August 1, 2015


By Martin Cash

Business

Why a static economy may actually be good for us

Jeff Rubin says he believes despite the best efforts by government central banks or fiscal policies, expensive oil is going to stymie economic growth.

In the new book by the former chief economist with CIBC Capital Markets, The End of Growth, Rubin argues economic growth is unsustainable if energy prices stay as high as they are.

"Zero interest rates and huge budget deficits are no substitute for cheap oil," he said in Winnipeg Wednesday.

Rubin said oil prices have had their fingerprints on every recession in the last 40 years and economic management has essentially been taken out of the hands of central bankers and finance departments.

"But it's important not to do the wrong things," he said. "The governor of the Bank of Canada worries about a housing bubble and people carrying too much debt, but what does he expect people to do when money is virtually free. And huge deficits and yesterday's bailout is today's cutbacks."

Thomas Mulcair, leader of the federal NDP, has already shaken the cage about how Canada's robust petrodollar is screwing things up in the manufacturing heartland.

Rubin argues in Canada, the fault lines are being drawn not between east and west or between English and French, but between provinces with oil resources and those without.

"It has already made common cause between Ontario and Quebec and Alberta and Newfoundland," he said.

"As the political rhetoric heats up in the coming months there is no moral high ground here. It is only the capriciousness of nature that determines which side of the debate you're on... Each premier will be reading from scripts written by natural resource endowments."

Price dynamics are playing havoc with resource developments. In Manitoba, development of mega hydro dams to sell power to the United States is getting gummed up by cheap natural gas that can be used to fire generating stations south of the border.

But not only that, Rubin's thesis is all about the fact power consumption patterns are going to have to change.

"I think we are going to find that many of these projections are going to need to be recalibrated," he said.

"Maybe we don't need to exploit resources as rapidly as we have because maybe the markets we are sending the resources to are not growing at the pace they had."

That's clearly a hard sell in resource provinces that need the jobs and revenue that come with resource developments.

"But all provinces needs to reconsider growth assumptions behind megaprojects and see if they are robust in today's world of triple-digit oil prices with recession knocking at the front door of many economies."

As a macro economist with impressive credentials -- Rubin held the top job at CIBC for 20 years -- the arguments in The End of Growth and his predecessor book, Why Your World is About to Get a Whole Lot Smaller, are superbly laid out.

The suggestions he makes about how we will be able to survive such a shift in the fundamentals of how economies perform are refreshing.

Not only will we be able to adapt, he said, but a static or slow-growth global economy may be really good for us.

For one thing, during recessions carbon emissions decline.

"I'll take slow economic growth over a thousand Kyoto agreements," he said.

And as an economist he knows price determines consumption patterns.

He uses the example of Denmark where electricity costs 30 cents a kilowatt hour, versus five or six cents here. There's a huge surtax on autos and energy consumption is declining.

"People in Copenhagen use a third less power than people (here)," he said. "I daresay Manitoba could reduce carbon emission without erecting a single wind turbine if you charge as (much as) Denmark for your hydro."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition June 7, 2012 B4

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