As a kid I was fascinated that pressure turned coal into diamonds. My friends and I would collect bits of shale rock, granite, coal and any other black stone, and wonder how we could crush these things into diamonds. It’s hilarious to think about this today. But, I would suggest the human desire to change one thing into another is universal and extends well beyond childhood.
In energy, we’ve seen coal turned into diesel, corn turned into ethanol, and now algae converted to fuel. These alchemies always seems like a miracle when first discovered. But, as the years pass–sometimes only a few years–the excitement deflates. Turning coal into diesel is a victory if you have no liquid fuel, but are sitting on a mountain of coal. You won’t mind too much that the energy conversion is negative. And turning corn into ethanol is great too. As long as you accept the energy capture is limited to 6 months of solar energy as the corn grew in the field.
These thoughts are turning over in my mind today as Barack Obama becomes President. It feels like he’s being handed a lump of coal, in a burst credit bubble and a nearly collapsed financial system, and is expected to turn it back into a diamond. I guess that means he’ll have to apply lots of pressure. And no matter which levers he chooses, they’ll all appear wrong in the early going.
Obama is going to try and turn infrastructure spending into jobs, tax cuts into entrepreneurship, education investment into future productivity, and I suppose a little hope into action. For a multiplier on all these alchemies, I’m inclined to use the slim margin on corn ethanol: 1.3. I think Obama will be lucky if he gets 1.3 units of output for every 1 unit of input. And just as corn ethanol producers have had to learn how thin that margin can be, we may have to learn all over again that while alchemy is indeed possible, only kids believe you can crush rocks into gemstones.
-Gregor
