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Johnson: Obama's Window of Opportunity in Libya

Ivory Johnson, Scarborough Capital Management, Inc
Tuesday, 22 Feb 2011 | 12:20 PM ET

The political unrest in Libya gives President Obama a chance to do the “big things” he discussed in the State of the Union Address, not by convincing Congress, but through public opinion. It seems the one thing America dislikes more than an evil dictator is a democratic government for and by the angry people that affects oil prices. Never careful about what we wish for, the escalating protests in Tripoli may be a fortuitous series of events.

It’s important to note that Egypt, Yemen and Tunisia are not major oil producers and there was no serious talk of shipping disruptions in the Suez Canal. The greater danger lies in the unmistakable scent of instability spreading throughout the Middle East and North African region that accounts for 36 percent of global crude output. Keep in mind that every 25-cent increase in a gallon of gas reduces the GDP by .25 percent and costs 270,000 jobs. What bad timing that would be?

President Barack Obama News Conference
CNBC
President Barack Obama News Conference

The President recently spoke of the Sputnik moment, promoting vast investments in education and new innovations to be funded by the government. In the spirit of specious Congressional discord, uninformed free market fanatics routinely dismissed his plan as a waste of taxpayer resources. The mere thought of inventing the next industry with a little seed money from Uncle Sam was too far fetched.

Truth be told, our government has a storied history of funding technological solutions. The Defense Advanced Research Projects Agency (DARPA) is the research and development office of the U.S. Department of Defense that was founded in 1958 in response to the Soviet Union’s launch of Sputnik. Lo and behold, DARPA created the predecessor to the Internetas far back as 1969, is responsible for the early development of microchips and can also claim credit for networking computers. Venture capitalists didn’t fund these projects; instead it was the unwitting U.S. taxpayer.

The crisis in Libya offers the president a rare window of opportunity to give the American public a sense of urgency. A politically salient message, one that describes the consequences of an unstable Middle East and North Africa, could pave the way to increase subsidies for clean energy, and electric cars in particular. As it stands, the government has committed $2.4 billion for battery and plug-in vehicle manufacturingand gives consumers a $7,500 incentive. Sadly, General Motors has a modest target of 50,000 units this year, largely because of weak consumer demand, as there are few, if any, docking stations to recharge the battery.

General Electric manufactures such a WattStation for use in homes and businesses. Should these units, or their competitors, become visible in the parking lots of malls and supermarkets, the sale of electric vehicles would increase, particularly if additional tax breaks were extended. The WattStations would also promote the growth of small businesses the same way entrepreneurs took advantage of pay phones and ATMs, carving out a small fee every time the unit is used.

"The Middle East and North Africa may be another mercurial collage of diplomatic complexities, but it could very well give President Obama an opportunity to summon the collective American genius, reverse unemployment and regain the United States' competitive edge." -Scarborough Capital Management, Inc, Ivory Johnson, CFP, ChFC

Every electric car, however, represents one-third of a house to the electricity grid, and a sharp increase in the sale of plug in vehicles would cause rolling blackouts and defeat the purpose, although a workable solution is possible. Utility companies currently charge the same amount for a kilowatt whether it is consumed during normal peak hours or at night. To compound the problem, regulations require utility companies to produce enough electricity at all times, such that they overproduce at night to accommodate demand during normal business hours.

Thomas Friedman explains in “Hot, Flat and Crowded”that once smart grids are common place, utility companies will be able to charge less per kilowatt during non-peak hours. This provides a free market subsidy to electric car owners who could then charge their vehicles at night, sell some of the kilowatts back to the grid at higher prices during peak hours while they’re at work and have just enough battery life to make it home. Utility companies in turn would be able to reduce overall capacity, further eroding the country’s demand for energy.

Widespread use of electric vehicles would require furloughed autoworkers to manufacture the cars and WattStations. Still, somebody has to sell the product, unemployed IT professionals and engineers must improve the infrastructure and displaced construction workers can install and service the docking stations. State budgets would find relief from the payment of unemployment benefits, while at the same time increase dwindling tax receipts. The same could be said for the federal budget, whose own deficit has been impacted by lower revenue attributed to the recession.

Our dependence on foreign oil would decline, providing greater leverage on oil producing states such as Russia, Iran and Venezuela. Al Qaeda, who many would suggest is financed by energy profits, could find their budgets trimmed by a soft demand for petroleum. With all due respect to Ronald Reagan’s defense spending during the cold war, the price of oil was $17 when the Berlin wall fell, starving the Soviet Union of its main source of revenue. (*Oil hit two-year high on Libyan unrest - read the full story here)

The Middle East and North Africa may be another mercurial collage of diplomatic complexities, but it could very well give President Obama an opportunity to summon the collective American genius, reverse unemployment and regain the United States' competitive edge. The administration is searching for an acceptable blend of government support and a pro business environment because voters demand better jobs without compromising the nation’s balance sheet. The answer may be in Tripoli.

Ivory Johnson is the director of financial planning at Scarborough Capital Management, Inc. He is a Certified Financial Planner, a Chartered Financial Consultant and a frequent guest on CNBC. Mr. Johnson attended Penn State University, where he received a Bachelor of Science degree in finance.

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