Economist predicts end of growth as we know it
Among economists – and politicians for that matter – “growth” is considered the gold standard for economic life. If you’re a leader and your economy is not expanding, you can pretty much kiss your political career goodbye.
In the western world, most countries have experienced long-term growth, punctuated by periods of contraction, recession, stagnation and even depression. But these were states that were largely short term and were followed by periods of growth.
Not anymore, warns a prominent Canadian economist. Jeff Rubin, former chief economist and chief strategist for CIBC World Markets, is suggesting the model for growth long accepted in the west is out of date, made obsolete by high fossil fuel prices for as far as the eye can see.
Rubin believes all the “stimulus” being pumped into our economies by governments around the world can’t substitute for cheap oil. Forget about growth in the five to 10 per cent range, he said; get used to one to three per cent at best.
Rubin recently put his thoughts on paper with the publication of The End of Growth, which follows his earlier bestseller, Why Your World is About to Get a Whole Lot Smaller.
While growth may be a thing of the past, he suggests there may be an upside to its demise: he’s added a kicker to the book’s title that asks: But is That All Bad?
With fossil fuels priced at more than $100 a barrel, consumption will inevitably come down, he predicts. And some countries, like Denmark and Japan, faced with high prices have adapted “quite successfully” to the no/slow growth environment.
These two countries, neither of which boasts any substantial oil reserves of their own, are “ahead of the curve…I think we’ll find ways to live with less fuel dependency,” he said.
One result of perpetually high fuel prices in North America is likely to be a flight from the suburbs. People won’t be willing to commute 50-60 miles per day because it just won’t be affordable any more, he said.
Another impact of high fuel prices will be on the items Canadians import from Asia. “You won’t buy steel and chicken wings from China,” he said. “At a certain price, what you pay to move those chicken wings offsets the price advantage….The days of frozen lamb from New Zealand could be in the rear view mirror.”
Other changes are sure to follow, he continued. “In the world we’re going to with $2 a litre gasoline, only the affluent will drive,” he said. Expect more highways to be subject to tolls, as taxpayers shy away from paying for new thoroughfares. That will reduce traffic and people will leave their cars and switch to mass transit, he predicted. Ultimately, that can only be good for the environment, he added.
Rubin said current experience shows that even near zero interest rates and huge deficits – the stimulus he spoke about – can’t overcome the limiting effects of high fuel prices. These stimulus items “only lead to speculative bubbles.”
Turning his gaze south, Rubin suggested Alberta oil producers are eager to get approval of the Keystone pipeline to bring its oil to the gulf, where it will fetch $20 more per barrel than it currently does where the pipeline now ends in Oklahoma.
One way or another – whether it’s the Keystone pipeline or the Northern Gateway pipeline through British Columbia – a solution will be found to get Alberta oil to the world market and the higher prices that entails, he said.
But despite the vast quantities of oil in Alberta and in other locations, triple digit prices are here to stay, he continued.
As he turns his attention to the Middle East, Rubin’s glass-half-empty approach did not vary. Despite sky-high prices, $100-plus oil prices are not a panacea for the Middle East, he said.
“Population growth in the Middle East is unsustainable” and with female education at low levels, economic growth will stagnate, he said.
“Israel is going to have a lot of hungry people at its borders,” he said.
Looking at the gigantic natural gas fields that lie off Israel’s coast and which the country has begun to develop, Rubin cautioned against “the probability that Israel and Turkey will be on a collision course for natural gas deposits.”
So is the brave new world that awaits us all bad news?
Rubin offers some solutions: “Overall, we’ll need to become much more nimble in our approach to employment,” with several “gigs” substituting for one well-paying job, he writes.
“What we lose in stability, we could make up in variety and shorter workweeks. Job sharing could become a more common practice” and we “will all need to be open to the idea of change.”
Ultimately, however, we’ll have to make do with “less stuff” “but “we’ll also have more time to enjoy our lives,” he states.