|Investor: Clean Tech Is Only Hope for the Collapsing Economy |
By Alexis Madrigal
March 17, 2008
Eric Janszen's new book will discuss the painful structural changes he says are
coming to the U.S. economy.
Courtesy Eric Janszen As the mortgage and financial crisis continues to notch
more victims, the question on many economists' minds is not whether a recession
will happen, but how deep it will get and how long it will last. But one
prominent voice thinks the high-flying finance industry isn't going to bounce
back -- and that we'll need to look elsewhere to set the U.S. economy back on
Eric Janszen is an angel investor and founder of the contrarian market website
iTulip.com, which The New York Times credited with "accurately predicting that
the [internet] bubble would pop." Now Janszen believes the American economy
needs a fundamental restructuring away from its foundations in finance,
insurance and real estate. His prescription: a new bubble based on green technologies.
In a widely discussed Harper's article in February, "The Next Bubble: Priming
the Markets for Tomorrow's Crash," Janszen argued that clean tech is the only
sector that could create enough "fictitious value" to replace the losses from
the housing bubble, if only temporarily.
Neither a clean-tech skeptic nor a booster, he wrote, "Given the current state
of our economy, the only thing worse than a new bubble would be its absence."
Wired.com recently spoke with Janszen to discuss the state of the economy, his
plan to pay for alternative energy with a tariff on oil, and how running fiber
to your home is good energy policy.
Wired: Though you focus on clean tech, you are making a broader argument about
the U.S. economy and its reliance on the finance industry. How is the economy
Eric Janszen: The elevator pitch is that we've gone through a series of
asset-price inflations that started back in 1995. What really kicked the whole
series off were some changes that the Feds made to the U.S. banking system to
get us out of the recession that we were in during the early 1990s. That
facilitated the beginnings of a growth in credit that supported the two bubbles:
internet and real estate.
Wired: And you argue that the next step is a clean-tech bubble that could create
$20 trillion of fictitious wealth?
Janszen: It's not really a bubble. I think of it as a legitimate use of the way
that our economy works and [how] our financial markets function now. The
alternative title for the Harper's piece was "The Good Bubble." Clean tech could
be an extremely efficient use of capital.
My editors over at Harper's wanted to make this thing as controversial as
possible. My forthcoming book goes deeper into the issue of how we're going into
the period of time where the FIRE -- finance, insurance and real estate --
economy is in a steep decline. Within a year or so, it's going to be very
obvious that resuscitating it in its old form will be impossible.
What's going to be necessary are some structural changes to the economy that are
longer-term and somewhat more painful.
Wired: What kind of structural changes are you talking about?
Janszen: Reduction of dependency on debt financing to stimulate the economy.
Over the last seven years, every new job that has been created has resulted in
$1.8 million of new public- and private-sector debt. That's obviously not
sustainable. That's way too inefficient. It used to be about 50 cents of new
debt was required to generate $1 in gross-domestic-product growth. Now it's $9
for $1 of GDP growth.
Wired: How bad do you think the U.S. economy is going to get?
Janszen: It's going to surprise people. The impact that housing is having on our
credit system is just starting to be felt. It's not clear, in the absence of the
concerted effort to make investments in the clean-tech sector, what geographies
or sectors are going to pull the U.S. out of the recession.
What tends to happen is that policymakers survey this scene and say: "What are
we going to do to get people working?" The focus on one sector of the economy
can drag us out.
Wired: You propose several prospective sectors to do that, including health care
and biotechnology, but toss them out. Why is clean tech different?
Janszen: Alternative energy and infrastructure is the only area of the economy
that is scalable and politically expedient. I mean infrastructure in economic
terms, so [that includes] roads, bridges, communications and the energy
Wired: You don't mention carbon dioxide emissions, anthropogenic global warming
or the environment a single time in the Harper's article. Do you believe that
there is the need for alternative energy because of environmental realities, or
are economics or politics driving these investments?
Janszen: My own feeling, when I look at what would be entailed in digging tar
sands up so we can keep driving big cars, is that I'd do everything I could to
The first order of business is conservation. Real political leadership means
putting together long-term interest ahead of short, and it's clearly in the
long-term interest to look at the environment.
Wired: Is it possible to have an energy policy that promotes alternative energy
without promoting a bubble?
Janszen: Absolutely. The whole mechanism of financing these speculative bubbles
needs to change. What'll happen is that we'll revert back to how markets should
operate. Capital will be much more risk-averse.
Wired: What do you see as the nascent financing and credit vehicles that could
come up with the trillions of dollars needed to finance clean tech without
creating a bubble?
Janszen: One way to do it is to put a floating tariff on the price of oil and
gradually raise the price up to $200 or $300 a barrel. As long as you do it
gradually, the economy can respond to it. That's the beauty of our system. It
has responded very calmly to an increase from $20 to $100. The economy hasn't
collapsed. It's definitely slowing, but it's not wrecking it. You could create a
process that gradually forced a lot of relatively painless transition without
wrecking the economy.
Wired: What types of infrastructure changes would be part of that transition?
Janszen: Transportation. The big capital-intensive effort is high-speed rail.
You need government to get its act together to pull something off.
I'm also proposing public-private corporations that have the deep pockets of
government but the obligations to shareholders of a private corporation. There
are going to be market mechanisms, so you don't end up years late and billions
of dollars over budget.
Another part of it is energy infrastructure. It's an archaic system with a lot
of coal power. I'm suggesting a lot of nukes, but modern ones -- pebble-bed reactors.
Communications is also a big part of it. If the high-level objective is to
reduce the energy intensity of the U.S. economy, why don't we run fiber-optic
cable to everyone's house? That will support applications to allow people to stop commuting.
It has to be a comprehensive, well-thought-out plan. We have to use less energy, period.