Contrary to what most experts believe, author is convinced slower growth is the way to go
By TRACY SHERLOCK, Vancouver Sun May 28, 2012
Photograph by: GLENN BAGLO , VANCOUVER SUN
In his book The End of Growth, Jeff Rubin, former chief economist for CIBC World Markets, argues that the end of cheap oil will mean much slower economic growth in the future.
He says the one belief that unites all economists is their conviction in economic growth, so his premise is controversial.
“Growth is sacrosanct to a lot of people, particularly among economists,” Rubin said. “But a lot of people do instinctively recognize that when you change the price of oil, you change the speed limit of the economy.”
The book is a followup to Rubin’s bestselling Why Your World is About to Get a Whole Lot Smaller, a book on the same theme, in 2009.
He says slower growth is now inevitable because of the soaring price of oil.
“This takes it out of our hands. We can’t grow like we used to and trying to always have our foot on the gas pedal, whether it’s through zero interest rates or trillion-dollar-budget deficits. That’s no substitute for cheap oil,” Rubin said.
“That’s not going to make it easier, it’s going to make it harder, and if you don’t believe me just look at what’s happening in Greece and Spain now.”
Rubin doesn’t argue that we’re going to run out of oil; he argues that we’re running out of oil that is cheap to process and extract.
“What we’re running out of is the oil you can afford to burn. Peak oil isn’t really about what you can drill, it’s about what you can afford to buy,” Rubin said.
“It doesn’t matter if there’s 170 billion barrels of the stuff in the oilsands if the price needed to extract it and process it is more than your economy can afford to pay.
“Oil prices plunged to $40 a barrel in the last recession. At that price, the oilsands are no longer economically viable.”
He says slower economic growth will bring with it a silver lining for environmentalists.
“We no longer have to rely on meaningless gestures by politicians,” Rubin said. “When the economy stops growing, we stop emitting. For example, in 2009, U.S. emissions fell. It wasn’t anything Barack Obama did, but what happened is GDP shrank, and emissions shrank.”
He also says that when the economy was growing robustly, it was hard enough to get any action on environmental measures, but in a recession green values are off the table.
“Any time the economy sputters, environmental issues get shifted not to the back seat, but to the very back of the truck,” Rubin said.
“By shifting down the gears of economic growth, inadvertently, we’re going to do what environmentalists want us to do, which is reduce our emissions. I’m talking about real, now, in-your-face cuts. I do think that’s a good thing, but whether I think it’s good or not, that’s what is going to happen.”
He says it will be good news for environmentalists.
“I’m not very confident that we would necessarily do the right thing left to our own choices because we’re never going to sacrifice our economic well-being in the present, for the benefit of the future generations, no matter how much we love our kids or grandkids,” Rubin said. “This takes the decision right out of our hands.”
He says North America should be able to adapt to a world of slower growth without a huge reduction in well-being, but not without some adjustment.
“[We won’t adapt] if we insist on living like we lived when oil was cheap and abundant in 5,000-square-foot homes that are 30 kilometres from where we work and we drive SUVs,” Rubin said.
“Prices will force us to adapt in a way that we will be able to reduce our energy consumption so that energy prices don’t have such a devastating effect as they have in the past.”
He points to Japan and Denmark as examples of countries that have decreased energy consumption; Japan because it was forced to after the earthquake and tsunami in 2011 and Denmark by choice. He says that Japan has gone from a country that got 30 per cent of its power from nuclear power to a country that gets no power from nuclear in the year since the devastating earthquake and tsunami. He says Japan recently shut down its last nuclear plant.
“Every 14 months in Japan, every nuclear plant has to shut down for maintenance. No municipality has given them license to restart since Fukushima,” Rubin said, adding that the country has adopted a policy of energy conservation turning lights off, turning air conditioners down that has mitigated the effects of losing 30 per cent of their power.
Denmark has reduced carbon emissions 13 per cent since 1990, despite a heavy reliance on coal-generated power, he said. How have they done it? Rubin says the answer is not the source of the power, but the price of it.
In Denmark, the price of electricity is 30 cents per kilowatt hour, Rubin says, a “punitive” price that is three-to-four-times the price in North America. But the high price gets people turning off their power and reducing their overall emissions.
Rubin also cites a German policy of job sharing as being one way to survive during periods of slow or no economic growth.
“I think the German job-sharing program that saved 1.5 million jobs during the last recession, is exactly the kind of thing we should be doing,” Rubin said. “Instead of one person losing their job, maybe four people take a 25 per cent cut in hours. Yes, our incomes would go down, but bear in mind that much of that is borne by government taxation, and we would have more leisure time.”
He says job sharing would help with youth unemployment and with pensioners trying to bridge the gap in their earnings in a time of low interest rates. He says the end of growth is here, and with it comes the need for a new economic model.
“It’s time to get the foot off the accelerator, because we keep our feet giving the engine more and more gas without recognizing the engine can’t rev like it once did,” Rubin said.
“If we keep on doing it, we’re going to blow up like what’s happening in southern Europe right now.”
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