Growth Alone is Not the Answer

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Growth Alone is Not the Answer

Posted by Jeff Rubin on October 10th, 2012 under SmallerWorldTags: economic growth, oil • 27 Comments

If we know anything about what makes our economy tick we know this: Feed it cheap oil and it runs like a charm. But keep it rationed to expensive fuel, and growth stops dead.

Every major global recession in the past four decades has oil’s fingerprints all over it. For all of our efforts to wean ourselves off the fuel, oil remains the world economy’s most important source of energy (and, as a transit fuel, almost its only source of energy).

In the past, oil prices spiked to growth-killing levels when key producers shut off supply. Today we see these prices with the spigot wide open.

If you are wondering why, just look at where the fuel supply is coming from. Consider the Alberta oil sands, for example.

The oil sands’ real nemesis isn’t the so-called “eco-terrorists” that worry governments, but the shape of the cost curves that have plagued expanded production.

Why do you think Calgary-based Nexen Inc. is so eager to sell to China National Offshore Oil Corp.? While state-owned CNOOC thinks it is buying a strategic reserve, what it is really buying are huge cost overruns and production delays.

What’s true of Nexen’s bitumen resource is true for the Orinoco heavy oil belt in Venezuela, shale oil, or deepwater oil. The world will never run out of oil, but as we increasingly depend on these unconventional sources for our fuel supply, we are rapidly running out of the oil our economies can afford to burn.

The very prices that bring these fuels out of the ground stop our economy in its tracks. No amount of government pump priming or printing money is going to suddenly make that fuel more affordable and bring back growth.

By the metrics of my profession, oil’s collar on growth will leave us all poorer. Almost every measurement of economic welfare is tied to growth. But as every day brings new evidence of how our economic activity is distorting our environment and climate as never before, surely the measure of our well-being is more than simply the sum of what we consume.

As economies gear down, we may just find that a smaller human footprint, be it carbon or otherwise, may be just what our world really needs.

hera1

It is so discouraging to view what the future might hold for us all. What about our children!!!. Economies will adjust to everything but will leave most of us in depletion of purchasing power. My question where can we invest to at least cover inflation with lower risk. Good article !!! Reality is not painless
Luc

We really enjoyed reading your last book. The story about the end of growth is apparently getting more and more support.

http://energybulletin.net/stories/2012-10-10/end-growth-going-mainstream-oct-10
Efrem

Hi Jeff. Are you the same Jeff Rubin who worked at Lehman Bros in 1987-90? I worked for Enterprise Oil in London an worked with a Jeff Rubin and wondered if it was you? regards Efrem Leigh
http://www.facebook.com/people/Michael-Cole/100001890616958 Michael Cole

@Efrem: From: http://en.wikipedia.org/wiki/Jeff_Rubin QuoteRubin had worked at CIBC World Markets and its predecessors since 1988, and served as chief economist from 1992 to 2009, when he resigned.[Close]
yt7509

“n the past, oil prices spiked to growth-killing levels when key producers shut off supply.”

Is it a hint at this “arab embargo” myth again ?

You better learn your oil history a bit in order to talk seriously about it.

For instance :
http://www.theoildrum.com/node/9551/922666
yt7509

For your info, the first oil shock was indeed about a key producer shutting off supply, the first by far of the time in fact : that is the USA going through its production peak in 1971 (price rise and shortages starting from there, as well as bretton-wwods dropped, $ devaluation, start of the debt bubble, etc)
UNC

Jeff, I have been outta the loop lately,but I am back in.As always, I can not agree more with your handle of the conundrom,with respect to oil,my thinking is our saviour could be Nat Gas, but it will be the economics of coversion and lodgistics that will hinder. As always market forces will perhaps push things along,I live and work in the patch in North East B.C. and we got product, lots of it.Just need the conversion to start in a meaningfull way. I hate to say it,but what will shock it in to happening will be this problem with Iran and the strait of hormuz. Me thinks that bag of hammers aint far off.UNC
Guest

you are awesome Jeff! I love your message to the world and love hearing you speak. I feel I can be more prepared for the future because of you.
doug stewart

interesting viewpoint, that CNOOC is just buying a money losing boondoggle. If that is the case, then the Chinese will work hard to lower costs. The main way I can see doing that is by importing Chinese workers, and breaking the strong unions in northern Alberta. If the Chinese get away with importing hoards of temporary foreign workers, and the Northern Gateway pipeline is built, Canadians will be treated to the display of Chinese people ripping our oil out of the ground, and sending it over to China. And we will recieve only whatever royalty fee is in place.
Doug

It appears that more analysts are thinking outside the box and getting in to the idea that we are entering a period of low or no growth. Jeff Rubin and Richard Heinberg attribute the cause to higher energy prices, Peter Victor blames higher energy costs, as well as higher costs of other resources. Tyler Cowen, in his book The Great Stagnation says the high growth of the last 2 centuries was driven by many new innovations like steam power and railways, large scale electrification, motor vehicles, and electronics. The only major new innovation recently is computers, cell phones, and other electronics that, while creating wealth and jobs, aren’t big drivers of the economy like the inventions of the last 2 centuries. Other economists blame deleveraging, paying down the debts from a massive borrowing binge by individuals and governments.

Whatever the cause (probably a combination of all the above), we’re going into a period of low growth and would be wise to figure out how to adjust and get used to it.
UNC

Nasty, for one your take is way to simplistic,the chinese have proven that they are able in buisness,for two,we are not going to just let in temp workers , at the flip of a coin.for three letting in temp workers would be political suicide by any goverment in power,and four, cnooc is simply buying oportunities world wide and in this case a solid well establisded canadian energy outfit. the bottom line is this, if we do not allow investment into this country,we will stagnate,if we do allow investment we will prosper,unless of course dougi you got the deep pockets needed to maintain our canadian values and standard of living that we have curentley, as we know them.UNC
Jonatan Bravo

Jeff,

It might be interesting to know if the world net liquid fuel production has started to decline despite an increase in volume…

Idem for the total net energy production…

JB
G.A. Browne

There is a direct correlation to the population of the planet and the ability to fuel a global market. As well to provide the energy to produce the food for the present population. Oil will run out. If we do not have a replacement fuel to generate the food and support needed, then there will be a mass depopulation of this planet. Maybe science and governments should consider helping to find the fuel for the next century. I work int he oil sands. I see science and industry improving the extraction of a finite commodity. But it will end.
norlight

Pretty amazing for us in the US to go through a whole political campaign without the central issue of our time ever being addressed by either major party.
MB

UNC, you have said nothing about the inflated price the Chinese are willing to pay for Nexen. There is a reason for this, and the evidence is that they are interested in Nexen’s significant northern BC gas interests.

They are also buying a degree of control (i.e. incrementally) over Canada’s petroleum industry at any price, and now its prairie farmland, and our prime minister is about to sign an “investment protection” treaty with China that, as Osgoode Hall international law expert Gus van Harten says, basically gives away our sovereignty and negates provincial jursidictions over the environment and labour by allowing the Sinopecs and CNOOCs to sue them for billions for delaying or canceling the export of “their” bitumen. The treay will be signed on Oct 31st with zero public input.

This is not just business, UNC. This is the doorway to an era of economic vassalship and the escalation of the effects of climate change.
MB

Better yet, the development of the geothermal hot spots and tidal rips off the BC Coast, not to mention the huge potential for offshore wind power as a supplement. Throw in conservation and energy efficiency and you have non-fossil fuel energy game changer.

These have a massive potential to displace all BC’s fossil fuel resources currently used locally, and still leaves a lot for export. The Meager Creek geothermal site alone may be perhaps one of the largest future projects for zero emmision power generation (construction excepted) in the nation and could be the source of a new industrial strategy in BC.

We don’t need natural gas with its troubling CO2 emissions when there are alternatives, except perhaps as a transitional fuel to a clean electric future. Our cities need more trolley buses, electric trams and subways, not yet more cars with a different fuel on a vast and hugely expensive road network . Cars themselves are the problem in cities. We need to start moving people instead of cars.
http://profile.yahoo.com/6RC4RPSG36C7QWKMM34GMQHMII p_eyler

Nexen by itself is one thing. Nexen AND the China Trade Treaty take things to a whole different level. For example, China can bring in Chinese workers. While I doubt things would be as bad as the wave of Chinese workers overwhelming Africa (see Michel and Buret, China Safari, 2009) there can be no doubt that China will push the envelop as far as it can in Canada with unpredictable results. But what is really worrying is the very predictable impact on government revenues and expenditures. The trade treaty locks in prevailing conditions at the time projects are agreed to. Any subsequent changes which adversely effect Chinese businesses, or even minority interests in large corporations can trigger government compensation for losses. This was the case with the Turkish “treaty” with the Baku-Tbilisi-Ceyhan Pipeline a few years ago. After the “treaty” was signed, Turkey identified environmental concerns which forced the relocation of the pipeline. Turkey was forced to bear the costs. (see Greg Muttitt, Fuel on the Fire, 2011). Canada’s China Treaty has a lifespan of 31 years. What can happen during that time? Alberta, with its lowest income tax, no sales tax, and laughably low oil royalties, is rated with the highest probability of bankruptcy of any province in 30 years – and that’s without this albatross hanging around its neck.
UNC

To all you ideal-ists. I used to be an Ideal-ist when I was younger,I am 54 now and my ideals have been toned down by the very fact that at the end of the day, it is market forces,not ideals that shape proggresive change,do I think geo-thermal and wind generation are cool,you bet,but I, also like the majority of consumers in Canada am acoustomed to a particullar lifestyle.Ontario went and did the neato ideal and they now have some serious financial problems,when ordinary people are taxed to the max and are having a hard time making ends meet,beleive you me they will always opt for the better life style,now either you idealists are independentley wealthy or you have too much time on your hands.I would also suggest if you have any talent whatsoever to come to the patch and go to work,if you can not land a job,no matter what your forte is up north here,you probabley deserve to be where you are at and perhaps the enviromental movement will retain you under their employ.they do not pay very well though,but perhaps you already know that.Change will happen,it is inveitible,it will just depend on market forces and consumer demand.UNC
Zampanoca

What impact will the slowdown of North American economies have on the stock markets?
MB

Thank you, UNC, for reminding me, as a person in his 60s whose optimism and open-mindedness is still intact though much refined by the act of learing, why I seek out the intelligent council of people like Jeff Rubin, Richard Heinberg and Thomas Homer Dixon.

They and others have reminded us time and again in their writings that not even market forces are immune to the laws of thermodynamics.

Now I promise not to hold your youth and inexperiece against you.

Best Regards

MB
Instincts

Here’s a hint: Invest in things that:

1) Are gauranteed to grow
2) Contribute to both a sustainable economy and maintenance of real life things such as air, soil, water, renewable resources including good food

Example 1 — Trees: If left to do so, trees grow no matter what’s happening to the economy; while locking atmospheric carbon into woody somatic tissue for long time periods and also back into the soil (through root systems) where a lot of it belongs, and also while helping to regulate weather (air, water, temperature) and produce food, fibre, energy, and habitats. Not to mention produce the oxygen that we breathe every second of the day.

Example 2 — Land: Land really means the base soil first and foremost. Good functioning soil has the capacity to support and do a lot of things, including neutralizing or reversing the problem of increasing atmospheric carbon. Good soil also grows good things, without needing artificial inputs or GMO ‘frankseeds’. Just so happens that good soil/land relates directly to #1 above — good trees and other plantlife. Humanity is doomed without healthy functional natural plantlife. Our overly monetized society is destroying the capacity of the land to sustain very life itself, so there’s a lot of ‘not-so-good’ land out there, but if put into the right hands, poor land has a remarkable capacity to revert back to good land.

Here’s the catch. In this unfortunate skewed monetized economic human society, investing in good trees and good land is also well known to be able to make a lot of money. The key is not to get too hung up on monetary returns of such investment, but rather to place first and foremost, how being directly involved in such things (whether investing personally or just being involved in helping to ensure healthy land and what good land produces) really can and does greatly improve the quality of life… if you’re just willing to treat money in a sub-standard way as opposed to in a dominating way.

So simple really. Why humans choose to ignore the perfections that nature blindly established on this earth and replace with non-sustainable things and actions is the biggest question of our times, and ultimately will to the demise of our civilizations as they are today, which is really a good thing in the grand scheme of things. That process of demise has already begun.

Our children will see major changes and action for better, but it will be amonst chaotic processes. Monetary ‘nest-eggs’ aren’t going to be as important as these have been to people up to this point, because money never really did matter for real life things that mean anything. Money has been a grande illusion to humanity, and it is time that we wake up from this trance that money has caused too many people to fall into.
Instincts

Here’s a hint: Invest in things that:

1) Are gauranteed to grow
2)
Contribute to both a sustainable economy and maintenance of real life
things such as air, soil, water, renewable resources including good food

Example
1 — Trees: If left to do so, trees grow no matter what’s happening to
the economy; while locking atmospheric carbon into woody somatic tissue
for long time periods and also back into the soil (through root
systems) where a lot of it belongs, and also while helping to regulate
weather (air, water, temperature) and produce food, fibre, energy, and
habitats. Not to mention produce the oxygen that we breathe every
second of the day.

Example 2 — Land: Land really means the base
soil first and foremost. Good functioning soil has the capacity to
support and do a lot of things, including neutralizing or reversing the
problem of increasing atmospheric carbon. Good soil also grows good
things, without needing artificial inputs or GMO ‘frankenseeds’. Just so
happens that good soil/land relates directly to #1 above — good trees
and other plantlife. Humanity is in big trouble without healthy functional
natural plantlife. Our overly monetized society is destroying the
capacity of the land to sustain very life itself, so there’s a lot of
‘not-so-good’ land out there, but if put into the right hands, poor land
has a remarkable capacity to revert back to good land.

Here’s
the catch. In this unfortunate skewed monetized economic human society,
investing in good trees and good land is also well known to be able to
make a lot of money. The key is not to get too hung up on monetary
returns of such investment, but rather to place first and foremost, how
being directly involved in such things (whether investing personally or
just being involved in helping to ensure healthy land and what good land
produces) really can and does greatly improve the quality of life… if
you’re just willing to treat money in a sub-standard way as opposed to
in a dominating way.

So simple really. Why humans choose to
ignore the perfections that nature blindly established on this earth and
replace with non-sustainable things and actions is the biggest question
of our times, and ultimately will to the demise of our civilizations as
they are today, which is really a good thing in the grand scheme of
things. That process of demise has already begun.

Our children
will see major changes and action for better, but it will be amongst
chaotic processes. Monetary ‘nest-eggs’ aren’t going to be as important
as these have been to people up to this point, because money never
really did matter for real life things that mean anything. Money has
been a grande illusion to humanity, and it is time that we wake up from
this trance that money has caused too many people to fall into.
p_eyler

We now have the complicating factor FIPA merged with Nexen. Under FIPA China could indeed bring in workers. FIPA opens a whole host of questions about what China could do if it owned Nexen. We even appear to now be hampered under NAFTA in pursuing a Canadian oil policy with the recent claim for damages resulting from Quebec’s restrictions on oil shale. It time to call time out on all of Harper’s secret agreements.
JWMchew

Mr. Rubin, I attended the kick-off of Bill McKibben’s “Do the Math” tour in Seattle. The math in question can be found here (http://math.350.org/) and is based on the “Unburnable Carbon” report found here (http://www.carbontracker.org/carbonbubble).

I am also reading your book The Big Flatline, which I am finding very enlightening. Your perspective is quite different than that of most authors I have read, and I find myself, for the most part, appreciating your take on things. I do, however, find myself questioning some things as well.

Having just reached the section headed “A NEW HOPE”, in which you assert that the IPCC is too pessimistic because they are not factoring in price signals, I now find my self disagreeing with you. Just as the energy companies accept growth (read profit) as a given, you seem to accept market forces in much the same way. I am completely unable to bring myself to trust the invisible hand.

An effort on your part to resolve this cognitive dissonance would be appreciated.
D Moberg

Ontario has a spending problem, followed by a taxing problem. Economics 101, Canada has a spending problem Harper 101. We all want to live in the past when oil was cheap and we actually manufactured and produced something. When you are buying imported cheap goods on MacD service wages you are not ahead!
D Moberg

I know that this post is 2 months ago but wake up UNC! We already let in temporary workers(northern B.C.) and they HAVE to speak mandarin!
http://www.facebook.com/steve.fenety.9 Steve Fenety

I just heard your presentation with David Suzuki and in fairness I will get your book in the next few days to ensure I see the full story. I was also an economist and I concluded more than two decades ago that globalization would bring into question the paradigm of perpetual growth. The limitations are obvious, although supporters of the status quo believe that technology will overcome both the environmental obstacles and the finite nature of resources. In the extreme they see us importing from outer space and exporting environmental degradation before we destroy our planet. I agree that our economic focus has to shift from production of goods and services to their more equitable distribution, and yesterday you made bold recommendations, particularly on how we might job-share to reduce unemployment in a no growth economy. Much more thought has to be given on how we can actually shift policy on this sort of thing. You are wrong to belief that triple digit oil prices will solve anything. But they will quite probably bring the current economy to its knees. In that context any student of politics will tell you that the trick is not how to ferment a revolution, but how to lead it.

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