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Back to a future of calluses again?
on May 25, 2011
The book's central theme is that oil is at the very foundation upon which the world economy prospers or falls. Take oil - that is cheap oil - out of the equation, and the world we know ceases to exist.
The author makes compelling arguments why the supply & demand curves do not apply where one is confronted with a diminishing resource and convincingly shows that oil really is a diminishing resource. As if that were not in itself disquieting enough, he goes on to discuss the added demand pressures from newly developing giants such as India and China as well as the `cannibalization' of significant supplies by OPEC countries through excessive internal subsidies. Jeff Rubin also demonstrates that the West, despite all its efforts in becoming more energy efficient, is actually using more oil than ever before through the rebound effect. Ethanol perhaps, or wind turbines to get us off the oil fix? The author's economic scalpel dissects and finally discards them both for good reasons.
The reader is always led back to oil, and by the time you get that far, it sounds compelling that oil is at the root of everything, from recessions to economic bubbles. Whether it is inflation or deflation, financial derivatives, Wall Street greed or lax bankers and regulators - all is attributable to oil according to Jeff Rubin. I am no economist, but that is where I think the book looses its way and the oil-theme begins to take precedence over every other economic complexity to drive home the point. Yet, almost as a footnote, the author also contradicts his theme on several occasions, not the least by conceding that inflation in the postwar years (Korean War) and later in the aftermath of the Vietnam War was primarily caused by racking up massive deficits from financing these conflicts. Further, what do plainly bad business decisions in corporate and regulators' boardrooms have to do with the price of a barrel of oil?
The author explores an interesting aspect of the world economy, when he discusses Ricardo's Theory of Comparative Advantage in terms of carbon emission efficiency in the West and the need for countervailing tariffs to create a more equal playing field among manufacturers. Nevertheless, by inserting the emission issue, Rubin departs from his main theme, that oil is finite and can only become dearer, which it does regardless of carbon emissions. Mind you, by bringing up the environmental cost and pondering on the emission reductions achieved by the West to be more than offset by those belching out of Chinese and Indian smokestacks and tailpipes, he also makes clear that we could not keep on traveling the oily road no matter if there were unlimited supply of the stuff available for use.
Any reader who is hoping to learn from Jeff Rubin viable alternatives about meeting our present energy needs in a post-cheap-oil-world will be disappointed. There is barely a note on future and present alternatives. Nuclear energy, the old bogeyman, is only mentioned in lauding France for thus having achieved a comparative advantage on emission efficiency with its 75% dependency on that carbon neutral energy source.
"Why Your World Is About To Get a Lot Smaller" is an apocalyptic book written for the mass market. It is the economic version of "The Day After Tomorrow", only with a soothing, shall I say, nostalgic twist to appeal to the environmentalists among its reading audience: We all go back to a simpler world, where things are made locally, food being grown locally, travel restricted to short trips, neighbours will get to know each other again, all because fuel and transportation costs will make shipping and travel prohibitively expensive. The global economy will become unhinged and collapse of its own weight, apparently with nary a ripple of world wide social unrest and discontent, and we will all be the happier for it...
The mantra is that we will repatriate outsourced jobs, "clean the cobwebs" from mothballed factories and go back to the future the economic way. Apart from the fact that repatriation is not as straightforward as that, and Rubin alludes to the difficulties in making the wrenching changes to infrastructure, supply lines and the like, it ignores that not all manufacturing is offshore, because of advantages in labor costs and cheap shipping costs. Just ask yourself why Japanese products, especially its cars, look and feel like mid- and upmarket American cars should be, not to mention their dependability, while the US auto industry keeps on either producing gas-guzzling monsters or, well, to some extent the sons of the Pinto. Detroit was not destroyed by foreign competition but by its own arrogance and incompetence.
So how could the process of going from `global' to `local' look like according to Jeff Rubin? The disintegration of the Soviet Union of all places is offered as kind of a blue print how a society can `re-invent' itself after the collapse of its economy and structure of governance, conveniently ignoring that the citizens of the former Soviet Union had very little to lose but much to aspire for and still do.
Jeff Rubin is too brilliant an economist not to realize that `going local' is not that simple and that the idyllic pre-WWII Utopia he paints,(never mind the Great Depression then)reads a bit like a children's fairy tale or at least a trip into Nostalgia-Land. He hedges with a number of serious reflections such as the one on page 273 `we are liberal and tolerant, because we are prosperous', the underlying message of which is that democracy works best on a full stomach and rising expectations, that a populace suddenly being deprived of what it was addicted to, could lurch towards dangerous instability and hence political territory. And that is what we might expect in our comfortable, coddled Western societies. The results for the developing world could be a return to the abject poverty they are just beginning to escape from.
If you get right down to it, going local or not, Jeff Rubin's book predicts nothing less than the end of the prosperous post-war Middle Class, the return to a hard grind, and as he puts it, getting used to calluses again. He omits to say that with it will also come the return of the `Ancien Regime' again, because, let's face it, the really Rich (or Well Connected) will still retain their privileges as they have through all the centuries before. The end of the global economy is nothing to wish for.