Looking Down the Road - Where's the Bottom?

Ok, so let's assume that Obama wins. I know there's still a lot of work to do, and complacency is the greatest threat. But just for the sake of argument, let's assume that Obama wins. History is made. We all congratulate ourselves, party into the night, and tumble into bed with tear-streaked cheeks. The problem is that when we wake up on the morning November 5 and shake off the cobwebs, the US economy will still be in freefall; the financial system will still be on life support; the US treasury will still be selling bonds to the Chinese as fast as it can print them; the global economy will still be decelerating; we'll still be bogged down in two wars; and GWB will still be President. Only the last of these conditions is likely to change by January 20.

And as if things weren't bad enough, here are some other problems to consider:

1. Oil and Energy Independence. The collapse in the price of oil, while entirely appropriate and predictable, poses a real problem for the goal of energy independence. It could well fall much further as attempts by OPEC to limit the fall are unlikely to succeed. $40/barrel is not out of the question. Over the summer of 2008 -- at $4/gallon -- we finally started the painful process of extracting the Oil-IV from the veins of the American economy. Given all the other pain around, the temptation to stick it back in and refuel the SUV is going to be almost irresistible.

2. The Crisis of the American Auto Industry. So far, declines in auto sales by the Big 3 have been severe but I haven't seen the data yet since the financial crisis really started to bite. My hunch is that sales have fallen off a cliff. GM may already be insolvent now or will be in a matter of months. The biggest temptation will be to do whatever it takes to keep the "Big" 3 alive, even if that means scrapping plans for energy efficiency. By the way, the idea that the Chevy Volt will save GM is laughable. It's a hail Mary strategy of the worst kind, destined to come up way short. I'll wait in line to get one, but I expect Honda or Toyota will beat GM to the punch in the end, and even if the Volt is wildly successful, GM will probably have to sell it at cost or perhaps below cost in the beginning, and will only be able to sell a relatively small number during the first year or two of production. The revenue impact of the Volt is negative for the foreseeable future.

3. Green Tech. Business plans for all manner of alternative energy are predicated upon high energy prices driving demand for new products and services. I haven't looked in detail at any of these plans, but I would imagine that even under optimistic scenarios, the breakeven price of oil is around $75-80/barrel. Just an educated guess. So pop. There goes the green tech bubble. The companies that are likely to succeed in this arena will be European companies that have been operating in a stable regulatory environment with predictable long-term support for energy alternatives. The world economy will surely produce the 5 million green collar jobs that Obama has been talking about, but unfortunately they are much more likely to be created somewhere other than here.

4. The housing market is still going to be moribund. Why would you buy a house in a half-built development where half the houses that had been built were either foreclosed of heading toward it?

In short, where's the bottom? What set of forces, circumstances, and energies is going to arrest the decline, let alone put us on a path to recovery? Obama will be able to change a few things, tweak some priorities, and hopefully bring home the troops from Iraq. But I don't know that the American public is ready for the harsh medicine that we really need.

By the way, this is the scenario where the global economy is in recession but not acute crisis, the orderly decline scenario. The unstable one is even worse.

Getting Started

No guarantees that this will not be another false start for my blogging career, but I hope to do a little better than I have in the past. Professional topics likely to include history of technology and industry, innovation, entrepreneurship, digital archives, and related issues. We'll how it goes.