What if city hall had to disclose its assumptions like Wall Street does?
For those unaware, Michigan has been hard hit by the increasingly insistent intrusion of an unpleasant reality (that the era of cheap energy is over). Detroit and Wayne County are especially hard hit, as the economic malady destroying the auto industry hit a city already weakened to the point of collapse by stark racial segregation and disinvestment.
What Michigan likes to do is imagine that “big projects” will save it, so it tends to build enormous temples to optimism, much in the same way the pharaohs built the pyramids as monuments to themselves: “I may pass on, but my mighty empire will last forever,” the pyramids say.
Well, in this country, not so much. Instead, you just get big tombs and sad little stabs at pouring big rivers of public money down leaky drains, hoping that somehow it will stick around long enough to fertilize some growth in the ruined soil.
The latest fantasy in Southeast Michigan is “Aerotropolis,” a gigantic industrial park centered on, you guessed it, the airport, because we all know that every day, in every way, flying’s getting better and better.
Sterling writer and columnist Jack Lessenberry wrote an article about the scheme here, which caused me to realize that one of the biggest reasons we have a hard time finding the capital needed to build a sustainable infrastructure in this country is that we squander it all on the kinds of investments that are:
- killing us, and
- clearly stupid at the time, no hindsight needed.
Hmmm, I thought — when Wall Street wants to issue a new stock, they have to put out a prospectus that warns the rubes about the key assumptions made and the vulnerabilities of the company being touted. Like when they want to sell stock in a company whose profits all depend on cheap energy, they have to include some warnings about that dependence in the prospectus.
What if public capital investments had to meet the same standards of disclosure, in particular by disclosing their assumptions about energy costs throughout the design life of the project? I don’t think many people would be rushing to pour money down an Aerotropolis rathole if they could see the assumptions about energy costs the planners were making.
(I jest of course — not about making them do the prospectus or actually figuring out what their assumptions are, but that the planners to date have given even a moment’s thought to what energy prices are going to do to the airlines that are the linchpins of this whole boondoggle. That is, my bet is that, right now, there are no assumptions about energy prices in the plan that could be disclosed. Instead, the whole thing just assumes that tomorrow will be like today, only more so, and energy will just be there whenever needed.)
Government planners, in the main, are horrible at identifying even the most obvious risk factors that will cause their projects to fail; no doubt many of the private interests lining up to profit from the “Aerotropolis” will make out fine so long as the project is sold; heck, they will probably even make out fine when it inevitably collapses, as they will get first crack at buying up pieces of it at firesale prices. The only people who will lose are the taxpayers who will (a) fund a project that can not possibly succeed and (b) not be able to use the money to fund the kinds of investments — wind turbines, electrified rail systems — that they actually need.
There is nothing more insane than to think that the solution to Detroit’s woes caused by the end of cheap energy will come from or even have anything to do with an airport, or an even more gargantuan airport, or anything to do with commercial flying at all.
Airlines are nothing but subsidy sucking, greenhouse gas producing, executive bonusing corporate welfare hogs, but there isn’t enough money in all of Michigan to keep the industry aloft when oil sails past $100/bbl and winds its way towards $200/bbl, which is a lot closer than many people seem to think. Even if you’re one of the optimists who thinks peak oil hasn’t already occurred, fewer and fewer folks think it won’t happen by 2010 or 2015 at the latest.
Once people realize that no amount of “free market magic” will ever bring back cheap gas (or jet fuel), any investments centered around airports are going to look as stupid and lonely as that People Mover.
I’m not saying Detroit won’t look reality in the eye and try to deny it once again — they’ve been in that business for a long, long time, and it probably feels natural to them. They’ve got this whole pathetic “Death of a Salesman” doggedness thing down pretty well, able to get out and try and flog the goods day after day …
But reality doesn’t care if you want to pay attention or not, it just is. And the reality is that anyone with an ounce of sense is not looking to make big plans contingent on cheap energy, period.
I’m coming to think that every public investment needs to have a prospectus, just like new stock issues, and in that prospectus would be a disclosure printed on every page: “The analyses used in this investment presume an average price of oil of $X between now and 2010, $Y between 2011-2020, etc.” for the design life of the project.
After all, if Wall Street is required to give the rubes that kind of disclosure before taking their money, why isn’t government required to do the same?