Jeff Rubin Q&A: What The World Will Look Like After The 'End Of Growth'

Posted: 05/12/2012 12:43 pm Updated: 05/14/2012 1:18 pm

Jeff Rubin has a message for all the economists and central bankers out there, waiting with bated breath for rock-bottom interest rates to kick the world economy into high gear: it’s not going to happen, and the sooner you realize that, the better.

As the straight-shooting former chief economist of CIBC World Markets argues in his new book, The End of Growth, triple-digit oil prices are here to stay -- a reality that will make it impossible for developed economies to return to the glory days of rapid expansion built on cheap credit and affordable fuel.

But as Rubin sees it, that’s not all bad news. Though he predicts permanently tepid growth will push Greece and Portugal into default, he also says it will reverse globalization, stop climate change in its tracks -- and put a limit on oil sands expansion.

It’s a view he concedes might not be very popular among those in the financial industry where he made a name for himself. But he says that’s because they’re still using a playbook that no longer makes sense.

As he told The Huffington Post Canada, “We’re trying to fuel our growth, because we feel that the economy has to grow. But that’s not recognizing that the economy’s speed limit has changed.”

HuffPost: What is the relationship between high oil prices and economic downturns?

Rubin: Oil impacts the economy in a whole lot of ways, almost all of which are not bullish unless you happen to be Fort McMurray. In the short run, the demand for oil is inelastic so when the price of oil goes up, people spend a greater percentage of their budget on energy and they have less to spend on other stuff.

But the real fatal impact of oil on growth has always been the inflationary fallout, because it induces a rise in interest rates that is growth-ending. As I argue, what really pricked the subprime mortgage market was ... the 35 per cent rate of energy inflation in the U.S. [consumer price index], and the U.S. inflation rate going from one percent to five and a half. The Fed had to follow [by raising interest rates], then all of a sudden the subprime market blew up.

That’s always the way that oil has deep-sixed our economies -- the ’73 recession, the ’79 recession [see 1973 oil crisis and 1979 energy crisis]. In ’91, when Saddam Hussein invaded Kuwait and left half its oil fields on fire, all of a sudden inflation spiked to six per cent, the Fed funds rate spiked to six per cent, and boom, we had another recession.



HuffPost: We’ve been able to recover from the other recessions you say were induced by high oil prices, so why not this one?

Rubin: All other oil-induced recessions were created as a result of an oil shock. Somebody closed the spigot. But then after the shock was over, oil came down to whatever the regular trading range was.

This time the increase in oil prices, which even in real terms was double the OPEC oil shock, wasn’t a shock. Nobody closed the spigot. On the contrary, the world never produced more oil. It was a basic imbalance between demand and supply. Oil prices plunged [during the recession], but the minute the economy started growing, boom: We’re facing those very same triple-digit oil prices.

We are now living in a permanent world of triple-digit oil prices, whereas in the past, those were temporary, transient shocks because somebody arbitrarily cut off supply. Nobody is cutting off supply. We’re getting oil from places we’ve never gotten it before.

But for me, peak oil ain’t what you can drill, it’s what you can afford to burn. Who gives a fuck what you can drill if you can’t afford the price? The oil industry is great at tapping the Bakkens and the tar sands, but if oil is $40 a barrel, then guess what? Nobody is in the Bakkens and nobody is in the tar sands because that stuff don’t flow at $40 a barrel.

So it’s not that we’re ever going to run out of oil in the absolute geological sense, but we’ve probably already run out of the kind of oil that we can afford to burn, because to get to that supply, we need prices that our economies can’t grow at.

HuffPost: What will the end of growth look like in Canada?

Rubin: I don’t think it’s the end of the world. What we’re going to see is probably pensioners continuing to stay in the labour force as they are already starting to do. We’re probably going to see young people staying at home longer and big increases in post-secondary education as double digit youth unemployment rates [persist].

We’ll obviously see a lot less immigration in countries like Canada the U.S. and Europe. We’re going to see a return of the local economy, a resurgence in manufacturing and agriculture. We’re going to see a shrinkage of the financial sector.

In terms of jobs, the German job-sharing program is the kind of thing the government should be focusing on instead of trying to keep interest rates at one per cent. Because in this new world, we may have three or four jobs as opposed to one job. Instead of firing one person, four people get 70 per cent of their income. I think that’s going to make a whole lot of sense in the economy, and maybe that’s not such a bad thing.

[If you lose] a quarter of your income pre-tax, you’ll buy less stuff but maybe you already have enough stuff. I think that we may find a lot of blessings in that. We may find that job sharing actually improves our quality of life.

HuffPost: Losing a quarter of your pre-tax income might not really hurt if you’re at the upper end of the income distribution, but what about those at the bottom?

Rubin: In today’s world, labour has no bargaining power because companies can just arbitrage differences in regulatory regimes and differences in wage rates by moving production to whoever offers you the best deal. But in a world where oil costs $120 a barrel, freight costs matter and all of a sudden it’s not so easy to separate production from markets.

The closer production is tied to markets, the more empowering it is to local governments, the more empowering it is to local suppliers and the more empowering it is to local labour.

We’re going to see the return of a lot of high-paying jobs [like] steelworkers, tool and die workers, chemical workers. Maybe there will be job-sharing at the steel plant but guess what? Two years ago those jobs were in China.

HuffPost: That sounds promising, but we don’t have a huge market in Canada. So if we’re only producing steel and cars for domestic consumption, then how many jobs are we really talking about?

Rubin: What you’re saying is that world markets give us tremendous economies of scale and those economies of scale give you such a cost advantage that that’s where production [is profitable]. That’s certainly the model behind China becoming the factory of the world. But I don’t think these economies of scale are that important in the world that I’m talking about because of transport costs. Those transport costs will eat up those economies of scale and a good chunk of the wage advantage.

HuffPost: We are facing a significant imbalance in Canada, with growth increasingly concentrated in the west. How will the end of growth affect this great divide?

Rubin: The fault lines in our country are going to be over energy -- not east-west, French-English -- it’s going to be between who has energy and who doesn’t.

Already, Ontario, which used to be the banker of equalization, is now a have-not province because it’s the largest oil-consuming province. Newfoundland, a perennial basket-case, is now a have province because of the offshore oil. That’s what oil has already done.

But it’s also creating a situation where Alberta might be able to reduce its corporate and personal income taxes while Ontario has to raise [taxes]. How long would CIBC or Stikeman Elliott be in Toronto if there weren’t Alberta income taxes? Those bank towers could just as easily be in Bow Valley Square or the Encana building. Those are the kinds of tensions that energy is going to create.

HuffPost: But I thought you said that we’re no longer going to be able to afford to pull oil out of the ground in Alberta.

Rubin: I question whether tar sands production will ever get to the levels they’re forecasting, not because it cannot be done in an engineering or geological sense and not because they don’t have a pipeline. But for a supertanker to come across the Pacific and schlep oil that comes from tar sands and has to be pumped over the Rockies and coastal mountains, there’s got to be a lot of economic growth happening to make that circuit make sense.

But just as triple-digit oil prices change the speed limit for Canada, they change the speed limit for China, too. What happens when China is growing at four to five per cent instead of eight to 10 per cent? Will it make economic sense for them to schlep oil across the pacific and have it pumped from the tar sands? Maybe not.

So maybe we won’t see the tar sands producing more than three million barrels a day, and not because any regulator tells them that they can’t. There’s a whole lot of global economic growth that underlies the platform of the tar sands doubling its production.

HuffPost: You say that the environmental implications will be the biggest silver linings of the end of growth. What do you mean by that?

Rubin: We’re going to find that like everything else, even our inexorable path to self-destruction is going to run out of fuel. We don’t need to burn oil or coal that the Intergovernmental Panel on Climate Change is forecasting that we’re going to burn in the next 20 or 30 years, not because the oil or coal does not exist as an absolute resource, but it doesn’t exist in bodies where we can extract at reasonable costs.

The notion of China doubling its coal consumption in the next 20 years when it’s already consuming 3.2 trillion tons a year is nonsensical. I’d like to know where those climate change modelers think that China is going to be getting that coal from and at what price.

I once forecast that oil was going to get to $200 a barrel. We can’t even run at $120 a barrel. If you think that emissions and climate change are linked, then that’s a fairly major silver lining.


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  • 10. Oil And Gas Accounts For 4.8 Per Cent Of GDP

    The oil and gas industries accounted for around $65 billion of economic activity in Canada annually in recent years, or slightly less than 5 per cent of GDP. Source: <a href="" target="_hplink">Canada Energy Research Institute</a>

  • 9. Oil Exports Have Grown Tenfold Since 1980

    Canada exported some 12,000 cubic metres of oil per day in 1980. By 2010, that number had grown to 112,000 cubic metres daily. Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 8. Refining Didn't Grow At All As Exports Boomed

    Canada refined 300,000 cubic metres daily in 1980; in 2010, that number was slightly down, to 291,000, even though exports of oil had grown tenfold in that time. Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 7. 97 Per Cent Of Oil Exports Go To The U.S.

    Despite talk by the federal government that it wants to open Asian markets to Canadian oil, the vast majority of exports still go to the United States -- 97 per cent as of 2009. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 6. Canada Has World's 2nd-Largest Proven Oil Reserves

    Canada's proven reserves of 175 billion barrels of oil -- the vast majority of it trapped in the oil sands -- is the second-largest oil stash in the world, after Saudi Arabia's 267 billion. Source: <a href="" target="_hplink">Oil & Gas Journal</a>

  • 5. Two-Thirds Of Oil Sands Bitumen Goes To U.S.

    One-third of Canada's oil sands bitumen stays in the country, and is refined into gasoline, heating oil and diesel. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 4. Alberta Is Two-Thirds Of The Industry

    Despite its reputation as the undisputed centre of Canada's oil industry, Alberta accounts for only two-thirds of energy production. British Columbia and Saskatchewan are the second and third-largest producers. Source: <a href="" target="_hplink">Natural Resources Canada</a>

  • 3. Alberta Will Reap $1.2 Trillion From Oil Sands

    Alberta' government <a href="" target="_hplink">will reap $1.2 trillion in royalties from the oil sands over the next 35 years</a>, according to the Canadian Energy Research Institute.

  • 2. Canadian Oil Consumption Has Stayed Flat

    Thanks to improvements in energy efficiency, and a weakening of the country's manufacturing base, oil consumption in Canada has had virtually no net change in 30 years. Consumption went from 287,000 cubic metres daily in 1980 to 260,000 cubic metres daily in 2010. Source: Source: <a href="" target="_hplink">Canadian Association of Petroleum Producers</a>

  • 1. 250,000 Jobs.. Plus Many More?

    The National Energy Board says oil and gas employs 257,000 people in Canada, not including gas station employees. And the Canadian Association of Petroleum Producers says the oil sands alone <a href="" target="_hplink">will grow from 75,000 jobs to 905,000 jobs by 2035</a> -- assuming, of course, the price of oil holds up.


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  • Syncrude Upgrader and Oil Sands

    The refining or upgrading of the tarry bitumen which lies under the oil sands consumes far more oil and energy than conventional oil and produces almost twice as much carbon. Each barrel of oil requires 3-5 barrels of fresh water from the neighboring Athabasca River. About 90% of this is returned as toxic tailings into the vast unlined tailings ponds that dot the landscape. Syncrude alone dumps 500,000 tons of toxic tailings into just one of their tailings ponds everyday.

  • Boreal Forest and Coast Mountains / Atlin Lake, British Columbia | 2001

    This area, located in the extreme northwest of British Columbia, marks the western boundary of the Boreal region. On the border of the Yukon and Southeast Alaska, the western flank of these mountains descends into Alaska's Tongass Rainforest and British Columbia's Great Bear Rainforest. Far from the oil sands, the greatest remaining coastal temperate and marine ecosystem is imminently threatened by the proposal to build a 750-mile pipeline to pump 550,000 barrels per day of oil sands crude to the coast. Once there, it would be shipped through some of the most treacherous waters, virtually assuring an ecological disaster at some point in the future.

  • Tailings Pond in Winter, Abstract #2 / Alberta Tar Sands | 2010

    Even in the extreme cold of the winter, the toxic tailings ponds do not freeze. On one particularly cold morning, the partially frozen tailings, sand, liquid tailings and oil residue, combined to produce abstractions that reminded me of a Jackson Pollock canvas.

  • Aspen and Spruce | Northern Alberta | 2001

    Photographed in late autumn in softly falling snow, a solitary spruce is set against a sea of aspen. The Boreal Forest of northern Canada is perhaps the best and largest example of a largely intact forest ecosystem. Canada's Boreal Forest alone stores an amount of carbon equal to ten times the total annual global emissions from all fossil fuel consumption.

  • Tar Sands at Night #1 | Alberta Oil Sands | 2010

    Twenty four hours a day the oil sands eats into the most carbon rich forest ecosystem on the planet. Storing almost twice as much carbon per hectare as tropical rainforests, the boreal forest is the planet's greatest terrestrial carbon storehouse. To the industry, these diverse and ecologically significant forests and wetlands are referred to as overburden, the forest to be stripped and the wetlands dredged and replaced by mines and tailings ponds so vast they can be seen from outer space.

  • Dry Tailings #2 | Alberta Tar Sands | 2010

    In an effort to deal with the problem of tailings ponds, Suncor is experimenting with dry tailings technology. This has the potential to limit, or eliminate, the need for vast tailings ponds in the future and lessen this aspect of the oil sands' impact.

  • Tailings Pond Abstract #2 | Alberta Tar Sands / 2010

    So large are the Alberta Tar Sands tailings ponds that they can be seen from space. It has been estimated by Natural Resources Canada that the industry to date has produced enough toxic waste to fill a canal 32 feet deep by 65 feet wide from Fort McMurray to Edmonton, and on to Ottawa, a distance of over 2,000 miles. In this image, the sky is reflected in the toxic and oily waste of a tailings pond.

  • Confluence of Carcajou River and Mackenzie River | Mackenzie Valley, NWT | 2005

    The Caracajou River winds back and forth creating this oxbow of wetlands as it joins the Mackenzie flowing north to the Beaufort Sea. This region, almost entirely pristine, and the third largest watershed basin in the world, will be directly impacted by the proposed Mackenzie Valley National Gas Pipeline to fuel the energy needs of the Alberta Oil Sands mega-project.

  • Black Cliff | Alberta Oil Sands | 2005

    Oil sands pit mining is done in benches or steps. These benches are each approximately 12-15 meters high. Giant shovels dig the oil sand and place it into heavy hauler trucks that range in size from 240 tons to the largest trucks, which have a 400-ton capacity.

  • Oil Sands Upgrader in Winter| Alberta Oil Sands | 2010

    The Alberta oil sands are Canada's single largest source of carbon. They produce about as much annually as the nation of Denmark. The refining of the tar-like bitumen requires more water and uses almost twice as much energy as the production of conventional oil. Particularly visible in winter, vast plumes of toxic pollution fill the skies. The oil sands are so large they create their own weather systems.

  • Boreal Forest and Wetland | Athabasca Delta Northern Alberta | 2010

    Located just 70 miles downstream from the Alberta oil sands, the Athabasca Delta is the world's largest freshwater delta. It lies at the convergence of North America's four major flyways and is a critical stopover for migrating waterfowl and considered one of the most globally significant wetlands. It is threatened both by the massive water consumption of the tar sands and its toxic tailings ponds.

  • Tar Pit #3

    This network of roads reminded me of a claw or tentacles. It represents for me the way in which the tentacles of the tar sands reach out and wreak havoc and destruction. Proposed pipelines to American Midwest, Mackenzie Valley, and through the Great Bear Rainforest will bring new threats to these regions while the pipelines fuel new markets and ensure the proposed five fold expansion of the oil sands.

  • <strong>NEXT -----> Craziest Pictures of the oilsands</strong>

  • Syncrude's Mildred Lake Upgrader, part of The Syncrude Project complex for oil sands processing, is pictured Monday, March 8, 2006 in Fort McMurray, Alberta, Canada.

  • The Syncrude oil sands extraction facility is reflected in a lake reclaimed from an old mine near the town of Fort McMurray in Alberta, Canada on October 22, 2009.

  • A disused mining machine on display in front of the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta on October 22, 2009.

  • Tailings pond in winter.

  • Syncrude upgrader.

  • Dry tailings.

  • The Suncor oilsands operation uses trucks that are 3 stories tall, weigh one million pounds, and cost 7 million dollars each.

  • Oilsands at night.

  • A tailings pond.

  • Black Cliff in the Alberta oilsands.

  • Oilsands upgrader in winter.

  • Oilsands extraction.

  • Oil sits on the surface at a Suncor Energy Inc. oilsands mining operation near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013. Photographer:

  • A large oil refinery along the Athabasca River in Alberta's Oilsands. Fort McMurray, Alberta.

  • Oils mixes with water at a tailings pond at a Suncor Energy Inc. oilsands mining operation near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013.

  • Fort McMurray is in the heart of the world's biggest single oil deposit - the Athabasca Oil Sands, and the oil is extracted by surface mining and refined in the region. The oil production is at the heart of the economy.

  • In this Aug. 5, 2005 file photo, the Syncrude upgrader spreads out towards the horizon at the company's oil sands project in Ft. McMurray, Alberta, Canada.

  • This Tuesday, July 10, 2012 aerial photo shows a Nexen oil sands facility near Fort McMurray, Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands facility near Fort McMurray, in Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands tailings pond at a mine facility near Fort McMurray, in Alberta, Canada.

  • This Sept. 19, 2011 aerial photo shows an oilsands tailings pond at a mine facility near Fort McMurray, in Alberta, Canada.

  • The Syncrude extraction facility in the northern Alberta oil sand fields is reflected in the pool of water being recycled for re-use.

  • A night view of the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta Province, Canada on October 22, 2009.

  • Aerial view of a lake and forests in the vicinity of oil sands extraction facilities near the town of Fort McMurray in Alberta, Canada on October 23, 2009.

  • Workers use heavy machinery in the tailings pond at the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta , Canada on October 25, 2009.

  • Fort McMurray is in the heart of the world's biggest single oil deposit - the Athabasca Oil Sands, and the oil is extracted by surface mining and refined in the region. The oil production is at the heart of the economy.

  • A large oil refinery in Alberta's Oilsands project. Fort McMurray, Alberta.

  • Next: Alberta Oil Spills

  • CFB Cold Lake, CNRL

    A bitumen leak was reported at a Canadian Natural Resources oilsands operation in the weapons range part of the RCAF base in June 2013.

  • CFB Cold Lake, CNRL

    Company officials said the leak - at what it calls its Primrose operation - was caused by faulty machinery at one of the wells, affected an area of approximately 13.5 hectares and released as much as 3,200 litres of bitumen each day.

  • CFB Cold Lake, CNRL

    Preliminary tallies put the death toll from the leak at 16 birds, seven small mammals and 38 amphibians. Dozen were rescued and taken to an Edmonton centre for rehabilitation.

  • CFB Cold Lake

    As of early August 2013, more than 1.1 million litres of bitumen had been pulled from marshlands, bushes and waterways.

  • CFB Cold Lake, CNRL

    Although CNRL could not say when the leak may finally be stopped, it estimates it will likely cost more than $40 million to clean up.

  • <em>Click through for other recent spill in Alberta</em>

  • Plains Midstream

    Little Buffalo band member Melina Laboucan-Massimo scoops up July 13, 2012 what appears to oil from the pond shoreline near the site of a 4.5 million-litre Plains Midstream pipeline leak detected April 29, 2011. Photos taken at the site and released by Greenpeace of Alberta's second-worst pipeline spill suggest at least part of the site remains heavily contaminated despite company suggestions that the cleanup is complete.

  • Plains Midstream Canada

    A boat passes by a boom stretching out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012. Plains Midstream Canada says one of their non-functioning pipelines leaked between 1,000-3,000 barrels of sour crude near Sundre, Alberta, on June 7 and flowed downstream in the Red Deer river to the reservoir.

  • Plains Midstream Canada

    Debris pushes up against a boom as it stretches out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012.

  • Plains Midstream Canada

    A boom stretches out to contain a pipeline leak on the Gleniffer reservoir near Innisfail, Alta., Tuesday, June 12, 2012. Plains Midstream Canada says one of their non-functioning pipelines leaked between 1,000-3,000 barrels of sour crude near Sundre, Alberta, on June 7 and flowed downstream in the Red Deer river to the reservoir.