Growing pains

Economically, the end may be extremely nigh

THE END OF GROWTH
Jeff Rubin
Random House, 288 pp.

It could be the end of the world as we know it.

The end of a world with economic growth, that is.

That’s what you’re likely to think if you’ve been listening to the increasingly desperate chorus of world leaders who, if they agree on nothing else, speak as one on the global economic crisis: whatever the problem, growth is the answer.

So thoroughly have the world’s economies become reliant on growth that should it disappear, economic and social chaos will be inevitable. Nervous presidents and prime ministers everywhere are looking at the tempest in Greece and the implosion of the economies of Spain, Portugal and Italy as harbingers of what’s in store should the promised growth fail to materialize.

On the other hand, if you believe the title of Jeff Rubin’s new book The End of Growth, we had all better hope someone out there has a Plan B. Part analysis, part warning and part prescription, the second book by the former chief economist of CIBC World Capital portends a new global normal in which energy will be so costly that economic growth — a function of energy consumed — will end.

It’s not a supply problem, writes Rubin, contradicting the peak-oil theorists. Rather, “continually replacing cheap conventional crude with more expensive unconventional oil is shifting the industry’s cost curve to a place our economies simply can’t afford.”

Oil is the key, Rubin explains, because nothing can replace it as a transportation fuel and transportation is the keystone of the global economy. Not only is oil itself easily transported and stored, but “most critically, it packs an unparalleled amount of energy into a tiny package.” So, even as vast new reserves of methane are being discovered and solar and wind capacity grow steadily, none of these can replace oil (and its various byproducts like gas, diesel and jet fuel) to move us and our cargo around the world.

“The price of oil is the single most important ingredient in the outlook for the global economy,” he writes. “Feed the world cheap oil and it will run like a charm. Send prices to unaffordable levels and the engine of growth will immediately seize up.”

The book is divided into two sections. In part one, Rubin explains why the vitality of the global economy is so closely and deeply linked to oil prices and why, even as world events buffet oil prices up and down, the long-term trend for oil is irreversibly upward. Triple-digit oil prices are needed, he says, to make recovering it from increasingly harsh and isolated locations viable.

The end of growth is coming — we’ve known this since Malthus first predicted it at the end of the 17th century; it’s only been a matter of time. Rubin builds a convincing case to show that the critical variable, the one irreplaceable commodity whose scarcity actually will end growth, is oil. From plastics, to pharmaceuticals, to fertilizer, to gasoline, never before in history has one product been as essential to human well-being as oil is to ours.

But in part two the wheels fall off, as Rubin ponders the notion of a static economy, drawing on experiences from Denmark, Germany and Japan as examples of adaptive strategies countries have implemented to deal with high energy prices. Danes, for example, have been paying high energy taxes for years, drastically reducing per capita consumption while girding the economy and citizens expectations. In Germany, employers, financed by government subsidies, have instituted Kurzarbeit (job sharing) as a means of keeping more people employed. The Japanese, meanwhile, have used drastic conservation measures to slash energy consumption since the nation’s nuclear plants were taken offline in the aftermath of the 2011 tsunami and the Fukushima reactor meltdown.

While admirable, if not inspiring, these strategies are simply inadequate to the task should growth “immediately seize up” as Rubin predicts. Share jobs? How far can one car manufacturing wage go when no one is buying cars? And with whom will all the former employees of the financial services, real-estate and stock market sectors share jobs with as those growth-dependent industries shrivel to nothing? And what about the millions of newly unemployed Chinese and Indian factory workers whose livelihoods will vanish? Rubin’s error is that he sees the post-growth economy essentially the same as the growth economy, only smaller.

It’s not that steady state economics (which has been theorized for decades) couldn’t work, the problem is it is based on a set of principles emphasizing environmental limits which are fundamentally incompatible with those now in play. And there’s no easy pathway from here to there. We are simply not equipped to not have growth. Think of a world with 200 countries all in the same boat as Greece, trying to avoid massive civil unrest as the world’s growth economies confront the new normal.

There are silver linings, says Rubin. No growth means burning fewer fossil fuels, meaning lower carbon emissions, meaning cleaner skies and reduced danger from global warming. We’ll have more leisure time and our attitude toward consumption will change.

Maybe, but in the end Rubin’s analysis disregards the most important thing we can do: instead of waiting for the economy to slap us silly, we can act collectively to insist governments and industry begin moving in a positive direction to avert or minimize the agony the looming transition from growth to no growth will surely inflict.

 

 


Comments: 4

Clairvoyant wrote:

"... the looming transition ..." loom, loom, loom ... sounds like the coming of the Balrog. The looming has been long a-looming ... 17th century at least. Perhaps the governments back then should have instituted the one child policy and other magnificent solutions? The difficulty with all the prophesies, whether they come from GCMs, economic models, or just tossing chicken bones, is that they are wrong, and mostly wrong in ways that are not predictable. If you doubt that look at the eggs laid by the Erlichs.

"... immediately seize up ..." What's new? What is "immediately"? What is "seize up"? Remember the Great Depression? And a host of other depressions including the Little Ice Age? Oh, sorry, the Global Warmers deny there was a Little Ice Age. So there have been and will be recessions, and depressions. And government action always makes them worse, except for the in-crowd, the bankers & government employees.
"... the most important thing we can do ... we can act collectively to insist that governments and industry begin moving in a positive direction ..." Except there is no "we". Except there is no agreement in what "a positive direction" would be. The Professors believe that positive directions would be higher taxes, forced construction and use of high cost energy (solar & wind), no freedom of choice for individuals of their jobs, of where they work, of where they live, of the type of home they live in, of the type of community they live in, and of how they move around. For the professors, "positive directions" would ultimately be emulation of the great socialist states, Stalin's USSR, Mao's China, Kims' Korea, Pol Pot's Cambodia, and the favourite utopia, the Castro brothers Cuba. Others of us believe that positive directions would be to get the government's hand out of our pockets, and to allow freedom of choice, not the impositions of the central planners. There is no "we": there is no common ground between those who wish for a totalitarian government, and those of us who want freedom.

I have yet to see Rubin's book, but either this review is horrifically bad, or Rubin is incompetent. As the price of oil goes up, and sometimes down, companies and individuals make adjustments, sometimes difficult adjustments, but life (usually) goes on. Sometimes we make small adjustments, sometimes we make big adjustments, sometimes we do no more than complain. No rationally possible price increase in oil will "immediatelly seize up" the economy or growth by itself. Yes if you have a price increase by government action such as the Weimar Republic, immediate seize up will occur, but not with the give and take of world markets. Even making oil minimally available (as the Allies did to Germany, and as the west did to South Africa) did not cause those economies to immediately seize up: difficulties, yes: privations, yes: immediate seize up, no. "No growth means burning fewer fossil fuels." Maybe, maybe not. But more expensive oil does not mean no growth, though it does mean less wealth from the growth, and it means shift to other fuels ... predominantly natural gas and coal, and wood. Remember, when short of oil, the Germans liquified coal, and South Africa created SASOL ... and SASOL is in Canada looking at converting natural gas to oil or refined oil products, and Shell has one plant running in the far east and another in the works in the mid-east.

So the world moves on, the world adjusts. At least it does as long as the visionary central planners don't inflict too much damage.

For the Professors, a blunt question. No growth means greater poverty if the population continues to grow. What are you proposing, beyond taxing the rich till there are no rich, no more? What are your proposals for controlling population? The position of the "Peakists" has been laid out by William Stanton (though the Peakists are not happy that he actually spoke what they prefer to leave unsaid): "Individual citizens, and aliens must expect to be seriouly inconvenienced by the single-minded drive to reduce population ahead of resource shortage. ... Immigration is banned. Unauthorized arrivals are treated as criminals. Every woman is entitled to raise one healthy child. ... Abortion or infanticide is compulsory if the fetus or baby prove to be handicapped ... When, through old age, accident or disease, an individual becomes more of a burden than a benefit to society, his or her life is humanely ended. ..." Makes Orwell sound like an optimist.

on Jun 21st, 2012 at 9:05pm Report Abuse

Nkeough wrote:

In reply to Clairvoyant: Read the book and then we can talk.

on Jun 22nd, 2012 at 8:24am Report Abuse

Clairvoyant wrote:

Noel: I will finish the book on the weekend. When & where do you want to talk?

on Jun 22nd, 2012 at 2:46pm Report Abuse

Clairvoyant wrote:

Noel: Finished the book. A few comments: Jeff, Captain Obvious, puts a lot of words around basic economic concepts (demand up => price up => supply up => price down: demand down => price down => supply down). But with multiple sources, multiple unknown future sources, multiple markets, billions of sub-markets, multiple alternatives, i.e. a host of feedbacks, there can be no science based prediction, solely thousands of scenarios, of which Jeff has chosen one. Jeff, Sargeant Simple assumes that increasing oil price alone is the driver of the recession and downplays the impacts of debt (government, business, and individuals), of oversupply of material goods, and of an entitlement driven focus on consumption rather than production: he also ignores the chicken-and-egg problem of oil prices & inflation, that is, oil price drives inflation but inflation drives oil price. And Jeff, Colonel Clueless takes as a given that energy production will be a zero sum game, and somehow concludes that Kurzarbeit, the government paying workers not to work, was successful and is a viable option for the future. Awaiting a when & where.

on Jun 24th, 2012 at 8:29pm Report Abuse


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