Prescient economist Jeff Rubin sees a slower world as oil -- the energy that really matters -- gets super-expensive. (Might not be all bad.)
January 20, 2013 5:00 AM
"In the no-growth economy, Jeff Rubin expects our definition of a work week and 'full-employment' will be recalibrated."
By John F. Rohe
"We mined our way to growth. We burned our way to prosperity. We believed in consumption without consequences. These days are gone" -- U.N. Secretary General Ban Ki-Moon, World Economic Forum, Davos, Switzerland, January 2011
In 2004, oil was trading at $30 a barrel. By the summer of 2008, a barrel was commanding $147 and the world slipped into the deepest recession since the 1930s. Recessions also followed OPEC's price spike in the 1973 Yom Kippur War and during Iran's revolution. In 1981, the Iraq-Iran War affected 6 percent of the world's oil market and North America slipped into a double-digit recession.
"THE BIG FLATLINE: OIL AND THE NO-GROWTH ECONOMY"
By Jeff Rubin Palgrave Macmillan ($27).
In the first half of "The Big Flatline," Mr. Rubin correlates the relationship between cheap oil and economic growth. This perspective was foreshadowed by his 2009 book, "Why Your World Is About to Get a Whole Lot Smaller": "Nearly everything we do is inextricably bound to our use of energy."
Free-flowing oil has, since the Industrial Revolution, enabled us to rhapsodize over the ever-expanding prospects for economic growth. More oil translated into more growth.
Today, however, black gold no longer freely bubbles up on the back 40. The world's dwindling reserves are tapped in frigid, hostile, fractious and Deep Horizon conditions -- not conducive to cut-rate prices. Global reserves will never be depleted, but rising costs are very real.
In the long term, the cost of extracting a unit of oil will equal or exceed the value of oil extracted. At that point, the entombed reserves will remain safely sequestered where nature left them (and global warming activists may take a breather, with luck while there's still hope).
Mr. Rubin concludes nothing will replace crude. Even optimistic promises for renewable energy technology will fill only a fraction of the oil deficit. Oil is easily transportable through a well-established distribution system. By volume, it packs twice the energy of coal; quadruple of natural gas. Mr. Rubin doesn't expect atomic energy to fill the void. Every hopeful wave for cheap nuclear is met with another reality check on the shoals of Three Mile Island or Fukushima.
Nothing serves our appetite for growth quite like oil.
• • •
Before launching a career in writing, Mr. Rubin served for two decades as chief economist and strategist at CIBC World Markets, part of the Canadian Imperial Bank of Commerce. On 10 occasions, he placed first in the ranking of Bay Street (Canada's equivalent of Wall Street) investors, and he was among the first economists to correctly predict $100 for a barrel of crude. His position offered a contemplative perch from which to contrast the finitude of oil with the magnitude of an economist's faith in perpetual growth.
The squeeze in crude will squeeze economic growth. In Mr. Rubin's words, "At $20 a barrel, boosting annual oil consumption by 2 percent seems reasonable enough. At $100 a barrel, it becomes easier to see how a 2 percent increase in fuel consumption is enough to make an economy keel over and collapse."
If the rate of oil extraction fails to expand with demand, then the world will confront a zero-sum game. Each additional barrel of crude destined for China, India or the impoverished developing world will be one less barrel for the United States. The book explains why oil demand in emerging markets is "far less sensitive to triple-digit oil prices than demand in more traditional markets."
Mr. Rubin concludes the United States is not likely to prevail in this zero-sum game on a global playing field.
The second half of the book examines life in a no-growth future. Is it a safe bet for governments to wager their last recession-fighting dollar on the promise of growth? Mr. Rubin answers: No.
Will quality of life suffer in a stable economy? No. Will civility necessarily decline? No. And will the growth-addled economic community readily shed its addiction to growth? Mr. Rubin answers: Perhaps not right away, but over time history conforms to new realities.
While bracing us for change, the author predicts a hopeful future. In the no-growth economy, Mr. Rubin expects our definition of a work week and "full-employment" will be recalibrated. Immigration quotas will decline astride the shrinking demand for foreign labor. Job sharing could become commonplace. Governments will outsource more services. When less is produced, we may enter a more conservation-minded future. By Mr. Rubin's assessment, when we're liberated from growth and less consumed by consumption, the prospect for human dignity and civility could flourish on our next frontier.
As we inhabit a finite sphere, Mr. Rubin enables us to achieve a more respectable balance with finite resources and to plan thoughtfully a more dignified future.