we cannot afford the luxury of simply telling ourselves that it is sufficient to craft programs that will address an exceptionally complex problem.  We must also craft a variety of narratives that accurately represent the issues, and present these choices to political leaders.  If control is not taken of the narratives, then the leaders attempting to advocate progressive policies will have a narrative projected on their policy. 

With narratives, there is no opting out.  Declining to craft one's narrative is not an option, because the opponent will be only too happy to craft one for you.  This may seem like a superficial exercise but the deception occurs only when there is a mismatch between the reality of the policy and the structure of the narrative.  This mismatch occurs because those adept at crafting narratives come from a marketing approach where narratives are treated as wrapping paper that often have little semblance to what is inside the packaging.  The outcome is that the public feels they were decieved- sold something they didn't believe they would be getting.

I was sanity checking some unchallenged assumptions I have been making about sustained Green Jobs in my state.  I wanted to record some of my notes. Looking down the road, I wondered where the sustained jobs are after the alternatives construction boom dies down.  Intuitively, I always thought biomass, being the most labor intensive, would generate the most jobs.  The numbers, at least for my local area don't look that great: 

At the height of production n the 60s. Hawaii produced a million tons of cane sugar a year. Brazil currently grows 172 million tons to generate 88 million barrels of ethanol, employing a half million people. At 1/172 the capacity, Hawaii's 1 million tons would produce 512,000 barrels (21.5 million gallons), retail value 84 million dollars (at $4 per gallon). The theoretical maximum jobs would be 2900 brazilian style low skill jobs, but the revenue stream can't support 2900 jobs at american wages, so modern american agriculture techniques would be used to cut that requirement. With such a small ethanol production figure, it's not going to support a lot of employment.

Nor does it do much for Hawaii's energy independence: the entire yearly production would last Hawaii only 17 days.

That's not a lot of bang for the buck: that much land for no energy independence for the islands, for that few a number of jobs, for at best carbon neutrality?

Certainly if we embark on the Gore plan, there will a huge number of Green Jobs in the near term.  No question- there will be a huge boom in retrofiting existing buildings, building utility scale alternative generation capacity, and the laying of the new national power grid.  That will be a big boost for the sagging economy, but I don't see generation as a substantial employer after the boom.

If I've got that wrong, are there facts and stastics to back up a story for substantial jobs on the energy generation side?

There is a PHEV conference in San Jose this week.

GM and Electric Power Research Institute (EPRI) announced a partnership with utilities to coordinate a new relationship between the automotive and electricity industries.  34 major PUCs nationally are signed on.

In the interest in redirecting online political efforts towards fact based collaborations, I have been experimenting with the Wikipedia model of collaboration.

One scheme is to understand policy in greater depth by annotating speeches by the the various policy advocates, advisors, and candidates. 

I have taken Al Gore's Meet the Press transcript from today, and placed it on the Policypedia wiki here.  If any of you are familiar with Wikipedia editing, feel free to contribute your annotations. 

Gore can and should propose Transportation fuel displacement as a mechanism for financing his plan that his July 17 speech described.   

One substantial source is the revenue that will otherwise go to OPEC for gasoline for our cars.  Next year, we will send $700 billion out of the US to pay for oil.  If we put in policies that effectively discourage the sale of non plug in hybrids ("PHEV"s) in the US by 2012, assuming a 3% turnover in the vehicle fleet*, by 2019 we will have 24% of the fleet in plug in hybrids.  Today, newer cars account for 1.7 times the mileage driven as older vehicles (source).  If PHEV owners  effectively are paying $2.40 per gallon instead of whatever gasoline costs by then (it's already $8 per gallon in the UK), it is not unlikely that these newer cars will be driven substantially more often than the current multiplier of 1.7.  But let's say the multiplier is only 2.0X.  Lets also conservatively assume that gasoline prices by some miracle are held down to an annual increase of 5% per year.  If you run the numbers, this means that we save 3.12 trillion dollars that would have otherwise gone to OPEC by the year 2021. 

That's where we get the 3 trillion dollars to pay for Gore's proposal.