Most prophets of doom are a relentlessly dour lot – not only do they tell you why you’re heading straight to oblivion, they scowl at you while they do it. But John Rubino is different. He leavens his gloom mongering with a joke, a grin, and tales of life in Moscow, Idaho, where he skis, hikes and rides off-road vehicles with his family. You might call him a jocular Jeremiah.
There’s no denying John’s doom-saying credentials, though. Bacon’s Rebellion highlighted his thinking in an article aptly titled, “The Housing Bubble,” in November 2003, in which he elaborated upon his book, “How to Profit from the Coming Real Estate Bust.” John, a former Hanover County resident and writer for Virginia Business magazine, followed up that book by coauthoring another, “The Collapse of the Dollar and How to Profit from It.”
Now he’s written a third, “Clean Money: Picking the Winners in the Clean Tech Boom,” the first chapter of which lays out a case for looming environmental disaster that’s as alarming as anything coming out of Greenpeace. Yet, in characteristic Rubino fashion, while sounding the alarm for peak oil, rising energy prices, chronic water shortages and a host of environmental maladies from overfishing to soil erosion, he manages to find that profitable silver lining. Technology may not single-handedly save modern democratic capitalism, he says, but it will help prop it up. He’s a great believer in the power of the marketplace to clean up its own mess.
John’s themes are so similar to those we explore in Bacon’s Rebellion, and our way of thinking is so similar, that I plan to dedicate this and my next two blog posts to explicating his views on our current predicament. In this first post, I plan to sketch out his doom-sayer bona fides. In subsequent posts, I will delve into the rise of renewable energy and the smart grid, and then reinventing the automobile. Even before Obama’s porculus package promised to inject billions into “green tech,” venture capitalists were stuffing the technological pipeline for several years. A wave of innovation is about to burst upon us that will change the economics of energy.
Before we get into all that, let us return to the reasons for John’s pessimism.
First, John very clearly foresaw the outlines of our current economic crisis: Too much debt. “The basic thesis [of “The Coming Real Estate Bust”] was definitely right. We were borrowing too much money, and we were doing it via our houses. People would borrow against their houses to pay off their credit cards, and they would max out their credit cards to pay their mortgage.” The phenomenal run-up in debt was unsustainable. And when the housing bust finally occurred, it didn’t just lay waste to the residential housing industry, it took down consumer spending with it.
Sound familiar? Sounds like a no-brainer now. But John was saying that five years ago.
Is there anything he would have changed? If anything, John says, he was too prescient. It was 2003 when he predicted the popping of the housing bubble — too early. “From an investor’s standpoint, that’s almost as bad as being flat-out wrong,” he says. “If it had come out in 2006, it would have made a lot of people a lot of money.”
A sidebar to John’s prediction of the real estate bust was the collapse of the dollar. That hasn’t happened yet, but he’s still convinced it will. There is no pain-free solution to the U.S.’s economic woes. “We have only two choices – collapse under all the debt, like the Great Depression. Or repudiate the debt by cranking up the money supply.” The latter path, the one the U.S. currently is pursuing, will ineluctably lead to inflation and a plunging dollar. “We’ll borrow as much as it take to keep consumers spending and banks from collapsing. We’ll end up destroying the dollar.”
John has little faith in the Washington politicians. The Obama administration is making the same mistakes as the Bush administration – but on a larer scale. “Crisis is paradise for politicians,” he says. “There’s no limit to what they can spend. They’re actually under pressure to spend more. They’re enjoying themselves right now. … But if they understood economics, they couldn’t think they were actually fixing anything. Historians will not be kind to the people in charge for the last 20 years – or the voters who put them there.”
Following the Bush borrowing binge with an even bigger borrowing binge will only hasten the inevitable reckoning. The Bush/Obama presidencies may well create a brief spell of economic growth, but the next economic cycle will lead to an even bigger bubble and a bigger bust-up down the road.
Not only are our economic policies unsustainable, so are our environmental policies, John argues. “Even if we had a healthy economy, we’re facing a resource-related crisis that’s pretty big challenge. Even in good times, it would be hard to fix.”
The fiscal crisis limits our ability to make major changes right now, but it needs to be done. One of the few redeeming features of the Obama spending plan, says Rubino, is the billions of dollars he will be pumping into new technologies. A whole slew of companies have been launched with a slew of interesting technologies. All that government money will create a “huge tail wind” for them, creating the next generation of fabled growth companies. Some of these companies will become household names like Amazon.com, E-Bay and Microsoft – with valuations to match.
In all likelihood, the next financial bubble will be tied to green tech. Just as the Internet bubble transformed the economy in a mostly positive way, so should the green tech bubble. It may not be pretty when it ends, but it will re-shape our economy for the better. Although the trends John describes are national in scope, they will play out here in Virginia. If we don’t understand the nature of the problems we’re confronting, we cannot hope to address them.
