I have read the headlines the same as everyone else. People are screaming bloody murder because their retirement accounts have lost 20% in two weeks, but those same people weren’t complaining anytime they jumped 20% in two weeks. I have written before, huge swings in the stock market aren’t healthy, either direction. The stock market is meant to represent the combined value of all companies, each share of stock representing a tiny slice of the company. When a given stock doubles overnight, did the actual hard value of that company double overnight? In a way the answer to that questions is both yes and now. Yes, because if someone is willing to pay twice as much, then I suppose it is worth twice as much. No, because if you liquidate the assets of the company, you likely won’t get twice as much as you would have the day before.
Ex-Fed Chairman Alan Greenspan kind of kicked off this whole debacle when he told congress of the irrational exuberance in the real estate market. He said that the irrational climb in housing prices wasn’t sustainable and sooner or later people would get the message and the market would collapse, and it did. Now we’re seeing an irrational pessimism where many people are assuming nothing is worth investing in, nothing is worth buying. That isn’t true, but as long as people have no confidence in our financial system and the stock market, that attitude will prevail.
I developed an energy funding plan called the PRE-Plan. It allows individuals and businesses to invest directly in large-scale renewable energy projects. I believe that weather of not the public’s irrational pessimism is sustained, this type of investing will take hold since it is tangible. With this plan you aren’t betting on markets and financial instruments which very few if any individuals actually understand, you are buying units of production or generating capacity. For example, using the PRE-Plan, you might invest $6,500 in a wind farm and expect to receive about 900kWh of electricity every month for the next 20 to 25 years. The risk isn’t associated with the price of energy or energy markets, the risk is simply that the wind will blow and the turbines will spin. Your return on investment is a portion of the energy produced, not an expectation of money. It’s basically somewhat akin to purchasing a small scale turbine and installing it in your back yard and selling excess power to the utility and purchasing any shortfall from the utility; but the economies of scale make investing in a large-scale project far more attractive.
Consider other sorts of investments, like people investing in a farm and taking their return on investment as a portion of the crop produced. You are sharing the risk with the farmer that his crop will grow. The farmer is paid a percentage of the crop to cover his costs and for his efforts, which he is free to sell for whatever he can get for it and you are paid your pro-rata share of the remaining crop and you can either consume it or sell it. The same is true for the PRE-Plan and electricity. The project operator, be it a utility or an independant company, is paid a percentage of the electricity produced to run the plant, and you receive your pro-rata share of the remaining electricity to offset your electricity usage or sell to whomever is willing to buy it.
This sort of investing likely won’t work for manufacturing, instead it is best oriented toward recurring costs such as energy, water, highways. Highways currently use the concept of express passes to allow commuters to pre-pay for tolls. This concept is a little different in that it would expect investors to pre-pay even before the highway is built and the life of the project might be the anticipated roadway life before needing to be resurfaced as opposed to taken out of commission. This sort of investing would create two or more classes of consumer, owners and renters. In the case of the wind farm, the owners receive their pro-rata share of the energy produced, renters would buy their energy on the open market. Many if not most users would be both owners and renters, not owning enough of a resource to completely offset their usage.
Think of the ramifications of such an investment strategy. It would be entirely democratic. Assuming the minimum investment is quite low, like $10 as in the PRE-Plan, anyone could invest in a resource and receive the same relative benefit. It would also be democratic in that the public would determine what resources would be built; such that if the public wanted to fund the famous Alaska Bridge to nowhere, they’d be free to do so but it wouldn’t be a political decision. If the country wanted renewable energy, every household could invest and the more and faster they invest, the more and faster we’d have a renewable infrastructure. I suspect some public funds might be needed to promote the concept, but in return the government might be removed from the business of paying for infrastructure. The projects themselves would be competitive since investors, even small investors, would seek out the best and more profitable projects. I would also imagine that the public might want some public funds to be used to regulate the projects to ensure they were fair, equitable, and likely to succeed and meet environmental and safety standards.
It seems fairly clear that the aging infrastructure in the U.S. combined with a ballooning deficit and an litany of expensive issues threatening to swamp the government; a new means of off-burdening government must be found, and this may just be it. Our bridges and roadways are crumbling, our electrical grid is outdated and inadequate, our water supply is in peril, and because our political system is corrupt and morally bankrupt, we can expect that if the state and federal governments do addresses these issues, the process will be inefficient, expensive, and slow. If the public invests in these same items and expects to take their ROI in electricity, freeway access, energy-transmission, water, or whatever; the projects will be needed, competitive, and watched carefully by the investor/consumers to insure a reasonable return on investment.
People could start using this form of investing today. I hold a patent on this for energy, yet with the tight credit market, small businesses might adopt this plan to raise much needed capital. Let’s say you own a doughnut shop. You might offer 1 free doughnut a day for a year in return for an investment of $100. I’m not sure what the correct doughnut to dollar ratio is to entice people to invest in your shop’s future, but this strategy may just save some businesses that either do this or close their doors.
