This is the second in a two part series. You can read the first part here.
A considerable amount of money in the stimulus package is aimed at kick starting the development of renewable energy sources and (more importantly) the development of a national smart electricity grid. The project would be worth the expense regardless of how it helped the development of renewable energy sources. Huge as the sums are, they will barely scratch the surface in terms of building a smart grid. But if they act as a catalyst to get the process underway, the impact could still be significant in the long run. With lower energy demands from industry and home owners, the gradual development of more efficient energy distribution and the lower fuel consumption of car drivers, oil and natural gas consumption may never get back to where it was at the peaks of 2007/8. The EIA’s recent 2009 Energy Outlook report does not project US oil consumption will recover to 2007 levels before 2030 and gas demand will not recover before 2020.
Though we may be inching closer to bottom, we believe many firms have tried to retain labor, particularly in the early stages of the recession. Firms did this in the belief there would be an early turnaround at which time they should be prepared for the rebound. Now firms are shedding staff at an accelerating rate as metal producers, distributors and consumers realize there will be no quick bounce back. US jobless figures are set to top 10% by 2010. From that will be, if not a backlash, at least greater resistance to immigration and the import of low cost labor.
This is not necessarily all bad, if Americans save more, spend less and live within their means, it will of course prolong the recession but the economy that comes out the other side need not be less productive. Importing less oil and using what we have more efficiently would improve the balance of payments. Reliance on America’s traditional lead in technology and innovation could still allow a slimmed down domestic metals and energy industry to compete internationally. All of this, however, raises a question. Is the super cycle dead? May be there never was a super cycle as such. What we saw was a sudden surge of investment and trade on the back of a distorted world market. Cheap money meets cheap labor born from emerging markets willing to sacrifice living standards in return for industrial growth. China, India and so on will in due course continue on their path of industrialization but one of the premises of the super-cycle – that the emerging markets were a force for growth in their own right independent of more mature markets ” could be wrong. What do our readers think is the scenario outlined above too far fetched? If not should we be considering how our businesses would operate in such a landscape?