Peak Oil

Jeff Rubin, Peak Oil and Mainstream Opinion

By Ryan McGreal
Published May 25, 2009

Former CIBC World Markets chief economist Jeff Rubin has just published a new book on peak oil, titled Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization.

Rubin is an interesting character. Despite his high-profile position at a major financial institution, he has been writing about peak oil for years. In September 2005 he predicted that oil prices would top $100 by the end of 2007. Despite all the scoffing, he was off by only a few days.

Nevertheless, his economic opinions - however well-founded from the evidence - grew increasingly incompatible with his position as a prudent investment bank economist, and he parted ways with CIBC World Markets this past March.

Raise the Hammer will be reviewing this book in the near future. In the meantime, I read an interesting passage in Todd Hirsch's May 25, 2009 review for the Globe and Mail. Hirsch writes:

No serious economist would deny the premise of 'peak oil' or, at the very least, that 'plateau oil' is upon us, save for the vested interests in the energy patch with share prices to protect.

How quickly they forget.

Just a couple of years, ago, the very concept of "peak oil" was strictly verboten among mainstream economists, being limited to geologists - who are in the main more interested in what's actually in the ground than in what neoliberal theory demands - and a very tiny number of economists, including investment banker Matt Simmons (Twilight in the Desert), a couple of researchers at Goldman Sachs Global Investment Research, and Rubin himself.

Their compelling arguments were flat-out ignored by just about everyone else in- and outside the economics profession; and an economist's tendency to ignore peak oil was strongly correlated with his or her proximity to a broadcast TV camera.

Mainstream chatter about peak oil did tend to increase during the first half of 2008 as oil prices climbed toward $150 per barrel, though it all but disappeared during the price collapse of the second half of the year - just as the "bumpy plateau" was playing out exactly as peak oil theory predicted.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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By jason (registered) | Posted May 25, 2009 at 15:41:11

like I've been saying for a while now, get ready for 'peak economy'. The economy will rebound, grow and bump up against $150-$200 oil before sliding back into a recession....and we'll continue to repeat the process for the foreseeable future since our governments are so antiquated and are doing nothing to change the way our society and economy functions.

The sun came up AGAIN today. Can you believe it??

Oh well. If only there were some way to harness sunlight for energy.......

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By A Smith (anonymous) | Posted May 25, 2009 at 17:00:35

Jason >> The economy will rebound, grow and bump up against $150-$200 oil before sliding back into a recession

If and when Obama raises tax rates on the rich and pulls troops out of Iraq, you will likely see oil fall to around $30, if not lower.

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By LL (registered) - website | Posted May 25, 2009 at 19:48:19

In a recent article in Canadian Business, Rubin stated that Karl Marx was a major inspiration for him when he started learning economics. I wonder if he privately admits that ecological limits to growth mean that the end of capitalism as a totalized system could be nigh.

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By What is the truth? (anonymous) | Posted May 25, 2009 at 20:40:56

Jason writes: we'll continue to repeat the process for the foreseeable future since our governments are so antiquated and are doing nothing to change the way our society and economy functions.

You got that right, despite all the written words, media and all, what really has changed, nothing. Some people may have to travel long distances just for work, be paid low wages and then if the gas keeps going up, then they will not be able to afford even to go to work.

It's not like we have seen any great movement in creating jobs here in Hamilton, that actually pay a living wage or provide benefits for the masses.

But they sure do have a very oppresive systemm in place for those who have lost work, for those workers that cannot access EI and forced onto Ontario Works.

I mean think about it, if they, a worker from Ontario Works/Employment Councillor places you into a job placement and if the worker gets hurt on the job, they represent the employer in issues of WSIB and not the worker, they have placed, does that really make sense? Who is actually standing up for the workers, I guess nobody, really.

But I guess they have to justify their over $30.00 per hour wage and we wonder why the city has no money, taxes are high and why they lay blame on the working poor.

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By Ted Mitchell (registered) | Posted May 27, 2009 at 22:28:13

I heard Rubin interviewed on Radio 1, he's a bit of a kook. I think he has the basic view correct, but he didn't mention anything about what we can do to adapt to expensive oil with what we've got now, instead he talked a lot about sprawl reverting to farmland and people moving back to cities. Well, eventually, but not any time soon.

There's so much fat in current practices of single occupancy transportation with ridiculous vehicles, that just carpooling could make many suburbs quite practical even with $4/L gas.

I agree that the economy will sputter as the price of oil jumps with the stock market, but much more steeply.

The way out of this imho is (paradoxically) a big gas tax, with an emphasis on transportation fuels. e.g. increasing by 10 cents a litre per year for 10 years in north america. Otherwise there is no stability to get business to make the necessary changes to rolling back globalization.

But Rubin predicted $200 oil by 2010, and I think that's right on. Ditto his emphasis on expensive oil causing the global economic meltdown, not the US mortgage fiasco, because the economies of the rest of the world fell sooner and steeper than they did in the US. Cause and effect don't favour the official explanation.

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By Isabelle (anonymous) | Posted June 10, 2009 at 09:09:38

I agree with Jeff when he talks about the return of manufacturing in Canada. This process has already started. Check out www.BuyCanadianFirst.ca for products made in Canada. I promise you will be pleasantly surprised!

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By looking (anonymous) | Posted June 11, 2009 at 00:14:06

any one know jeffs email address?

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By Ryan (registered) - website | Posted June 11, 2009 at 08:17:50

Dear Looking,

You can probably contact him through his publisher, Random House of Canada Ltd.

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By fractz (anonymous) | Posted June 26, 2009 at 12:11:26

Here's my theory:

Green energy is by definition renewable i.e., theoretically infinite. So its not supply constrained. It has technological constraints, but that never stopped us before.

So, economically speaking, it eliminates the supply constraint from the classical Demand/Supply curves to determine its price.

I hold that its price can be made flexible and adaptive to the conditions in the economy at any given time. This is not true of any other natural resource based energy source.

I further hold that because of this flexibility, it is helpful to compare it to Money Supply. As we have seen, the Fed turns the spigot on or off at will to control the economy. Because there is no supply constraint (at least in the short term) i.e., it is a flexible resource.

If you follow this line of reasoning, I believe that Green Energy has the potential to supplant and/or supplement Money Supply as the gyroscope or flywheel of the economy. Indeed, it can offset the negative effects of unrestrained Money Supply growth. So, for example, it can be made to have a deflationary bias when Money Supply is inflationary, and vice versa.

A natural resource constrained energy supply cannot do any such thing, indeed it is reactionary to the effect of Money Supply, typically exacerbating its effects rather than countering them. We have seen this happen recently in the price of oil heading back to $75/barrel from a low of $30/barrel. So energy prices are fighting the Fed, not helping it. A Green Energy base can be made to do precisely the opposite.

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