Jeff Rubin: Boom Times Aren't Coming Back, But That's Not Necessarily Bad (Q&A)

Posted: Updated:
We may be getting used to higher prices at the pump, but the world economy isn’t, says economist Jeff Rubin — and the result is a permanent shift down in economic growth. (Peter Power/The Globe and Mail)
We may be getting used to higher prices at the pump, but the world economy isn’t, says economist Jeff Rubin — and the result is a permanent shift down in economic growth. (Peter Power/The Globe and Mail)

Key takeaways:

-We must prepare for a long period of harder times
-Canada will be a water superpower
-Oil sands won’t boom like the industry predicts
-Anti-Keystone movement has backfired

As recently as 13 years ago, a barrel of oil cost $20, or even less. Today, global crude prices are hovering around the $100 mark. We may be getting used to higher prices at the pump, but the world economy isn’t, says economist Jeff Rubin — and the result is a permanent shift down in economic growth.

Rubin was the chief economist at CIBC World Markets for close to two decades, but had to part ways with his employer when he started writing about how rising energy costs are going to make our worlds a lot smaller.

Rubin’s argument is controversial: He says we aren’t so much in the midst of a sluggish recovery as we are in the middle of a new reality — one where we will have to get used to a lower standard of living.

Rubin’s latest book, The End of Growth, recently came out in an updated paperback edition. HuffPost Canada talked to him about what it will mean to live in a world of high energy prices, his reasons for believing Canada will become a “water superpower,” and why the end of growth might not necessarily be a bad thing.

What do you mean when you talk about the end of growth?

JEFF RUBIN: It means all our economies, whether we’re talking China or India or whether we’re talking the advanced industrial economies — no matter where you look, we’ve shifted down to a much lower gear for economic growth.

If you look at how economies are growing today, they’re growing at a much slower pace than they were growing before the last recession. It’s different speeds for different countries because they’re all coming from different speed limits. China used to grow at 10 per cent per year, now it’s growing at seven; the Eurozone used to grow at one per cent or two per cent, now it’s not growing at all.

Even here in North America our economies are growing, but at a pretty sluggish pace with extraordinary measures taken to promote growth, like for example the fed’s decision to continue [economic stimulus through] its bond buying program.

Take the U.S. for example. Unemployment is at seven per cent and if you follow financial markets at all, you know [last month] all eyes were on the Federal Reserve to see if they were going to start to [wind down economic stimulus programs]. That just goes to show you how much the goalposts have shifted. Before the recession, the notion that the Fed would be tightening at a plus-seven-per-cent unemployment rate was unbelievable.

The U.S. unemployment rate before recession was 4.7 per cent. So why are we tightening at above seven per cent? The reason is we’re never going to see 4.7 per cent again.

So what does that mean for the average person?

RUBIN: With economies growing at half the pace of what they used to be, they are not going to be able to generate the same kind of jobs. Just as we’ve seen economies gear down to much smaller growth rates, we’ve seen unemployment rates rise dramatically.

Let’s start with youth unemployment rates. Today’s generation is probably not going to enjoy the same material standard of living as their parents. That’s going to be an abrupt discontinuity with the past, where every successive generation since World War II has enjoyed a steadily rising standard of living. I think today’s generation is going to have to make do with less.

We’re going to see a huge jump in post-secondary enrollment at a time when we’re cutting funding for post-secondary education. More and more young people are going to live with their parents and stay in school longer as an adjustment of these developments.

I think what makes sense in a world like this is, for example, the job sharing program that Germany put in place during the last recession and decided to keep. Instead of one person losing their job, maybe four people take a 25 per cent pay cut over time.

I think the reason we’re not looking at these policies is that it’s still not politically acceptable for central bank governors, or prime ministers or presidents to say, ‘Look, our economy can’t grow at the same rate it used to.’ The imperative is still to try to get that growth through extraordinary measures. But we’re already into the fourth year of a supposed economic recovery and still facing high unemployment rates.

It’s looking like the new normal.

RUBIN: Right. We’ve got to get beyond denial and say, hey, this is what the world is. Let’s develop policies that help us to deal with it, as opposed to policies that deny the new normal and try to get back to growth rates that we simply can’t achieve.

At the same time, maybe there are other metrics to consider. This summer we saw carbon in the atmosphere reach 400 parts per million. Every day we are bombarded with evidence of climate change, whether it’s people thinking of moving oil through the Arctic or seeing Manhattan-sized glaciers carve off greenland.

Our carbon trail is really the flipside of economic growth. While everything is painted with greenwash, the economy is actually getting dirtier. Coal’s share of the world’s energy mix has never been greater.

The silver lining in my book ... is that we are going to find something more important than our policy choices on the economy. What we will find when we gear down to slower economic growth is that when China is not growing at 10 per cent [it’s not] combusting 4 billion tons of coal per year. When they stop doing that they won’t be emitting the same carbon trail.

So instead of [slower growth] being the catastrophe we’ve all been taught to be believe, maybe it’s precisely what will avert the catastrophe.

Story continues below slideshow

Close
The Worst Jobs In Canada
of
Share
Tweet
Advertisement
Share this
close
Current Slide

How will Canada’s economy look in the 21st century? Will we be better off than others thanks to our oil industry?

RUBIN: I would argue we have yet to recognize what our greatest resource is — that instead of becoming an energy superpower, we’re going to become a water superpower. And in tomorrow’s economy, water is going to be more important than energy. We’re going to find more useful and value-added things to do with our water than fracking shale rock or moving bitumen.

The problem with Canada’s oil industry — it’s the same problem the U.S. faces in the Bakken [shale oil reserve] — is we don’t have infrastructure to move the oil that will give us our energy independence. We haven’t seen infrastructure keep pace with the increase in production. Paradoxically, just as North America has never seen a greater need for pipelines, the politics for approving pipelines has never been so problematic.

This is a short term problem, isn't it?

RUBIN: It’s certainly become a short term problem, and this is an unintended consequence for the environmental movement, because they can certainly claim victory in delaying Keystone XL if not ultimately denying it, and similarly with Enbridge’s [Northern Gateway project in British Columbia], but the unintended consequence is we’ve loaded more than 1.5 million barrels per day on rail.

I’m sure that environmentalists don’t agree much with Stephen Harper on energy policy, but it’s hard to argue with him when he says that rail is an economically costly way of moving oil, and a much more environmentally hazardous way, and we’ve seen that [in the Lac-Megantic disaster last summer].

So instead of keeping oil in the ground, which was the ultimate intention of environmentalists in blocking pipelines, what they’ve done is put oil on rail and we’ve gone from bad to worse in terms of moving fuel around the continent.

If the next Lac-Megantic happens outside Chicago or outside Toronto, we’re going to have serious second sober thoughts about whether we want to move so much oil by rail.

So will we see the massive growth in the oil sands the industry is expecting?

RUBIN: We’re unlikely to see regulatory approval of the infrastructure to allow expansion to five million barrels per day [as the industry predicts]. I don’t think that’s going to happen. The solution I think is to make sure that we get maximum value added out of the two million barrels per day we’re digging up before trying to increase production.

Back in 2008, you predicted $225-a-barrel oil by 2012. But oil is trading at around $100 today. What happened to your prediction?

RUBIN: The forecast was if the world continued to grow at the rate it was growing, then [prices would reach those levels]. Of course what happened was instead … we saw the 2009 recession. What I learned is our economies don’t grow at those oil prices. [When oil prices get too high] they cannibalize oil demand and prices fall as they did in the last recession.

But give me a little credit for predicting double-digit oil prices back in 2002!

Earlier on HuffPost:

Suggest a correction

Around the Web

Energy Expert Jeff Rubin on Why the Cost of Shipping Oil By Rail Is Poised to Rise

Gary Lamphier: Don't blindly accept Jeff Rubin's dark economic forecast

Markets hunger for Canadian bitumen, not refined oil