Wednesday, August 19, 2009

Is your world about to get a whole lot smaller?

“Right now, the great boogeyman for the Bank of Canada, the Federal Reserve Board, the Department of Finance, the U.S. Treasury is 1990s Japanese deflation. I think that is one huge head-fake. In the world that I see, we’re going inflation, not deflation at all. So if you’re asking what that new world will be like, well, it will be the opposite of the world we know.”

That is ex-CIBC economist Jeff Rubin speaking to NOW magazine following the book tour for Why Your World Is About To Get A Whole Lot Smaller. Rubin's views were so unorthodox that CIBC cut him loose.

How unorthodox? How about $200-a-barrel oil? How about the end of globalization? How about the return of manufacturing to North America? How about the Canadian dollar trading at $1.20 U.S.?

Nothing wrong with going against the current of conventional thinking. Most mainstream economists failed to predict the Great Recession, so mavericks get more respect these days.

Rubin's thinking goes this way --- With $200/barrel oil, shipping steel from China and tangerines from Chile will make no sense. Also Ontario and Michigan start looking a lot more attractive for manufacturing that was outsourced to low wage countries in the late 20th century.

The downside? Higher prices for almost everything. That's inflation.

Rubin says, "We will be living in denser communities, driving smaller cars, living more frugally and locally. When we travel, we may soon be boarding an electric-powered train rather than an oil-powered airplane. And with global climate change also bearing down on our energy consumption, we may soon be paying more attention to the cost not only of buying carbon-based fuel, but of burning it too, just as the Europeans are already doing."

and...

"Get ready for a smaller world. Soon, your food is going to come from a field much closer to home, and the things you buy will probably come from a factory down the road rather than one on the other side of the world. You will almost certainly drive less and walk more, and that means you will be shopping and working closer to home. Your neighbours and your neighbourhood are about to get a lot more important in the smaller world of the none-too-distant future."

My prediction: Unfortunately for the survival of the planet, OPEC and the worldwide oil industry conspiracy will not let this happen in the foreseeable future. Oil supply will be increased enough to stabilize prices at levels that will not cause Rubin's predicted changes. A sustained increase in oil prices would be salutary, though painful, and might offer our last shot at mitigating climate change, but it ain't gonna happen soon.

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