Planning the Next Bubble
Now that the housing bubble has burst, will government create a green-energy bubble?


This recession was not planned. The recovery will not be planned, either. One of the great conceits of Keynesian economics is that economic performance can be controlled by government technocrats. The reality is rather different.

The housing bubble that finally burst last year was pumped up by at least three forces: new technology, media and industry hype, and, most consequentially, government planning. Without these three there is no way the housing bubble could have grown so large.

When the dot-com bubble burst in 2000, our government geniuses “solved” the problem of the resulting recession by creating a housing bubble. Now that this plan has exploded to disastrous effect, the planners have come up with their next great project — creating a “green” economy.

During the housing boom, the business and political media were filled with fawning profiles of innovative and ambitious lenders, such as New Century Financial and Countrywide, and visionary homebuilders, such as Toll Brothers and KB Home, which were helping redesign the American dream. Barron’s touted Countrywide’s Angelo Mozilo as one of the world’s most admired corporate leaders for three years in a row. New Century was third on the Wall Street Journal’s “Top Guns” list of best-performing companies as recently as 2005.

Today, the pages of the elite media are filled with stories of Silicon Valley’s venture capitalists boldly investing in green tech, GE’s much-lauded efforts to power a green-energy future, and clean-tech automakers such as Fisker that hope to take on the world’s car majors.

During the housing bubble, politicians of both parties cheered every uptick in the rate of home ownership, heedless of the fragile and unsustainable financing methods behind it. Today, government policymakers can’t conceive of any limit to the benefits of switching to green energy. A big part of the Obama administration’s stimulus effort has been geared toward eco-friendly energy technologies. Republican hawks who want to wean the country off Middle Eastern oil also heavily promote renewable and other energy projects. Energy Secretary Steven Chu is picking winners in the green automotive and energy-generation sectors. Using our money as venture capital, he has provided the electric-car maker Fisker with $500 million in loan guarantees. This, even though Fisker already had substantial investments from the venture-capital firm Kleiner Perkins (the firm of which Al Gore is a partner; another partner, John Doerr, is a member of Obama’s Economic Recovery Advisory Board).

Indeed, we might see increased efforts to inflate a green bubble in the coming years as the Obama administration sees renewable energy as a way of driving down the unemployment rate. In a speech last week at the Brookings Institution touting proposals for job creation, President Obama urged Congress to “consider a new program to provide incentives for consumers who retrofit their homes to become more energy efficient, which we know creates jobs, saves money for families, and reduces the pollution that threatens our environment.”

Further, he proposed expanding “select Recovery Act initiatives to promote energy efficiency and clean-energy jobs which have proven particularly popular and effective. . . . With additional resources, in areas like advanced manufacturing of wind turbines and solar panels, for instance, we can help turn good ideas into good private-sector jobs.”