A New Lost Generation?

A Lost Generation. That sounds ominous, haunting, almost unimaginable. How could that be?

In the United States, it was the generation of young people who came of age during and shortly after World War I. In Britain, the Lost Generation was the flower of youth decimated during the Great War. It often implicitly referred to upper-class casualties who were perceived to have died disproportionately, robbing the country of a future elite.

In France, those who passed through the fiery furnace of war were the Génération au Feu, the “generation in flames.”

Fast forward to today. Some would contend that we have our own Lost Generation, as history will show that the first decade of the 21st century was a step back for the American middle class.

While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.

For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996. And over the 10-year period, their income is down 7 percent.

“Economists talk about the lost decade in Japan. Well, with these 2010 data, we can confirm the lost decade for the American middle class,” Jared Bernstein, senior fellow at the Center on Budget and Policy Priorities told CNN Money.

Housing is a main culprit, as middle class families have most of their wealth tied up in the equity of their homes, which has taken an absolute a beating in a recession that has never left for some. High unemployment has only added fuel to the fire, leaving many people with little or no income at all.

Add to this dangerous mix rising prices. Even accounting for inflation, it costs more to fill your gas tank, go to the doctor and put food on the table than it did only 10 years ago. In short, it’s been a perfect storm for the middle class to be gutted, knocked down and dragged through the proverbial mud. Trust me my friends, I know this firsthand.

Two Trends That Don’t Help

“The American Dream has been under assault for 30 years,” said former President Bill Clinton, who cites two major trends as contributing to the destruction of wealth. The first is the idea of the shareholder supreme.

About 35 years ago, the notion of what a corporation changed, Clinton told Aaron Task with Yahoo’s Daily Ticker. Previously, corporations were “more or less” equally responsible to shareholders, employees, customers and the communities where they operated.

“Now, shareholders are up here and everybody else is way down there,” Clinton said.

Then there is popular notion – witness the rise of the Tea Party — of government being viewed as the enemy. Clinton said we’ve had a “30-year anti-government rant,” which is a uniquely American phenomenon.

“Instead of figuring out how the government and the private sector can work together, saying that ‘government is the source of all problems and if we just choked it off, never another regulation, never another tax, never had another program all will be well.’ There is not a single, solitary example on the planet where that’s worked, including in America.”

Earlier this month, the Census Bureau released its annual report, showing that the ranks of America’s poor swelled to almost one in six people last year, reaching a new high as joblessness hovered above 9 percent for a second year. The number of uninsured edged up to 49.9 million, the biggest in more than two decades.

The overall poverty rate climbed to 15.1 percent, or 46.2 million, up from 14.3 percent in 2009. It is the largest number on record dating back to when the census began tracking poverty in 1959. Based on percentages, it tied the poverty level in 1993 and was the highest since 1983.

The official poverty level is an annual income of $22,314 for a family of four.

These are sobering numbers. But rather than a lost generation, I think of today’s middle class as being abattered generation. For the most part, Americans still have not given up on the dream. They hope, they believe that things can improve.

And somehow, someway, despite the statistics, I have to think they are right. We may be down, but we are not out. We have some very deep reserves in this country in terms of strength and perseverance. (We also have some pretty good demographics on our side, which is another story.) Eventually, this ship will right itself and certain robber barons – those who nearly brought on financial collapse — will be defanged.

An Ugly Truth

Meanwhile, we will likely muddle through this difficult period with little or no job growth for the foreseeable future. And that puts unrealistic demands on economic development organizations, which are for the most part judged  on job creation by board members and elected officials who are either clueless or purposely demagoging.

In my prior life as an economic developer, I was told after I was hired, that it was promised that our organization would be responsible for the creation of 5,000 jobs over a period of time. I said that was nuts. I wasn’t there very long.

Laith Wardi, president of ExecutivePulse, a consulting firm specializing in advising economic development organizations on matters of business retention and expansion, agrees that job creation is no longer a realistic barometer, because net job growth will be limited to only certain pockets in the country. (I happen to live in one of them.)

“When economic developers and government officials set new job creation as their mantle or primary goal, they are going to fall short of that goal. Most communities are simply not going to be creating jobs,” Wardi said.

So there it is. There’s the hand grenade rolled into middle of the room. There’s the ugly truth. Net job growth will be a pipe dream for most places.

Today’s Casualties

Like the trenches of World War I, we are seeing the human casualties that are the result of huge structural changes that we are having a tough time understanding and accepting. And one of them is this: Fewer people will be needed to do the work.

By definition, as manufacturing becomes more productive, and the U.S. is the most productive country in the world in terms of manufacturing efficiency, fewer warm bodies are required.

And that is the real story of the lost generation – those who are (and will be)  not needed. As a result, they will be relegated to menial jobs if they can find them at all. The jobs of their fathers are gone.

In today’s fragile environment, it is becoming more clear every that Europe is the wild card. If things get ugly, Europe can take us down. I wish that wasn’t true.

Concerns are mounting that European banks may not have sufficient capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures. Lloyd’s of London stopped depositing money with some banks in Europe’s peripheral economies, Luke Savage, finance director of the world’s oldest insurance market, told Bloomberg earlier this week.

“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, told Bloomberg. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”

The worst case scenario, which is a widely held sentiment in the US financial community, is that if Greece goes into default, it could provoke a domino effect with defaults by Ireland, Portugal, Italy and Spain.

This would be Armageddon. It would turn current-zero growth performance in the industrialized world into a worldwide depression.

If that were to happen, a lost generation may turn into lost generations.

Need a partner in results-oriented site selection? Contact me, Dean Barber, at 972-890-3733 or at barber@barberadvisors.com Barber Business Advisors, LLC is a site selection and economic development consulting firm in Plano, Texas. Please visit our website at www.barberadvisors.com

Solar, It’s Been Good to Know You

In business as in life, some gotta win, some gotta lose.

The federal government recently lost a sizeable bet, one that some critics say should never have been wagered. But it was to the consequence of taxpayers. Not surprising, some are pointing fingers at the Department of Energy for not doing proper due diligence.

The cringeworthy failure is that of Solyndra, a solar-panel manufacturer that received about $527 million in federal loan guarantees. The company, promoted by the Obama administration as a successful example of the use of stimulus money to spur development of a clean-energy industry, shut down on Aug. 31.

And then it filed for bankruptcy protection on Sept. 6. Two days later, the FBI came calling, raiding the company’s Fremont, Calif., headquarters.

A Congressional committee is asking some very pointed questions, as it should. How did this happen? Why did this happen? Who shall we behead?

Both Republicans and Democrats charge that Solyndra essentially misled federal officials about its true financial situation, which I think is probably likely. Rep. Henry Waxman, D-Calif., said executives painted “rosy scenarios” about the company’s finances two months before it shut down in meetings with members of Congress.

But Republican committee members are also contending that White House aides exerted undue pressure on the staff at the Office of Management and Budget to give Solyndra a clean bill of financial health in order to get the loan guarantee.

“Was Solyndra just one bad bet by an administration rushing to claim credit for the first loan guarantee, or is it the tip of the iceberg?” said Committee Chairman Fred Upton, R-Mich.

Dead in the Water

Wherever these charges go, one thing is fairly certain — support for government  incentives championed by the Obama administration to build a renewable energy industry in the United States is pretty much dead in the water, at least for now.

“Solyndra has become a bit of a poster child for what can go wrong with government funding for renewable energy,” Stephen Munro, an energy analyst  told Bloomberg. He predicted a “hiatus in federal support for clean energy.”

Jonathan Silver, executive director of the Energy Department’s loan office, said that it wasn’t pressure from the White House but rather China that led the department to support clean-energy companies. China provided $30 billion in credit to its largest solar manufacturers last year, about 20 times the U.S. investment, Silver said.

China, it seems, is being hailed the boogeyman yet again, largely because it is the low-cost leader of solar panels.

Evergreen Solar Inc. (ESLR) of Marlboro, Mass., and SpectraWatt Inc. of Hopewell Junction, NY., filed separately for bankruptcy reorganization last month, blaming declining prices and competition from solar-panel makers in China. Neither company received a U.S. loan guarantee.

But the larger point here is that three U.S.-based major solar energy companies have filed for bankruptcy within a month of each other. It comes at a time when solar panel prices are declining and a slowdown in global demand is forcing weaker companies to team with competitors or just go belly up.

Mississippi Gambler

It is in this Darwinian environment that Mississippi this past week has placed its own sizeable bet on the solar industry. The Magnolia State is giving Sunnyvale, Calif.-based Calisolar a $75 million incentive package that includes grants, workplace training and a $59.5 million low-interest loan.

Calisolar has pledged to build a $600 million plant in Lowndes County and produce 16,000 tons of solar-grade silicon a year when fully operational. The company had been construction. So the company turned to Mississippi, a state with a good business climate and hungry economic developers.

Other new green energy manufacturers that have announced new operations in Mississippi include San Jose’s Twin Creeks Technologies (which makes thin wafers for solar cells and received $54 million in state assistance), Kior (a biofuels company that got $75 million) and Soladigm (a developer of energy efficient windows that got $44 million).

In all, Mississippi has committed about $323 million in incentives to green manufacturers, which is some pretty gutsy betting. I only hope that proper due diligence has been performed, because we are likely talking about some emerging technologies that may or may not have been fully proven. My guess is that there are some good bets and bad bets in the mix. Time will tell.

The Bottom Fell Out

A few years ago, prices for the silicon wafers used in most flat solar panels were soaring. Solyndra proposed building a different kind of panel, using cylindrical tubes coated with thin films of copper-indium-gallium-selenide that would pick up light from any direction. The company said its tubes would be far cheaper than the silicon alternative. Wrong.

Silicon prices have plunged nearly 90 percent from their peak in 2008, making conventional panels the better bargains. Solyndra now blames its cost disadvantage on the Chinese government’s willingness to subsidize its own solar panel
industry.

A Role for Government

A day after Solyndra’s failure,  the Energy Department awarded a total of $145 million to 69 solar energy projects taking place in universities, government research labs, and major corporations. Many of those grants are for as little as $750,000 apiece.

Steering modest amounts of money to early stage green energy researchers is fine by me. That is government promoting innovation, which I think is essential for the nation’s future viability as a technology leader. When misfires do occur (and they most certainly will), the costs are acceptable, while resulting successes can be very, very big.

But pouring half a billion dollars into a single unproven company? Now that’s just asking for trouble.

The American Energy Innovation Council, comprised of seven business executives including Microsoft CEO Bill Gates, earlier this week released a report urging Congress to continue investing in in energy research and providing loan guarantees for makers of new technologies.

The corporate leaders said we cannot rely solely on the private sector to boost research for new energy sources, because those investments are “lumpy, high- cost and high-risk,” and don’t pay off for decades. The group urged an annual $10 billion increase in funding for new energy.

“You can’t count on the private sector to come in and fill that space,” Gates said at a press briefing.

I can buy that argument. Still, I have to think that making lots of small grants to cutting-edge research labs is the way to go here rather than making huge “all in” bets on companies promising green jobs.

But it would appear that the Energy Department has been playing an “all in” game in some instances. The department has provided about $9.6 billion in loan guarantees to 18 developers and manufacturers since 2009, including $1.2 billion this past week to Abengoa SA (ABG) of Spain, for its Mojave Solar Project, a 250-megawatt facility in San Bernardino County, Calif. An additional 14 projects have received conditional commitments for $9.2 billion in guarantees, according to the Energy Department website.

Saturday Night Live used to have a comic Dana Carvey, who mimicked President George Herbert Walker Bush. The former president, according to the comic’s caricature, was constantly lamenting that pursuing certain courses of action would not be “prudent.”

Again, I have no problem with government investing in research and development initiatives to develop new technologies. But I do wonder how prudent we are being with these huge loan guarantees when betting on certain unproven horses. Of course, there are no guarantees.

Ethan Zindler, head of North American research at Bloomberg New Energy Finance, said the loan-guarantee program has to deal with the conflicting missions of funding innovative and sometimes risky projects while protecting tax dollars.

“Having some of these not work out is inevitable,” Zindler said. “The government is making technology bets and when you make technology bets, sometimes you win and sometimes you lose.”

And Good Time Charlie’s got the blues.

Need a partner in results-oriented site selection? Contact me, Dean Barber, at 972-890-3733 or at barber@barberadvisors.com Barber Business Advisors, LLC is a site selection and economic development consulting firm in Plano, Texas. Please visit our website at www.barberadvisors.com

A Whole Lotta Frackin’ Goin’ On

Maybe I am naïve. Maybe old T. Boone has got me bamboozled.

But I have to think that he got it right. The cynics among us (and I’ve been known to play that role) would contend that because T. Boone Pickens owns a hedge fund that invests heavily in natural gas assets, that’s the reason he is pushing hard for a structural shift to natural gas.

But I don’t buy it. I’ve heard the man talk and I’ve read what he has written. I don’t think this is about Pickens trying to further escalate his considerable fortune.

Rather, I think this is about an 83-year-old Texas billionaire who loves his country and wants to see an honest-to-God move away from our dependence on foreign oil, which he knowingly argues is costing the United States so dearly in terms of wealth and security.

“I’ve been an oilman my whole life, but this is one emergency we can’t drill our way out of.” Now that strikes me as a different kind of mantra from “Drill, baby, drill,” as exhorted by those public officials who are in the pocket of big oil.

We’ve been talking about energy independence for this country ever since the 1970s. Talk, talk, talk is all we seem to do, and still no concerted energy plan.

“A fool with a plan is better than a genius with no plan, and we look like fools without a plan,” Pickens repeatedly has said.

On July 8, 2008, Pickens announced the Pickens Plan, promoting a radical reduction in the U.S. dependency upon oil provided by nations in the OPEC cartel. Although the plan calls for introduction of various alternatives to oil, including wind and solar, its major component is the conversion of the nation’s commercial transport sector to natural gas. Back in May of this year, T. Boone wrote the following:

“Last month, the United States consumed about 19 million barrels of oil a day. We produced just more than 8 million barrels a day. Where did the rest of it come from?

We imported 11.5 million barrels of oil every day at a cost of $42.5 billion for the month. At that rate, we will be sending more than half a trillion dollars offshore just to pay for the oil we have to import.

Putting aside oil we buy from Mexico and Canada, which are the two largest oil suppliers, our next five oil-trading partners, in order, are Saudi Arabia, Nigeria, Venezuela, Angola and Iraq.”

Pickens has warned the country could very well be spending $10 trillion on foreign oil within a decade, again, much of it from people who don’t particularly like us.

Pickens advocates switching the nation’s 18-wheeler truck segment to natural gas fuels, of which the United States has an abundance of supply. Indeed, reports now show that we have a 100-year supply of natural gas, containing more energy than all the oil reserves in Saudi Arabia.

Having a 100-year supply is a good thing, suggesting that energy independence can be within our grasp. So while I’m onboard with T. Boone that natural gas should play a pivotal role in providing a long-term solution, here is where we may (or may not) differ:  I’m not so sure that we are always getting to this natural gas the right way all the time. (Notice I said I’m not sure.)

About a decade ago, Texas oil engineers hit upon the idea of combining two established technologies to release natural gas trapped in shale formations. Horizontal drilling—in which wells turn sideways after a certain depth — opens up big new production areas. Producers then use a 60-year-old technique called hydraulic fracturing or “fracking” in which water, sand and chemicals are injected into the well at high pressure to loosen the shale and release gas.

As a result of fracking, America’s energy landscape has been transformed. As recently as 2000, shale gas was 1 percent of America’s gas supplies; today it is 25 percent. Prior to the shale breakthrough, U.S. natural gas reserves were in decline, prices exceeded $15 per million British thermal units, and investors were building ports to import liquid natural gas. Today, proven reserves are the highest since 1971, prices have fallen close to $4 and ports are being retrofitted for natural gas exports.

The shale boom is also reviving economically suffering parts of the country, while offering a new incentive for certain domestic manufacturers to stay home. Pennsylvania’s Department of Labor and Industry estimates fracking in the Marcellus shale formation, which stretches from upstate New York through West Virginia, has created 72,000 jobs in Pennsylvania between the fourth quarter of 2009 and the first quarter of 2011.

The Bakken formation, along the Montana-North Dakota border, is thought to h0ld0 f0ur billion barrels of oil (the biggest proven estimate outside Alaska), and the drilling boom helps explain North Dakota’s unemployment rate of 3.2 percent.

But as with most things in life, with rewards also comes risks. On May 26, at annual meetings of Chevron and ExxonMobil, a significant number of shareholders voted in favor of resolutions asking for a report on the environmental and financial risks of fracking.

At Chevron, 41 percent of the shareholders voted in favor, while 28 percent voted in favor at ExxonMobil. Although the resolutions were voted down, even minority shareholder votes can have a big impact. A vote of 10 percent is usually enough to send a clear message to company management.

“We know there are risks,” ExxonMobil CEO Rex Tillerson told reporters after the meeting. “We’re not trying to characterize this as an activity that does not have risks.”

But by and large, it would appear that the oil and gas industry wants to pooh pooh those risks away. Drilling companies will assure anyone who will listen that there has never been a “proven” instance of fracking contaminating groundwater. Critics, however, can point to numerous fines and penalties issued by regulators against shale drilling companies for contaminating drinking water with methane and for spilling toxic fracturing chemicals into streams near drill sites.

By the definition of the industry, however, fracking didn’t cause those problems. That is because no one has yet shown that hydraulic fracturing fluid rises up a mile or so from the production zone, through layers of rock, to pollute drinking water aquifers.

Still, state and federal regulators wonder. Last week, the news broke that the Securities and Exchange Commission – the federal agency that has traditionally focused on insider trading, subprime mortgages and credit-default swaps, —  has started asking question about fracking.

Apparently, the SEC wants to make sure that investors are being informed about the risks a drilling company may face related to its operations, such as lawsuits, compliance costs or other uncertainties. The companies are being asked to supply information confidentially to the SEC. The agency, in turn, will likely require the companies to publicly disclose some of that information, according to government officials.

“If there’s something in [a company’s] field of operation that creates uncertainty, that’s something they may want to talk about” with investors, said a government official.

The SEC is asking what chemicals are being injected into the ground, what companies are doing to minimize water usage and what steps they are taking to minimize environmental impact, according to The Wall Street Journal.

We do know that fracking fluids being used by at least some companies include some toxic chemicals, such as benzene and formaldehyde, according to congressional reports. Some companies have said they will voluntarily publicize their chemicals online at FracFocus.org.

Here in my home state of Texas, now experiencing a historic drought, water usage is of great concern to many communities. Fracking requires a huge amount of water.

Just 20 minutes from my home, Grand Prairie, a suburb of Dallas, has decided not to sell water to natural gas drillers who use the water for hydraulic fracturing. Drillers typically use 3 million to 5 million gallons of water in the Barnett Shale of north Texas.

Meanwhile, the Texas Railroad Commission has approved publication of a draft rule that would implement the nation’s first law forcing natural gas drillers to disclose the chemicals used in fracking. The commission has scheduled an Oct. 5 public hearing in Austin.

In 2010, 15,466 new drilling permits were issued in Texas, according to the TXRRC, with 85 percent of them using hydraulic fracturing.

And that, my friends, is a whole lotta fracking going on.

Need a partner in results-oriented site selection? Contact me, Dean Barber, at 972-890-3733 or at dbarber@barberadvisors.com Barber Business Advisors, LLC is a site selection and economic development consulting firm in Plano, Texas. Please visit our website at www.barberadvisors.com