Counterparties

By Felix Salmon
January 22, 2011
PDB, Nasiripour

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How to balance the budget: first pass a balanced bill of tax and spending hikes. Then repeal the spending hikes — Mankiw

The Chinese princeling and his $32.4 million Australian tear-down — SMH

The WEF is asking for questions for Medvedev. I hope and doubt that a Khodorkovsky question will make it through — WEF

“Pictures of ruins are now Detroit’s most eagerly received manufactured good” — TNR

Why on earth is Immelt the jobs tzar? “GE may be wonderful in many respects, but US job creation isn’t one of them” — PDB, Nasiripour

Loss shows Bank of America still flailing — Fortune

Comments
21 comments so far

I too have been puzzled by the selection of Jeff Immelt. GE is one of many American firms that have focused on reducing their US labor force while expanding overseas.

I believe that we need to avoid feather-bedding jobs so that we can be efficient, but that doesn’t mean that all job growth needs to be off-shored.

Has Obama requested that Immelt make a commitment for GE to increase US jobs given his new position? Or is this another push to increase corporate profits and income for the wealthy?

Posted by ErnieD | Report as abusive

Yes it is easy for a Mankiw, a Harvard Economics Professor to make such glib political and satirical remarks, under the guise of keeping up with his students and alumni. He of course has great Healthcare coverage himself. Is it subsidized? Unlike his glib remark I am totally serious. He should denounce it and pay from the pocket.

If Mr.Mankiw believes the tax cuts for the rich were and are the answer in times of deficit… then why aren’t there more jobs? He helped create the Bushenomics that favoured the rich and threw crumbs at the middle class by offering tax cuts for all. It is still as much as a failed idea , yet he hangs onto it with pride. Pffft!

People can go bankrupt when they are ill. People lose their homes, livelihood, become depressed, more ill, may make more family ill and lose jobs, delayed treatment means more complications and expense, they go to work sick and make more people sick, increase their cancer and chronic illness risk, as they get more ill their inability to be hired puts more burden on the welfare, unemployment system. Someone who has been there can fill in more spaces … and all of these things will increasing worsen as the economy continues to fail.

People also succumb and die, but maybe that is the ultimate reasoning after all. The weak are culled…

There is no coincidence that this glib remark forgoes the ethical and humanity aspect … that healthcare coverage for more people actually means a far healthier populace both mentally and physically and a healthier economy as a result.

The Libertarian in him can’t look at the world like that, he concedes. It is a greed and numbers game of economics he is teaching his students, not reasoning for health reform.

http://wallstreetpit.com/58329-what-is-h ealth-care-reform

http://wallstreetpit.com/56274-why-does- it-cost-230-billion-to-repeal-health-ref orm

http://voices.washingtonpost.com/ezra-kl ein/2011/01/greg_mankiws_thinking_cap.ht ml

Posted by hsvkitty | Report as abusive

GE, under Inmelt, has been investing heavily in alternative energy and medical technology. They are still a big exporter, and Obama wants American companies to export more, so maybe he thinks Inmelt can offer some insight into increasing exports and developing innovative energy and medical products.

While I am not a fan of most giant corporations or their CEOs, I think Inmelt is the Gorbachev of big business. He started GE’s ecomagination campaign, and has pushed green initiatives, while many people called for his ouster because of GE’s lackluster performance. He has kept GE focused on cleantech in spite of criticism from his peers. If you want a person to lead American businesses into the 21st century, with all of the competition the US faces from low cost manufacturers, you’re going to need somebody with street cred among the overpaid crowd. He has it.

Posted by KenG_CA | Report as abusive

@KenG, if Immelt is the Gorbachev of GE, does that mean we should look for GE to bankrupt and be broken up in the next few years?

You comment that Immelt’s tenure has been characterized by a big push into “cleantech” and “lackluster performance.” Does someone need to point out the connection or can you figure it out for yourself?

Posted by johnhhaskell | Report as abusive

@johnhaskell, the analogy was that Gorbachev did what had to be done with the Soviet Union, which was break it up, even at risk to his life. While Inmelt’s strategy has not put his life at risk, his career has certainly been threatened with his cleantech initiatives.

As for your second point, some people can look beyond a year or two when running a business. Unlike most managers, who make decisions with only very short term results a priority (cough – banks -cough – sub-sub-prime mortgages – cough), there are some executives who want to ensure their company can be sustained, even after they have retired with nine digit bonuses. Inmelt understands that while politicians in the US may not recognize the need for change, other countries (who buy GE products) that are run by less faith-driven politicians than the US will effect change that demands a new course by businesses that want to sell in those countries. And it’s still a big world outside the US.

I guess if GE’s shareholders are as impatient and focused on the short term as you, though, they might dump Inmelt and break up the company.

Posted by KenG_CA | Report as abusive

Whether or not Immelt has “street cred” (I suppose it depends on the Street you’re referring to), the articles were correct that he has been a jobs destroyer, not creator. And the green tech folks are beginning to repudiate the meme that they were ever about job creation as it becomes clear that there is no possibility of significant domestic employment in green.

Wouldn’t it have been a more relevant symbol, and likely leading to a more potent result, to appoint a successful entrepreneur or leader of a growth company? This appointment looks like it’s all about appearances, not results.

Posted by Curmudgeon | Report as abusive

GE continues to push their fighter engine with support from some Congresspeople because of “jobs.” This is the engine that Gates is adamant is unnecessary: http://www.bloomberg.com/news/2011-01-21  /obama-continues-to-oppose-ge-f-35-engi ne-with-immelt-as-adviser.html?cmpid=yho o

I will take Gates’ opinion anyday over a salesman’s and the local Congressional delegation.

GE makes lots of medical equipment. That’s nice, but one of numerous reasons for the US’s astronomical healthcare costs is too many unnecessary and expensive medical devices.

On the clean-tech front, GE has always done a great job with things like turbines. Ultimately, energy independence and sustainability will need to be fought in a house-to-house battle with things like smaller cars, better suburban garden designs etc. The vast majority of the solution is in small changes of how we live day-to-day, similar to the solutions to better retirement savings etc. Unfortunately, that is unpopular politically since everybody wants the solution to be somebody else’s problem.

As far as I can tell, Immelt has spent a fair amount of time lobbying for the US government to purchase things that are a waste of money as part of the military-industrial and helath-care-industrial complexes. We need people in these positions who are focused on making government spending more efficient while creating good jobs inside the US. Is Immelt the man for this or is he just another fox being put in the hen house?

Posted by ErnieD | Report as abusive

Remember, Obama will promote still more spending, um, investment in his speech, without a worry in the world about the deficit (in fairness, the other party is pretty good at that too, but the sport is in criticizing the party in power). Who better to appoint as your jobs czar than one with extensive experience in lobbying Congress for billions in spending?

Posted by Curmudgeon | Report as abusive

Curmudgeon, rightly or wrongly, corporate execs have been able to project the belief, through the pathetically incompetent and gullible media, that Obama is anti-business (I don’t believe he is, but that is of course, irrelevant). When it comes to politics, perception is reality, so you’re right, Inmelt’s appointment has a lot to do with appearance. Obama needs to appear to be willing to work with business leaders, as opposed to just being willing to work with business leaders (i.e., he has been cooperative, it’s just that his political opposition has created the perception he isn’t).

I didn’t mean to say Inmelt was the best choice, just that he isn’t horrible and there is some justification for it (it is mostly symbolic, anyway). Would a successful entrepreneur or leader of a growth company have been better? Yes, but those people do not like politics, and probably aren’t interested in being part of that mess. Anybody who has risen through the ranks of a mature, giant multinational knows how to play political games, because that’s the only way they get to the top.

Also, I haven’t seen the greentech folks repudiating the meme about job creation, any repudiation being promoted now is a PR campaign against greentech by incumbents with no stake in progress.

ErnieD, I didn’t say he was perfect. I don’t like the military aspect of GE, nor their nuclear power business (at least not until they come up with a solution for dealing with waste), and I think their financial unit played a part in the collapse. But it’s politics, and unless you are a dictator or have both houses under the control of your own personal hammer, you have to compromise. Inmelt is a compromise, and Obama is going to be doing a lot of compromising, if he wants to get anything fixed, instead of just getting re-elected.

You also kind of implied that GE’s only involvement in clean tech is in turbines. They also are a leader in wind energy, and are getting involved in solar. They are committed to selling products that consume less energy, and being a leader, that gets the sheep among the corporate world to do the same thing.

Is Inmelt’s selection an A? No, but it’s not an F. You all need to lower your expectations, we’re still recovering from 8 years of bad decisions.

Posted by KenG_CA | Report as abusive

Ken, thanks for the clarification. Google greentech and jobs, and you will see the articles come up about the backtracking on jobs. I happened across an NYT article last week written by a professor in response to the closing of a solar panel factory in MA in favor of China (he came right out and said that green was never about jobs), and it prompted me to research it a little further. The greens are pretty much in full retreat on this one. Here’s a random example: http://www.newsweek.com/2010/03/18/growi ng-green-jobs.html .

The only surprising thing is that it’s taken this long. There is no possible way for green to make up for the millions of auto jobs lost; it simply isn’t nearly as labor intensive. The article above compares green manufacturing to semiconductor, where most fabs employ only a few hundred people.

Posted by Curmudgeon | Report as abusive

Curmudgeon, I read those articles, but don’t agree with them. There are always people who take positions they later renounce, but my advocacy for greentech has always included jobs as a major reason. It’s not going to be our salvation, but since the US’ ability to compete is always hampered by the value of the dollar, we need to constantly create new industries to sustain our standard of living, even if we know they will not last.

The mini-computer industry is a good example (one that I started my career in) – its heyday lasted about 20-25 years, but it did lead to personal computers. The semiconductor industry itself didn’t directly create many long term jobs in the US, but without it, there wouldn’t have been so many jobs in the electronics industries here, jobs that have remained until recently, when a lot of the semi design jobs moved overseas. Without the personal computer indsutry centered in the US, I doubt if the web and all those dotcoms become ubiquitious.

I think a similar case can be made for greentech. Jobs for manufacturing solar panels are leaving the US, but not the ones for installing them, or wind turbines (a big component of the cost of a wind farm is the cost of insatlling the turbines, much of which is labor). And if any federal government can ever get its act together with regards to a new power grid, that would create a lot of jobs here, not to mention a more efficient power grid (efficiency = more $$ available for other spending or investment). If we shift more transportation to electric power, it will create jobs for building out the infrastructure required to support it. Investing in biofuels (another greentech initiative that was slowed down by the temporary crash in oil prices and an incredibly successful and subtle PR campaign by the incumbent energy producers to make it look bad for the world) will shift jobs (and revenue) from overseas oil exporters to American ethanol/biodiesel producers.

Criticism of greentech’s return so far reminds me of the response to the overbuilding of fiber for communications networks in the late 90s – many people said it was unnecessary. It wasn’t unnecessary, it’s just that the fiber buildout wasn’t in sync with the consumption of the capacity it created, but it eventually proved to be a good investment. It is very difficult to synchronize supply and demand in mass consumer products that are transitioning from one technology to another, patience and confidence (I don’t want to use the word faith) are required.

I think a big problem with greentech is that it is poorly sold. There are many clean energy products that pay for themselves in less than 10 years, if not 5, and people and businesses should be flocking to them – where else can you earn a guaranteed 8%+ return on an investment these days?

Posted by KenG_CA | Report as abusive

Ken, you might like this WSJ article, by Scott Adams, on trying to build the greenest house on the block. It’s humorous, and describes just how difficult it is to build green: http://online.wsj.com/article/SB10001424 052748704868604575433620189923744.html?K EYWORDS=Scott+Adams

Posted by Curmudgeon | Report as abusive

Thanks for the link, Curmudgeon. It was entertaining, and it is difficult to build green, but that’s whay it will create new jobs – there’s a lot of new technology that needs to be disseminated to the masses (and their contractors). Nobody said it would be easy, just worthwhile.

Posted by KenG_CA | Report as abusive

Anyone interested in clean tech should read the interview with Vinod Khosla in January’s Scientific American (unfortunately, behind a pay wall). He is a leading VC in the field and a scientist himself. Let me distill some of his insights:

1) if it doesn’t scale, it doesn’t matter
2) radical innovation, not incremental improvement, is the key
3) if a technology can’t be weaned off subsidies in 7 years, it will never fly
4) “One of the problems is that environmentalists have been very, very good about identifying the problems we need to solve. They have been horrible at picking the answers.”

Ken_G, you have to understand that defending Greentech in the face of evidence that is failing (failing to provide sustainable technologies, failing to provide jobs) won’t get you very far. We’ve been overpromised and the backlash is now coming.

Khosla’s vision for market- and science-driven tech is the only way forward.

Posted by LadyGodiva | Report as abusive

LadyGodiva, solar and wind scale, but you haven’t given them 7 years (thermal solar and wind are already at parity with gas and coal, and PV solar is just about there). Also, I haven’t noticed that Khosla has closed his cleantech fund (nor has he been much better than environmentalists at picking answers) and given back money, so maybe he hasn’t changed his tune on it as much as you think.

It took about 15 years for the Internet to create any significant number of jobs, but when it did start, well, you can see the rest. There is a lot of inertia to overcome from incumbent energy industries, whose indirect subsidies are formidable. There hasn’t been seven years of significant subsidies or even major investment in cleantech yet (and let’s not give these statemtnets by Khosla the same weight as Moore’s law, which was proven), so maybe you’re a little premature in declaring failure.

No technology will stay deployed for over a century without constant political support, and that is what the fossil fuel industries have been most adept at securing year after year. At some point, bribery, I mean lobbying, won’t be enough to suppress clearly superior solutions. Like I said above, you need patience.

Posted by KenG_CA | Report as abusive

Ken_G,
It all depends on when you start the clock, I suppose. Solar has been grinding away for decades with no “breakthrough” that would help it break even. Wind is doing better, but until you can store the energy generated you are just spinning your pinwheels.

As for your argument that fossil fuel is only successful because it receives “constant political support,” I would say the political support is needed for sourcing and keeping the competition under wraps. But the bottom line is that carbon based fuels are cost effective, whereas nothing else is.

As Chris Rock puts it, “Nobody has to sell drugs, drugs sell themselves.” Similarly, nobody has to sell carbon, it sells itself.

I will concede that a federal support system could be effective for promoting clean tech, most effectively in partnership with private engineering/VC firms like Khosla’s. Private groups might receive a share of profits if they put up some capital; they would offer critical market-driven corrective to the highly politicized start up field.

As it stands, however, states and feds dish out money almost haphazardly to those who are connected and bray the loudest. There is no system to speak of. And every prominent failure sours the public on ALL subsidies for clean tech.

I guess you’d have to say I am in the sypathetic-neutral camp on public support for clean tech right now. You’ll have to do more to convince me, but it is doable.

Posted by LadyGodiva | Report as abusive

“thermal solar and wind are already at parity with gas and coal, and PV solar is just about there.)”

Utterly laughable… wind done very very well is 2-3x the cost of gas and 5x the cost of Coal (unless you are adding a cost for carbon which is currently unpriced in the US.)

Solar thermal is a great technology and I see it doing great things in the next 10 years but it’s a MINIMUM of 5X the cost of coal. There are so few plants up and running that it’s hard to even get average prices because there aren’t enough datapoints to average.

Solar PV STARTS at 10x the price of coal fired power, I have no idea why you would want centralized generation from PV. The only place it makes any financial sence is where the transmission grid is fully saturated and putting it on rooftops will prevent the need for new powerplants and transmission lines.

I’m a huge beliver of and proponent for greener power, I agree that it is the only way forward. To say that they have reached price parody today is simply untrue… wind is the closest. We should be putting up wind turbines as fast as we can build them. I can tell you in my state they are not too popular with the locals though. If they are on your property you love them because you get big lease payments from the utility. If they are on your neighboors property you hate them because you get nothing and you still have to look at them. I think they are beautiful myself, but I’m in the minority on that view.

Posted by y2kurtus | Report as abusive

@LadyG, Sure, if you started the clock in the 70s, then, yeah, the renewable technologies have already taken too long. But you were using Khosla as a reference, and he didn’t invest in clean energy (nor believe in it) until the middle of the last decade. The arguments in the 70s for renewable energy weren’t about jobs, while it was definitely one of the selling points in the past five years.

The Chinese are selling solar panels for $1/watt, which is pretty cheap (and the reason why manufacturing solar panels in the US can not create jobs – we can’t compete on that price). You cannot pay for a gas or coal fired plant, and the fuel it requires for less than that.

A viable wind energy system in the US requires investment in a modern (late 20th century) grid, as we need an efficient means to distribute power (the best wind is where people don’t live). Insuring a continuous supply of carbon fuels also requires continuous investment in developing the sources, building transportation channels from those new locations, and then dealing with the by-products. This ignores the externalized costs of destroying natural resources that don’t have a well-paid lobby to protect.

The best thing the federal government could do for clean energy is to eliminate indirect subsidies for the carbon industries, and let those prices rise. If mountain top removal coal extraction wasn’t allowed, the price of coal would also increase. The destruction that process causes to water and land resources that don’t belong to the mining companies is never included as part of the cost, and should be.

I’m not claiming that clean energy is our job salvation, but that it will lead to the creation of new jobs, and displace some that are lost. The US has a standard of living that makes building anything here in high volume economically unviable. This means we need to constantly create new industries to replace the ones that migrate to countries with lower standards of living. We missed that window for building solar panels, but there is still a huge opportunity for other energy technology, as there will always be room for improvement. Unlike the technology industry, where companies usually have products in development that will obsolete the ones they just introduced, the energy industry has no competition based on delivering a better product. That industry relies on locking in customers to the same product, and blocking the development of competition. The oil industry was behind the demonization of biofuels, as they did such a masterful job of making ethanol the villain in the recent food shortage (there were so many other factors), that the environmentalists forgot that producing and burning ethanol is still far less toxic to the planet than extracting, transporting, refining, and burning oil, and took up the anti-biofuels battle themselves (fyi, one of the biggest investors in ethanol was Khosla).

@y2kurtus, ok, fair enough, not enough solar plants in operation to draw an accurate conclusion, but if they aren’t built, you will never be able to make a determination based on actual operations. I think they are close enough to justify building more.

The cost of building a wind farm is viable in many locations, but not everywhere, and it’s not 5x coal. The biggest problem, which I alluded to earlier, is that the best places for wind farms is far from where the electricity is consumed. However, if you factor in the externalized costs of extracting and burning coal and gas, wind and a new grid (which we need anyway) is cheaper.

Solar PV is not 10x the cost of coal in the southwest deserts. I’m not suggesting putting solar or wind anywhere, just where it makes sense. Which is why we need an upgrade to the grid. It’s an investment that will pay dividends to the entire nation over the next three decades, if not more.

I don’t understand the objection to wind turbines. I think they are works of art, and better looking than the giant transmission towers and lines that people accept without complaint. I guess they might be noisy, but I would rather have noise than acid rain, mercury in my rivers and lakes, and coal dust covering my home. And I don’t even have to mention the chaotic climate that many people refuse to accept is related to burning carbon fuels.

Posted by KenG_CA | Report as abusive

@y2kurtus – I love the majestic views of the Coachella Valley windfarm coming through the pass on I-10 from LA. Wind is a great resource, but the late Ted Kennedy killed the Cape Cod Wind Farm (my neck of the woods) for many years until he passed away, simply because he didn’t want the windmills cluttering his view from Hyannis. I think too many people don’t see the stark beauty in them.

Posted by Curmudgeon | Report as abusive

“I would rather have noise than acid rain, mercury in my rivers and lakes”

Amen to that. Every form of energy has enviromental impacts and costs. While wind and solar are more costly than coal, I’d rather pay more for my power and leave a cleaner planet for my kids… that we can agree on KenG_CA

Posted by y2kurtus | Report as abusive

Solar is one of the most promising technologies precisely because it does NOT need to be massively scaled. Put PV panels on enough roofs and you meet a few percent of our energy needs without adding to the transmission burden or building any new plants.

I also like the concept of natural gas fed fuel cell cogeneration systems for much the same reason. They have the potential for highly efficient energy conversion without adding power lines.

Is surely easier to build into new construction than to retrofit on a 100+ year old house, however.

Posted by TFF | Report as abusive
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