Infrastructure breakdowns -- involving basic needs such as potable water, sanitation, transportation, and energy -- will be increasingly common during the coming unraveling. As economic pressures overwhelm individuals, households, businesses, and governments, maintenance budgets will be cut, harried employees will make critical mistakes, and corruption will increase, undermining standards and spurring misallocation of already strained resources.
What will make matters worse, however, is the fact that much of what underpins our modern way of life is already in bad shape, hurt by years of neglect. As I note in Financial Armageddon, "the American Society of Civil Engineers estimated in a 2005 'report card' that the nation’s five-year infrastructure investment need had reached an alarming $1.6 trillion." In "Business Books: Strain on U.S. Grid to Make Blackouts Common," Reuters details one particular area of concern.
Most people in the United States only think about where electricity comes from when the lights go out suddenly.
But unless the antiquated transmission grid is fixed, expensive blackouts that bring modern life to a grinding halt will become ever more common, according to "Lights Out" (Wiley, $27.95), a new book by Jason Makansi.
Before the 1980s, power generating companies were responsible for the entire chain of supply, from securing fuel to transmitting power to homes. Deregulation, meant to increase competition, has busted that chain apart and left the wires and substations that deliver electricity as a "neglected stepchild," Makansi writes.
As demand for electricity rises, especially in the hot summer months when air conditioners are humming, the result is an overstretched grid, exploding transformers, brownouts and blackouts.
Transmission only accounts for about 10 percent of the industry's assets, and for decades utilities and regulators have focused on more expensive parts of the system. Now, even electricity generated in ultramodern plants is dependent on the brittle transmission grid. "Imagine driving a Maserati over a road littered with potholes," Makansi writes.
Other parts of the U.S. power system make transmission rough.
Financial engineering has displaced systems engineering, Makansi writes, the worst effect of which was the California power crisis in 2000 and 2001, when power trading deals led to inefficient transmission, rolling blackouts, and spiraling prices.
Dwindling resources such as supplies of domestic natural gas and the exhaustion of local coal mines are likely to exacerbate the problems in coming years.
The U.S. government plans to import large quantities of liquid natural gas, but supplies will be vulnerable to the whims of producer countries, much as OPEC has influenced oil prices.
Increasingly, power plants as far away as the Midwest and even the East are relying on Wyoming for coal. A train derailment, for example, could slow generation, putting stress on other parts of the grid to make up the difference.
While the financial consequences of economic collapse will be severe, my guess is that the tangible impact on Americans' lives will be even worse.
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