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The End of Growth

Posted by Jeff Rubin on May 2nd, 2012 under SmallerWorldTags: , , ,  • 34 Comments

When the first OPEC oil shock hit in the 1970s, President Nixon responded by lowering the national speed limit to 55 miles per hour in a bid to conserve energy. But speed limits aren’t the only thing that can change when oil prices go up. Right now, we’re seeing that rising crude prices can influence much more than just how fast you can drive your car. High oil prices change the speed at which your economy can grow.

Just as people require food, economies require energy. The relationship is straightforward: economic growth is a function of energy consumption. With national economies around the world once again forced to pay more than $100 for every barrel of oil consumed, a critical question must be asked—what happens when the world’s most important source of energy becomes unaffordable?

A glance at the latest GDP numbers is already telling us the answer. Economic growth has downshifted into a much lower gear nearly everywhere you look. Europe is struggling to keep its head above water, North America is stagnating and even the hard-charging economies of the BRIC nations are starting to groan under the weight of high energy prices.

When the price of oil goes up, something has to give. Right now, the European Monetary Union looks to be the most imminent casualty. How much longer will Greece slavishly heed the demands of its creditors and impose punishing austerity measures with the only result being the continuing implosion of its economy? Will Spain be able to tighten its belt any further when a quarter of its labor force is already unemployed? The answers seem obvious. Without economic growth, neither country can service its debt. And growth just isn’t in the cards. The ground beneath the European Monetary Union has never been shakier. And as the Euro trembles, the stage is being set for a return of the drachma, escudo, peseta, Irish pound, and lira.

When we look across the Pacific we see that even China and India, the global economy’s principal engines of growth, can’t escape the toll exacted by high energy prices. When policy makers in Beijing tried to sustain double-digit economic growth, food and energy inflation quickly slammed on the brakes. The economies of China and India will soon struggle to grow at half the torrid pace of recent years. When that happens, the rest of the world will need to pay attention.

In a world where distance costs money, China will increasingly look to its own 1.3 billion consumers to drive economic growth. If China decides to focus on tapping the potential of its huge domestic market, rather than supplying cheap goods to faraway Wal-Marts, the economic balance of power will tilt decidedly eastward. What happens if the People’s Bank of China then decides that buying US treasuries is no longer a necessity? US taxpayers, for one, don’t want to find out. They’ll be left footing the bill for Washington’s budget deficit—currently at one and a quarter trillion.

In a world of triple-digit oil prices, the global economy will be very different from the one we’ve known. But that may not be such a bad thing. You can check out what a static economy looks like in my new book “The End of Growth”. You may be surprised what you find.

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  • http://www.facebook.com/gilad.samuel Gilad Samuel

    I trust the New Economy won’t look like Africa or Latin America which have both struggled for years with little, nil, or negative growth!

  • Zachary Moitoza

    Yay, we’ve been waiting a long time for a new post.  I look forward to your new book.  Any chance you might be able to go on Jim Puplava’s Financial Sense Newshour to talk about it?  What do you think all liquids will be at in 2015 and 2025?  My guess would be 85 and 75, and there will be chaos, as Hirsch puts it.  It takes about five years for someone to accept this after learning about it, but I have now known about it for 6 years, and am all fired up and excited about this monumental turning point in human history.  This will dramatically change our lives for the better, and give us a fair, just, sustainable economy.  We will live more slowed down lives, in better harmony with the environment, and we will see the end of population growth in nations with low fertility like the U.S. and Canada, although population growth may continue for another couple of decades in nations with large young populations.  The end of growth is happening in the knick of time.  Growth was killing us.  By the time we figure out that nuclear breeder reactors were the only thing that would actually work, as M. King Hubbert predicted in 1956 with “Nuclear Energy and the Fossil Fuels, we will be living like the Amsih.  Then, after 2050, we may have modest growth again using the fission breeder, but overconsumption will never return.

  • Reader

    Where is this book? Can’t find at B&N, Amazon or iBooks. Maybe it’s not published yet? Better hurry– I don’t want to read it by the greasy light of tallow candles.

  • Avpca

    With Enbridge trying to go in three directions to export oil and Keystone almost a slam dunk again…how long before the spread between West Texas and Brent crude goes to zero and if the supply side from the oil sands and fracking goes as high as it can how long before oil futures start tanking for both..?    Plus the infastructure to support greater use of Nat Gas is ramping up in North America….which means even more oil for export.   
     So if oil prices go down….and Jeff’s hypososis is correct…then lower oil prices will fuel growth …  will it not? 

  • Instincts

    Looking forward to a read of your new book volume Jeff, and congrats on you newfound career.  You are making a difference, and that’ll only magnify as time passes.  Thanks for standing up for what the majority would rather pretend doesn’t exist.

    Our youngest generation stands to benefit most from changes that you and others convey are necessary; changes that are already starting to occur in order to adapt to the inevitable consequences of a flawed system dependent entirely and far too heavily on finite fossil-stored solar energies of past abundance and use that is impossible to sustain the system created from their past uses.

  • Ken

    Moving to a no growth economy will mean governments will have to balance their budgets in the future …. should be interesting … the US presently either prints or borrows 40% of the money it spents today.

  • rigpigpetey

    “Yes” but,……no economists will look that far ahead and state that until the reality is on every front page newspaper. It’s kinda like, “we can’t see the forest because the trees are in the way”, concept.  

  • Didier Forgas

    I’m glad you’re still writing… I was missing your postings. I can’t wait to read your new book. When will it be available? And where? Thank you Jeff for your very knowledgeable insights. I’d love to work for you (as a research analyst) if I could. Looking forward to reading the next post.

  • Instincts

     

    Yes, lower oil prices will ‘fuel’ growth, but as Jeff and
    many others have repeated many times, any additional spurt in growth resulting
    from that will be like hitting one’s head on a ceiling, knocking things back
    down like that which has been happening since the 2009 recession in developed
    nations – such as what’s happening right now.

    …this is the whole point of Jeff’s first book, and soon-to-be-released second
    volume.  Oil prices, and concurrent globally collective demand for
    hydrocarbons, are at a point where (non-OPEC) prices in the ‘higher’ range
    (i.e. prices we pay now) imposes serious limitations to any significant
    economic growth, which when sustained long enough or if spike high enough, just
    drives economies back into various degrees of recession.

    As Jeff and several others have been saying for quite some time, like it or
    not, we have to scrap some or much of the socio-economic ways many of us have
    become used to, for ones that are more sustainable and arguably better in the
    long run for those who have the will to embrace it.

    We’re experiencing the end of growth as we’ve known it be for decades.

  • Tahiti83

    I just read another book by the same name on the exact same topic by Richard Heinburg

  • Mel

    I’ve been wondering whether the New Economy might look anything like Japan.  People have been insulting the Japanese economy for years now over lack of growth.

  • Price

    About 40 years ago when I was in engineering school I read a nifty little soft cover book which predicted the problems we would encounter when engery resources became scarce-interestingly the book estimated the years from 2010-2020 would be the period when problems would start. I lent this book and sadly never got it back but have had this concern on my mind ever since–and the predictions have come largely true. I applaud Jeff for continuing to make people aware of the consequences of ignoring the reality of life after cheap engergy and of not preparing for an alternative economy and ways of doing things.
    Keep writing Jeff (you also save my having to write my book!)

  • D.Nuttall

    In the work you have done, what does the EROI do to the expected interest rate?  According to The Upside of Down, the peak EROI in agriculture in the  Roman era was in the order of 17:1, not very different from the EROI of oil today.  Also, is there an understanding of the Hubbert Curve and the EROI? 

    Obviously, there is going to be a shift in the balance between labour and energy costs, and this is going to change things dramatically.      

  • Instincts

    You know, if folks can for even a short period of time put aside the (predictable) public controversy that’s surrounded someone who’s stuck his neck out as far as Michael Ruppert has, and listen to the content and intellegence of the information and messages that he relays in his documentary film ‘collapse’, any person would be hard pressed to argue that he wasn’t pretty well bang-on in most of what he’s conveyed, and continues to be so to this very day.

    One can try to deny the fundamental laws of finite arithmatic and physics all one likes, but it doesn’t change the laws and facts that these impose in our physical world. 

    Neither the world’s flawed infinite growth-based economics, nor human demography are immue to any of these.

    I’m gathering that the messages that Ruppert and others have conveyed on these subjects are the basis of your cause, Jeff.

  • http://ProsperityForRI.com/ Gerritt

    I agree that the end of oil means less growth, thanks for saying it, but the end of growth reflects as much collapse of ecosystems, especially fish, forests, and soil.  i spend much time trying to work on the “economic development leaders on my community helping them learn about prosperity in communities through ecological healing as the funny money growth all ends up in the hands of the 1% and for the  99% the growth is long gone and never coming back. 

  • Trmist

    Very happy to see you have written another book. When you study recent history it becomes clear oil is the basis for the last century of prosperity and the high living standards enjoyed in North America. Without oil civilization as we know it is over. It is easy to graduate in to higher living standards. Conversely, adaption to a lifestyle with less usually isn’t very pleasant. It will be interesting to see how our culture transitions from “Buy Now” to “Make Do” it is sure to make a lot of powerful people squirm. Sadly when they squirm we suffer, prepare for the future by lower your expectations.

  • Lubo

    Just caught your CBC interview As It Happens-Tue May 8th 2012.
    Jeff, does you book explain why Alberta sells oil for $20 less than world price?
    Love your explanation on subsidies and fuel tax. For a real “local” impact of higher energy prices, look at the price of oil in Quebec. Look at the impact in a ‘real winter’ city of 2 million: the vehicles are similar to Europe (4 cylinder), cycling is highest use even in a ‘winter’ climate, public transit is growing to record levels, government investment in mass transit is also growing. And, fuel taxes are being increased, along with other sin taxes (alcohol,tobacco).
    Questions:
    Why do we export jobs by shipping crude and not refined oil? Would not it make economic sense to mine and refine in the same location?
    Why can we not model (copy) the Norway Oil Fund (US$ 570 billion) ? Contrast this with the Alberta Heritage Fund (CDN$ 15 billion).
    Why do Eastern Canadians pay a premium for energy, while we ship raw crude at a
    subsidy to the U.S. ?
    Could Canada benefit if it joined a new NOPEC, nationalized OPEC ?
    What would be the net economic benefit to Canada if joined NOPEC ?
    Could Canada not subsidize all manufacturing in Canada using the natural advantages such as energy, market size, geographical location, infrastructure, education, GDP ?
    Could Canada not remove corporate tax to encourage investment as a result?
    Our market is too small for true ‘free market’ system, so why not use another model?
    What would unemployment be if we turned to using our natural advantages to our benefit (what political party would be interested in getting elected for life) ?
    What is China looking to do to cut it’s costs of energy (eg. rare earth metals mining)
    What about our other natural resources that are in demand:water, tourism, wind power?

    Just some ideas for a new ‘blockbuster’ book, or updated book with a few new chapters.
    Send a few copies to the Liberal Party and NDP, you might get an interesting reply.

    thanks,
    Lubo

    p.s. on an unrelated topic, why with so many highly educated and intelligent, are our municipal, provincial, federal governments so uneducated, unintelligent, ‘behind the times’ ?  Just as the free market system is a myth in our economy, and so it seems our democratic political system. Where is the opposition, where is the media?  Fodder for another book?

  • MarkE

    I happened to see Jeff talking on youtube and ended up buying WYWIATGAWLS. What a fantastic book, enjoyed every page.   Looking forward to reading the new one.

  • Instincts

     Oil sold from Alberta is not refined, and in crude form, is probably more costly than conventional oil vesus bitumen oil.  That likely explains the difference you mention.

  • Rick

    I’m off to buy this book from Chapters today. A couple of years ago I read about ten books related to “peak oil”, including Twilight In The Desert and the Heinburg book mentioned below and the rest of the most popular ones. The only one I would recommend is Rubin’s because only he tells very simply and clearly you what it MEANS.

    There’s a great video of one of his talks (45min) here
    http://transitionvancouverisland.wordpress.com/2011/07/23/video/

    I do wish Jeff would post more often though as he’s my favorite Canadian economist.

    Rick Bateman
    Victoria BC
    55PlusSavings.com

  • Manny

    Mr Rubin, the Earth receives each hour enough solar energy to power
    mankind for one year. If we use only 1% of the Earth surface to collect
    energy, and convert it into a convenient format (biofuel, electricity,
    etc) at a mediocre 2% conversion rate, we will have twice as much
    energy as we consume today. This energy will be renewable, abundant, cheap and distributed fairly amongst nations. But the best part is that its cost of production (and presumably its retail cost) will be constant and will not feed inflation.

    Why then do you keep talking about an energy-poor future? 

  • I1
  • GTI

    no, we sell to the US at WTI prices and the rest of the world sells at Brent crude, usually a difference of $15-20/barrel. When Canada imports oil, we pay Brent. Why do we not have our own refineries? Canada has the money and technology. The Chinese will pay Brent price, so why do we sell to US at WTI? Is it because they screw us on softwood lumber, even when they lose in arbitration? or is it because there is a political game going on that the politicians will not tell us?? Time to ask your MP, MPP to answer the question, but don’t hold your breath for an answer.

  • Manny

    I1, your link is to a page giving a figure for the Earth’s surface. And?

  • I1

     and 1% of the Earth surface is two million square miles of solar collectors. That’s the land area of the lower 48 states of America, my Manny.

  • Salzaboy

    In my opinion western civilization sold out the manufacture of a large part of domestically produced consumer goods many years ago, without much forethought into the ramifications of those actions.
    By giving away the industrial production to China,India and Mexico, seemingly to flood the western market with inexpensive consumer needs,was a blunder which has tilted the balance of economic power perhaps quite permanently.
    It is my belief that until the oil companies own the rights to renewable energy, completely we may be stuck with their decisions, and control of global growth, being the final solution.

  • Johnnio

    I am looking forward to hearing you speak in Calgary May22, 2012.
    I have one question that really comes to mind. How long do you think China is going to wait to cash in their chips on the U.S.A.???

  • Hmm

    What I’d like to know is, what price will mark the beginning of what he’s takking about, and what timeline does he have in mind?

  • TaxDonkey

     Peak everything, as Heinberg would say

  • TaxDonkey

    Check out Ray Kurzweil’s wet dream of the singularity based on exponential growth in technology. Global PV capacity appears to be on such a growth trajectory despite the recession/depression. The projected timeframe for solar to “power the world” is something like 18-20 years from now based upon current doublings in capacity. Freakin amazing, huh.

    Unfortunately,  trade wars, hyperinflation, WW3, societal collapse and environmental catastrophe will likely be coming to a theatre near you much sooner than technologies like solar will be able to save the day. Technology is awesome, but ask the Greeks or the Egyptians if a thinner iPAD is feeding their children or expanding their economy.

  • Doug B

    Just finished reading ‘The End of Growth’. Well done Jeff. Your insight into how the price of oil affects economies nationally and globally are most welcome and I look forward to reading your future texts.

  • Geraldinegray

    A MEANINGFUL WAY OF UNDERSTANDING FOR ALBERTA, CANADA AND BEYOND
     

     
    from FFWD Weekly, Calgary,Feb. 21:
    Keystone XL pipeline
     A crisis entirely of our own makingPublished February 21, 2013 by Noel Keough in Viewpoint

    Whatever the outcome of the raging Keystone XL pipeline battle, it is difficult to see a scenario where Alberta comes out a winner. If the pipeline goes ahead, we go further down the road of dependence on one of the most expensive, ecologically damaging, high-risk, mega-projects on earth. If it is halted, Albertans are left to pick up the pieces of an economic development strategy in disarray.Our premier bemoans the $6-billion bitumen bubble that’s forcing us to sell our resource at an almost 40 per cent discount. Yet Conservative governments leased the land that bestowed a blessing on the $165 billion invested in tarsands since 2000. Now stuck with what could turn out to be the biggest white elephant in history, they’ve suddenly discovered we have limited possibilities to get this product to market.Don’t just take my word for it. According to University of Calgary economist Dr. Ron Kneebone, “any approval of petroleum pipelines would offer an illusory, easy way out for a provincial government that’s become dangerously dependent on oil wealth it’s managed badly.”If the provincial Conservatives saw this coming, they were spectacularly negligent to let it happen. If they did not see it coming (hard to believe), then they are merely spectacularly incompetent.Last February, in a speech delivered at the U of C, Carl Pope, who was with Sierra Club USA for 30 years, warned that the tarsands-anchored economic strategy was a hope and prayer that will require seven different trends to go our way in order for everything to turn out well for Albertans. He warned of all of the things with which we now find ourselves besieged — public opinion on climate change, market access, and a constant flailing from profitable to not profitable thanks to price fluctuations.The Harper Conservatives are largely to blame for the firestorm that has erupted south of the border over Keystone XL, and to the west over Gateway.Abroad, Canada the honest broker and global citizen has morphed into an arrogant bully and environmental pariah leading the pack in “fossil of the day” awards at climate change meetings. One of our most respected parliamentarians, Elizabeth May, accuses the government of not only indifference but “sabotage.” According to May, Canada continues “to push other countries to do less. Our role is not just an embarrassment, it’s reckless and brings our once good national reputation into disrepute.”At home, in January 2012, the Conservatives went into trademark attack mode with an open letter from Natural Resources Minister Joe Oliver warning of “environmental and other radical groups” that would seek “to stop any major project no matter what.”In June, with NGOs and environmentalists on the defensive, the Conservatives introduced the 420-page omnibus budget Bill C-38, which gutted a raft of federal laws including the Canadian Environmental Assessment Act (CEAA) and Fisheries Act, and abolished the National Round Table on the Environment and the Economy.Ed Whittingham, executive director of the Pembina Institute, wrote that “The passing of [Bill C-38] is a significant step backward and will result in unnecessary damage to Canada’s land, freshwater and fish habitat.”The hardly radical Canadian Environmental Law Association wrote that the “CEAA review to date has been ineffectual, unduly limited by arbitrary timing and largely driven by ideology rather than rational, evidence-based analysis” and that the government’s rewrite will “effectively eviscerate the CEAA.”In September 2012 the federal Conservatives softened already drafted coal plant emissions rules to allow Canada’s oldest and dirtiest plants, and those to be built before 2015, to operate outside of the new regulations for 45 years.In November 2012 the Conservative’s Bill C-45 targeted the Navigable Waters Act and the Hazardous Materials Review Act, removing protection from all but 97 of Canada’s 32,000 lakes.Perhaps the crowning achievement of this six-month legislative wrecking ball was the December 2012 decision to withdraw Canada from the Kyoto Protocol — the first country to do so.Having burned through most of our conventional reserves, the Alberta Heritage Fund, created almost 40 years ago, sits at a paltry $16 billion and our provincial government is in a state of what the Globe and Mail called “political desperation” over this crisis of its own making.Meanwhile, Norway — comparable in population and reserves to Alberta, but with a hands-on economic development policy — ranks number 1 on the Human Development Index, its future secured with a $664-billion Petroleum Savings Fund.Norway has used its oil and gas resource as a path to prosperity. Alberta has allowed the oil and gas industry to use our province as a path to profit. Calgarians, whether they work in oil and gas or not — perhaps moreso if they do — should be mad as hell. And not at those who object to Keystone XL.

  • http://pulse.yahoo.com/_EQB4KC4ZV2YNSL4ACZSTYQSKXM Jack M.

    You make that sound simple, but you leave out loads of context, like acreage needed for biofuels vs. food, variability of sunlight, energy density of oil is much greater than biomass, etc. Also, where are you getting that “1%” figure?

  • Salzaboy

    Don’t the oil companies kinda have their finger on the pulse of our modern society?
    And until they own the right’s to solar, geothermal,wind and biomass technologies will we not see a change as to our present fossil fuel burning society?

copyright © 2009 Jeff Rubin. All rights reserved.