Jeff Rubin gets Peak Oil wrong

Jeff Rubin bet his future on peak oil. So far he’s been completely wrong. Why do we still believe him?

Peter Shawn Taylor 1

Economist and author Jeff Rubin (Photo: Greg Tjepkema/Random House; Hand lettering: Jennifer Spinner)

Two hundred and twenty five bucks. In April 2008, Jeff Rubin, chief economist at CIBC World Markets, predicted a barrel of oil would cost $225 by 2012. With oil at $118, it was a controversial call.

But Rubin, the best-known bank economist in Canada at the time, was no stranger to risky predictions. In 1989, he announced that the Toronto real estate market was about to crash. It did. In 1992, he said the Canadian economy was about to boom. It didn’t. In 1997, he tangled with manufacturers and fellow economists by declaring that the Canada-U.S. free trade agreement had not improved our productivity. As it happens, last month the Organization for Economic Co-operation and Development reported that “Canada’s key long-term challenge is to boost productivity growth”—so chalk that up as a win for the provocative Rubin as well.

But back to oil. These days, it’s trading under $90 a barrel. So not only was Rubin off by a huge margin, he got the direction wrong. And for Rubin, the stakes couldn’t be higher.

In 2009, he famously quit CIBC to publish his first book, Why Your World Is About to Get a Whole Lot Smaller. It was a No. 1 bestseller and won the National Business Book Award. Rubin argued peak oil supply and rising prices would push up transportation costs and slam the brakes on globalization. Say goodbye to New Zealand lamb in Canadian fridges. Air travel would also become prohibitively expensive. We’d drive less, shop closer to home and generally live in a smaller world.

You can still get New Zealand lamb, of course, as well as cheap vacation deals in Mexico. But Rubin is undeterred. The End of Growth, his new book, continues his argument that oil is the single most important factor guiding global economic progress, or lack thereof. Because of insatiable energy demand from developing countries, oil will become permanently and prohibitively expensive, Rubin claims. And this will bring our era of cushy First World prosperity to an abrupt end. “Living in the static world will be much different than the world we’ve come to know,” he warns. If there’s a silver lining, expensive oil and no growth should help keep our environment cleaner.

It’s another controversial and arresting point of view from the now 54-year-old provocateur, who has by now fully evolved from corporate economist to public sage. As such, he joins the ranks of such famous Canadian pop experts as demographer David Foot, technology guru Don Tapscott, resource-scarcity worrier Thomas Homer-Dixon and a long list of other self-declared wisemen who make a living telling the nervous masses what the future holds.

Is Rubin right about the supremacy of oil and where the future is headed? His 2008 oil call doesn’t inspire confidence. But then again, for pop experts, being right isn’t nearly as important as getting noticed.

Since the Oracle at Delphi, humans have looked to soothsayers to point the way. While ancient Greek prognosticators were famous for their cryptic suggestions, readers today expect (and are willing to pay for) a substantially clearer message. A certain formula has evolved: Take an expert with established credibility. Reduce the fate of the world to a single, simple concept. Create a suitably grim future to attract plenty of media attention. Then, if possible, add a glimmer of salvation, if only to keep readers’ spirits up enough to buy your next book.

Paul Ehrlich’s 1968 jeremiad, The Population Bomb, was in many ways the first big international pop-expert success, packaging an apocalyptic message for mass consumption. Ehrlich, an entomologist by training, declared we were doomed because too many people were living on too small a planet. He claimed Earth could support only 500 million inhabitants, Britain would cease to exist by 2000 and we’d all become vegetarians out of necessity. None of this came to pass, of course.

David Foot’s mega-selling Boom, Bust & Echo established the Canadian gold standard for the pop expert phenomenon a few decades later. Foot, an economist at the University of Toronto, began with the adage that everyone gets one year older every year. Easy enough to grasp. From there, he built a scary vision of dislocations and changes due to aging baby boomers. The biggest calamity was a looming real estate meltdown. “The real estate boom is over,” Foot and his co-author, Daniel Stoffman, wrote in 1996. Firms that recognized the demographic trends—a shift toward small cities and vacation properties, for example—were poised to reap great rewards. Publicly traded resort operator Intrawest was singled out for attention.

Sixteen years after Boom, Bust & Echo, real estate in Canada is largely defined by massive downtown condo booms and continued strong suburban growth. Inflation-adjusted housing prices in many Canadian cities are double what they were in 1996, except in the vacation market, which hammered Intrawest, now in private hands. You don’t hear much from Foot these days.

Other practitioners of the pop-expert model include Canadian academic Thomas Homer-Dixon, who predicted the world was about to be wracked by cross-border wars fought over basic resources such as water. Don Tapscott’s warnings about the “peril and promise” of the Internet era go back to the 1990s, and urban theorist Richard Florida of the Martin Prosperity Institute at the University of Toronto argues the survival of every North American city depends on attracting a “creative class” of artists and thinkers. For every pop expert, there’s a single overarching truth that explains all future success or failure.

For Rubin, it’s oil. While pop experts tend to fade from the spotlight long before their predictions pan out or not, Rubin has the unenviable task of flogging a book in the very year his oil price forecast has been proven dead wrong. The solution? In practised pop-expert fashion, he has simply recast failure as a success. “I made a forecast of oil at $200 based on what the price would be if the economy continued to grow,” he explained in a recent interview. Now, he claims his end-of-growth scenario means the world will find it impossible to keep going like it did in the early 2000s, which will henceforth keep oil prices down. “We’ll never see $200 prices, not because oil has become abundant, but because the world will never grow at a pace that can justify that,” he says. Point proven. Sorta.

He’s also taken some liberties with his trademark prediction. The 2008 call on oil referred specifically to West Texas Crude, the North American benchmark that’s currently at $85. But when Rubin talks about oil today, he uses Brent, the European price that’s around $100. He prefers the bigger number for an obvious reason. Of course, oil at $85 or $100 a barrel is still plenty expensive compared to lows of $40 in 2008, when the Great Recession hit. But it seems Rubin has no more idea where it’s headed than anyone else.

As for his claim oil is the single most important factor in global economics, there’s some logic to this. James Hamilton, a respected economist at University of California, San Diego, has done significant academic research on the topic. “Ten of the past 11 recessions in the United States have been preceded by an oil-price spike,” he observes. “When oil prices go up, consumer sentiment declines and spending slows down.” And recessions result. But Hamilton’s work also suggests price spikes have to outdo previous highs in order to provoke a reaction from consumers. “There is a threshold effect,” he says. “The second time you see $4 a gallon gas, it is not as disruptive as it was the first time.” This suggests oil must repeatedly hit new highs for the price to act as a firm ceiling on economic growth. And ever-higher prices are something Rubin himself now claims to be unlikely.

Further, Rubin gives short shrift to anything that could derail his theory of oil supremacy. Thanks to new technologies and discoveries, North America is now awash in cheap natural gas. The fuel has already replaced oil as a petrochemical feedstock, home heating fuel and in electricity generation. Could it do the same for transportation, the primary reason oil remains dominant today? There are significant obstacles, but they’re not insurmountable. In Iran, for example, almost a quarter of vehicles run on natural gas. Pakistan is moving in the same direction. Rubin simply ignores the implications. Natural gas as a potential substitute for oil gets two paragraphs in his book, plus a footnote.

Embracing apocalypses, glossing over bad calls and ignoring competing evidence are all part of the pop expert playbook. In fact, Rubin spends considerable time in his final chapter lauding Ehrlich’s work, despite the American’s proven inability, over many decades, to get the future right.

If Rubin is looking for a long and lucrative career in the guru business, he’d be better off taking a page out of the many books of tech-watcher Tapscott. Since first coming to prominence with 1992’s Paradigm Shift, Tapscott has managed to stay relevant as the digital age’s Canadian pop expert for an impressive two decades. Now 65, he recently delivered the opening talk at the posh TEDGlobal 2012 confab in Edinburgh, while his 14th book, Macrowikinomics, was just released in paperback.

A message that everything is about to change because of technological progress may seem repetitive and, to a certain degree, obvious. But it has kept Tapscott in front of audiences and readers. In an interview, he admits “a certain degree of luck” is necessary to get attention at the right time. But he also works hard to vary his message, examining the effect of technology on corporations, families, governments and others. And he avoids hitting a permanently depressing tone. Bad news may get you attention, but “books that have a hopeful message sell better,” he observes. “You don’t want to become a nattering nabob of negativity.”

Tapscott also knows better than to make concrete predictions that can come back to embarrass you. “I think the future is not something to be predicted, it’s something to be achieved,” he says cautiously. He learned this lesson years ago, when he claimed long-distance telephone charges would disappear by 2000. “Technically, I guess that happened with Skype,” he recalls today. “But it turned out to be more complicated than that. I certainly never thought there would be this thing called a roaming fee and that it would cost you twice as much.”

The notion that the world is complicated and full of unforeseen consequences and plot twists is the bane of pop experts, with their firm belief that one signature element explains everything about the future. But like Tapscott’s roaming-fee surprise, unexpected factors can confound the best attempts at imagining tomorrow. Even the CIA was caught unawares when the Berlin Wall fell. And human ingenuity has repeatedly foiled the grimmest doomsday predictions of resource scarcity.

Oil is certainly important to understanding how the world economy works. But then again, so is demographics, water scarcity, technological change, creativity, policy choices, public sentiment, corruption, cultural differences, new forms of energy and a myriad of other factors, all interacting in unpredictable ways. No one really knows what the future holds. And if they did, they wouldn’t be writing books about it.

One comment on “Jeff Rubin gets Peak Oil wrong

  1. What a great article. It’s painful reading articles let alone books on ‘experts’ making bold predictions on commodity prices, housing etc. or the economy in general. All impossible to predict given how complex and interconnected the world economy is!

    Reply

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