The Brighter Side of Recessions

by Jake Brennan, BA’97

Best-selling author Jeff Rubin, MA'82, is warning that the days of economic growth may soon be behind us (Photo: Jake Brennan)

With our economy faltering and prohibitive prices at the pump, who has the time or attention span to dwell on global warming? No worries, economist turned author Jeff Rubin, MA’82, has the answer we’ve all been waiting for in his latest book, The End of Growth. It’s an answer that fixes both the problem and our guilty conscience – we do nothing.

After 20 years as the chief economist at CIBC World Markets, Rubin left in 2009 to speak his truth instead of the bank’s, publishing his bestselling debut, Why Your World Is about to Get a Whole Lot Smaller: Oil and the End of Globalization. It won the National Business Book Award, sold 70,000 copies in Canada, and was translated into numerous languages. His latest book expands on the macroeconomic ideas he expounded in the first, providing, as he says, a “paradigm for a different way to look at the world, the economy, and to understand what we need to do.”

The End of Growth is centred on peak oil, a concept Rubin says is economic, not geological. He writes that “Just as people require food, economies require energy. The relationship is straightforward: economic growth is a function of energy consumption, full stop.” Unfortunately, technology will not provide a ready replacement for oil as a transportation fuel anytime soon, nor will it make a serious dent in the cost of extracting from increasingly remote reserves. As he says, “if you look at where we’re now accessing oil supply from – oil shales, tar sands and deep water – none of this stuff flows at the kind of pump prices that motorists would like to fill up at.”

Rubin further explains that although the 2008 crash has been labeled a financial crisis, the hand holding the pin that pricked the bubble was expensive oil. Per-barrel prices rose from $30 to $147 in just a few years, first spiking U.S. inflation, then the Fed’s interest rate to calm that inflation, torpedoing millions of mortgages whose math no longer made sense. “If you go back to the 1973 oil shock,” says Rubin, “rising oil prices have always led to recessions precisely because their inflationary impact has led to growth-ending interest rates.”

All this adds up to the book’s big idea: high oil prices not only decrease the speed limit you can afford to drive your car at, but the speed limit at which your economy can grow. Rubin says there are silver linings to this predicament, though, as The End of Growth’s subtitle – But Is That All Bad? – suggests. The most significant advantage is that “our drive toward environmental self-destruction is going to run out of fuel. Basically, triple-digit oil prices take the decision out of our hands.”

As proof, he points to the fact that during the 2009 recession, world greenhouse gas emissions actually fell. They may have come roaring right back in 2010 and 2011, but that growth was financed by unsustainable zero percent interest rates and huge deficits. A double-dip recession is set in the starting blocks, he says. Even if emissions continue to yo-yo with oil and the economy, the overall trend will be a big flat line, with the planet’s economy, not international agreements, doing the heavy lifting on cutbacks.

Rubin’s terse prose, peppered with interesting facts and stats, reads like a speech, skimming across the top of complex issues in a manner honed through two decades of boiling ideas down for business execs who read balance sheets more readily than books. That economics will provide all the answers and save us from ourselves may not be a surprising thesis coming from an economist. Yet Rubin knows his critics well enough to head many of them off at the pass. For example, he doesn’t expect his predictions to stop environmentalists from calling for carbon cutbacks. After all, while in the West a sustained global recession may mean walking instead of driving or throwing on an extra sweater on in winter, it will often mean eating one meal a day instead of two in poorer countries. He is also well aware that his views align him with others who are against emissions cuts for all the wrong reasons – oil executives.

Still, his overall argument is compelling, and his silver linings don’t stop at the air we breathe. The countries that rank highest on the UN Index of Human Development don’t have the highest growth rates, he points out. Expensive oil will mean less urban sprawl and more locally sourced – which generally means healthier – food. With less employment available, that infamous North American tendency towards overwork and conspicuous consumption will take a back seat to job sharing and increased free time. In short, even if our investment portfolios may not grow as effortlessly, if we’re not so busy doing and earning, we may just have more time for thinking and planning – a welcome change for our breathless planet.