Jeff Rubin, former economist at CIBC, has in the past few years, turned into a modern Malthus, proclaiming the end of the world as we know it. However, his writings are lacking in the breadth of analysis truly required to understand the problems we face, and he underestimates the ingenuity of humanity to solve problems.
Philip Cross, writing in the Financial Post, explains that Mr. Rubin’s new book, the End of Growth:
…is an extension of his previous work, in which he predicted high oil prices were here to stay, and would fundamentally alter how and where we live and work. In this book, he extends this thesis to claim that permanently high oil prices will permanently cripple economic growth.
He then calls out Mr. Rubin:
Historically, the high price of a once-dominant energy source did not lead to the end of economic growth, but to the shift to new and ultimately cheaper energy sources. When Britain began to run out of wood as its primary energy source, it developed its coal resources. When coal prices soared in the mid-19th century, leading to what today would be called Peak Coal and the inevitable Royal Commission into coal’s prospects, the world miraculously discovered petroleum. And then we developed electricity, gas and nuclear power as new energy sources. The rule is that cheaper energy will drive out more costly alternatives….
More than its shaky analysis of energy prices and supplies, the bigger problem with The End of Growth is Rubin’s lack of understanding of the ultimate sources of economic growth. Economic growth took off over the last couple of centuries not because of cheap oil but because of the rapid increase in the exchange and creative use of knowledge. As Matt Ridley concluded in The Rational Optimist, “a billion pages of knowledge make up the book of human prosperity.” Of course, one of the first areas where we applied this knowledge was finding new energy sources to lower its price, and we’ll undoubtedly do that again.
After reading this yesterday, I found this news item today:
The Green River Formation, a largely vacant area of mostly federal land that covers the territory where Colorado, Utah and Wyoming come together, contains about as much recoverable oil as all the rest the world’s proven reserves combined, an auditor from the Government Accountability Office told Congress on Thursday.
USGS estimates that the Green River Formation contains about 3 trillion barrels of oil, and about half of this may be recoverable, depending on available technology and economic conditions
We have already seen that technology in the petroleum industry can surprise us. In 2006 the great fear was that natural gas prices were rising inexorably, and then we figured out how to fracture shale gas reservoirs. Similarly, the same fracking technology has been used in the Bakken formation of North Dakota and Saskatchewan to produce 500,000 bbl/d. If there are 3 trillion BIP in the Green River Formation, then there is probably substantially more in other shale oil deposits in Canada, the USA, Australia, Europe and Asia. If fracking can make those reservoirs attractive at lower prices than the current market, shale oil will flood the market, prices will collapse and all those who dislike deep water drilling and the oil sands will be able to celebrate – because we will have cheap oil again.