Say Jeff Rubin is right. Say energy prices go through the roof. Will it really be the “end of growth” as Rubin claims?
Jeff Rubin was once the chief economist at CIBC World Markets. The bank wouldn’t let him publish his first book, so he quit his job and published anyway. In his new book, The End of Growth, he claims rising oil prices will bring the end of our oil-based economic growth. And he claims nothing can replace it.
Rubin has a long string of successful predictions. You should probably take his forecasts more seriously than, say, the economic forecasts of Finance Minister Jim Flaherty. Flaherty didn’t recognize the 2008 recession even after it started.
Rubin has some good news. He thinks prices will go so high we won’t be able to afford enough fossil hydrocarbons to roast the world. We won’t be rich enough to destroy the environment.
The bad news is that we save ourselves by having a kind of super recession. Rubin’s key argument is that when oil prices rise, the economy crashes. When the economy crashes, we burn less carbon. The price of fossil hydrocarbon – the price of oil – sets the speed limit for the economy.
Rubin is right that every time oil prices have shot up in the past, the economy crashed. It is also true that extracting oil and coal is getting more expensive. And it is true that high prices will reduce oil consumption. So far Rubin is dead on.
But Rubin argues that permanently high oil prices will mean a permanent end to growth. Here is where he may be wrong. When prices shoot up, we start to make adjustments. Cars shrank after the 1974 oil crisis, after the 1981 oil crisis and after the 2007-2008 price peak. But prices didn’t stay high for long, and the adjustment process stopped. Old industries were hurt, but new ones didn’t have time to get started. Price increases hurt growth in the short run.
But if Rubin is right, prices will stay high this time. The adjustment process will go on and on, creating new jobs and new opportunities. Hybrids, insulation, geothermal power and public transit will be economically attractive. So will condominiums downtown. High oil prices will make it too expensive to live in the suburbs and too expensive to ship lettuce from Mexico. People will be buying new homes downtown. The greenhouse industry in Canada will boom. If oil prices rise permanently, we will rebuild our cities, redesign our transportation system and reinvent agriculture. That creates jobs.
But wait a minute! Can we really afford to rebuild the entire economy? Surely high oil prices will suck so much money out of the economy that the Gross National Product (GNP) will have to fall.
Here is where Rubin makes his second mistake. Economic growth is the increase in GNP. GNP is really just the amount that people earn, plus or minus a bit of borrowing. At first, when oil prices go up, people spend more of their earnings on oil. Then they gradually shift spending to other products. The money doesn’t go away. GNP doesn’t fall. In fact, we may have to spend more. Rubin’s theory is right; his title is wrong.
GNP could fall if the government drops the ball. A federal government that hates carbon taxes and subsidizes oil companies could make you poorer in the long run. Growth ends when we refuse to change.
Northerners will suffer more than southerners, unfortunately. Small towns and rural communities take more fuel to run. You might be smart to look for a home near the centre of town. And move closer to work. And get a smaller house that is better insulated. And get rid of the pickup. Rising fuel prices will drive up food prices. It takes a lot of oil to produce meat, so you might try getting used to a vegetarian diet.
You are going to travel less, so you should be campaigning for more bike paths and recreational facilities. In fact, making your hometown prettier and more efficient could be your best response to Rubin’s “end of growth.” And it might actually make you better off.