At some point, the message that Jeff Rubin wanted to give began to diverge from the message he was expected to deliver as CIBC’s chief economist.
You could see it in his research reports over the past 18 months – talk about the urgent need for energy conservation, the inevitability of carbon pricing, oil at $225 (U.S.) a barrel by 2012, and how the high cost of transportation as a result of peak oil will throw the machinery of globalization into reverse.
His conclusions were frequently controversial and certainly unconventional, particularly in a country so dependent on the global trade of its oil and other natural resources.
Ask Suncor Energy chief executive Rick George about Rubin’s prediction of $200 oil and a dismissive smirk follows. "Is he an economist or an entertainer? I guess if you live long enough you’ll see anything."
So while it came as a surprise when Rubin, in late March, suddenly resigned from CIBC World Markets after 20 years at the bank’s investment arm, it wasn’t really a shocker to those who knew the maverick economist best.
"It was only a matter of time," one colleague reflected.
Rubin had just completed a new book, Why Your World Is About to Get a Whole Lot Smaller, much of it based on his research at the bank. An ambitious book tour was being planned, and Rubin had to choose between Bay Street and Main Street.
"It didn’t really mesh with what the bank was doing so I said, `See ya!’" Rubin explained from his unexpectedly modest home in Toronto’s Riverdale neighbourhood. Now a free agent, Rubin, 55, is gearing up to spread his message following the May 23 launch of his book.
Its basic premise is simple: Nearly everything we do, purchase and eat is "inextricably bound" to oil, and as the price of black gold increases, so too does the cost of growing, manufacturing, processing, packaging and transporting the goods we consume – whether they be apples from Australia or dollar-store trinkets from China.
In other words, the higher oil prices get, the more expensive distance becomes. And oil prices, argues Rubin, are going nowhere but up.
"The world’s oil wells are running out of the stuff that keeps the whole system going," he writes, adding that the only supply available to replace it is dirty, hard to find, and for that reason increasingly expensive. The oil sands are a case in point. "We are getting closer to the bottom of the barrel."
Eventually, he says, the transportation costs of importing products from far-off countries will erase other advantages, such as low-cost labour. It will become, he argues, "the largest barrier to global trade."
This will lead to more dense communities, less driving, and a reliance on what we produce locally. World trade will revert back to the patterns we saw in the 1970s, when tariffs slowed the global movement of goods and trading was more regional. Economic growth will come to a crawl and inflation will rise.
Look no further than the current recession for proof, he says. In chapter 7, Rubin lays out in detail how high oil prices, which peaked near $150 in July 2008, led to inflation and rising interest rates that triggered the U paydayloans.S. mortgage crisis and sent the economic dominoes, including global trade, falling.
"You can liberalize trade all you like, but it won’t make a difference if no one can afford to ship the things you want to sell," he writes.
His prediction: Manufacturing jobs are going to return to North America over time. There will be a revival in regional agriculture. Urban farmers’ markets will become more plentiful. Travel will be local and certainly not by plane. Dining out will be replaced by cooking in.
Not such a bad thing, he suggests. "We will soon become far more attentive custodians of our own little worlds, and that is likely to make our neighbourhoods better places."
The message is sometimes taken to the extreme, particularly in the final two chapters. But the book is an easy, intelligent read for anyone seeking insight into the relationship between energy and the economy, and it brings perspective that has so far been absent from the peak-oil debate.
Rubin only occasionally touches on environmental issues such as climate change and he downplays the impact of clean technologies, calling electric cars and biofuels "head fakes." It’s here where he occasionally exhibits a shallow knowledge of green innovation.
Still, the book meshes well with other recent works, such as Thomas Friedman’s bestselling Hot, Flat, and Crowded, and it sets the stage for a summer of like-minded efforts, including Forbes reporter Christopher Steiner’s $20 Per Gallon, out in July.
Why should anyone believe Rubin? He accurately predicted oil’s rise to $50, then $100, and most recently $150. In 2005 he said the Canadian dollar would reach parity with the U.S. dollar, and it did.
But he’s had some big misses, too, including the forecast of an economic recovery in the mid-1990s, which never happened. He also predicted the S&P/TSX would hit 15,000 by the end of 2007 and 16,200 by the end of 2008. Wrong on both counts. He even failed to predict the oil-influenced recession explained so well in his book that sent the index below 7,600 and oil below $40 a barrel.
Rubin acknowledges in the book that many considered him "out to lunch" when oil plunged back down to earth. He reminds, however, that it wasn’t that long ago that oil was considered expensive at $40, and that it will shoot back up once the economy begins to recover and fast-rising demand bumps up against slow-moving supply.
Easy, cheap oil is gone, regardless of what the oil giants tell you. One thing he’s learned, he writes, "is that it is pretty much impossible to convince anyone of something they just don’t want to believe."
More are believing. Analysts at Raymond James said earlier this month that global production of petroleum actually peaked early last year. They called it a "paradigm shift of historic proportions" and urged society to "get ready to live in a peak-oil world."
Time to brush up on those gardening skills.
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