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Old 06-12-2009, 09:27 AM   #1
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Goodbye, globalization

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization

by Jeff Rubin

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What do subprime mortgages, Atlantic salmon dinners, SUVs and globalization have in common?

They all depend on cheap oil. And in a world of dwindling oil supplies and steadily mounting demand around the world, there is no such thing as cheap oil. Oil might be less expensive in the middle of a recession, but it will never be cheap again.

Take away cheap oil, and the global economy is getting the shock of its life.

From the ageing oilfields of Saudi Arabia and the United States to the Canadian tar sands, from the shopping malls of Dubai to the shuttered auto plants of North America and Europe, from the made-in-China products on the shelves of the Wal-Mart down the road to the collapse of Wall Street giants, everything is connected to the price of oil.

Interest rates, carbon trading, inflation, farmers’ markets and the wave of trade protectionism washing up all over the world in the wake of various economic stimulus and bailout packages – they all hinge on the new realities of a world where demand for oil eventually outstrips supply.

According to maverick economist Jeff Rubin, there will be no energy bailout. The global economy has suffered oil crises in the past, but this time around the rules have changed. And that means the future is not going to be a continuation of the past. For generations we have built wealth by burning more and more oil. Our cars, our homes, our whole world has been getting bigger in the cheap-oil era. Now it is about to get smaller.

There will be winners as well as losers as the age of globalization comes to an end. The auto industry will never recover from this oil-induced recession, but other manufacturers will be opening up mothballed factories. Distance will soon cost money, and so will burning carbon – both will bring long-lost jobs back home. We may not see the kind of economic growth that globalization has brought, but local economies will be revitalized, as will our cities and neighborhoods.

Whether we like it or not, our world is about to get a whole lot smaller.
from The Globe and Mail

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...the reference to playing table tennis on a moving train: The ball may appear to be bouncing back and forth, but in the grand scheme it's really moving only in one direction. That image describes beautifully what happens with oil prices – rising and falling from time to time, but really on an unstoppable upward trend.
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Old 06-12-2009, 11:12 AM   #2
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Rubin keeps predicting the future and getting it wrong.
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Old 06-12-2009, 12:46 PM   #3
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Rubin keeps predicting the future and getting it wrong.
Like every other big finance investment banker...

It's interesting to me that he had to leave CIBC and a 20+ year career 2 months ago to publish this book.

So I gather from your comment that you don't believe in the end of cheap oil and after effects?
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Old 06-12-2009, 01:08 PM   #4
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I largely agree with the article, but there are already other books out on the topic. James Howard Kunstler has had a couple of books out for a while- The Long Emergency and World Made by Hand.
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Old 06-12-2009, 01:37 PM   #5
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Usually when it comes to far-reaching predictions like this, the truth usually ends up somewhere in the middle. In the immediate term, undoubtedly our fossil fuel-based economy will face challenges. But dire predictions almost always presume an inelastic response from the marketplace, which, frankly, just never happen. Rising oil prices demonstrably trigger private investment into alternative energy, and, ultimately, with sustained high prices, will lead into a "post-oil" economy. The U.S., in particular, will not tolerate sustained high oil prices over the long-term.

On the other hand, considering some of the lengthy distances that some things are shipped, it would probably make sense to see more production done locally. Do we really need that bottled water from Fiji after all? Other things, however, like electronics will probably remain being manufactured abroad, considering where existing investment and ownership is concentrated abroad.
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Old 06-12-2009, 05:00 PM   #6
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the internet has made the world infinitely smaller than oil has
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Old 06-12-2009, 07:23 PM   #7
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Yeah I was just thinking, all this doomy we're-going-to-collapse-back-into-villages stuff really does ignore or wave away the existence of the Internet. Now granted, a lot of that infrastructure probably owes something to the age of oil and plastics (for instance), but its continued existence is another matter.

If I were in the business of predicting things, I'd sort of agree with Melon. I think the bumpy ride will continue for a long, long time, and if your view is that the Naughties have been really terrible, then yeah, get ready for more of the same. But at some point people will find that the world did not end. It just stumbled on to some other arrangement.
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Old 06-14-2009, 11:45 PM   #8
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So I gather from your comment that you don't believe in the end of cheap oil and after effects?
I believe the high prices of the past were made by gambling futures investors and cartel economics. Technically there are lots of supplies. If the price gets too high people start using less. Globalization being ended is also crazy. Most politicians (including left-wingers) know lots of jobs would be shredded if countries went in that direction.

I'm just tired of books that predict the future badly. It's just like the environmental doom-sayers and religious end of times people. You get the sense that they want it to happen as opposed to a real prediction based on solid evidence. Of course book sales would be timid if the prediction is: "World not going to end. Some paradigm shifts will happen but the population will continue to grow and wealth will increase overall." Who wants to buy that book?
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Old 06-14-2009, 11:49 PM   #9
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Um, my impression is that is exactly what Rubin's book is - I find it odd people here have assumed it's a doom and gloomer.
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Old 06-21-2009, 08:47 AM   #10
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Of course book sales would be timid if the prediction is: "World not going to end. Some paradigm shifts will happen but the population will continue to grow and wealth will increase overall." Who wants to buy that book?
Here's another one for that category - we'll see if it sells.

The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It

by Joshua Cooper Ramo

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Today the very ideas that made America great imperil its future. Our plans go awry and policies fail. History's grandest war against terrorism creates more terrorists. Global capitalism, intended to improve lives, increases the gap between rich and poor. Decisions made to stem a financial crisis guarantee its worsening. Environmental strategies to protect species lead to their extinction.

The traditional physics of power has been replaced by something radically different. In The Age of the Unthinkable, Joshua Cooper Ramo puts forth a revelatory new model for understanding our dangerously unpredictable world. Drawing upon history, economics, complexity theory, psychology, immunology, and the science of networks, he describes a new landscape of inherent unpredictability--and remarkable, wonderful possibility.
This is one I'm going to read.
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Old 06-21-2009, 10:24 AM   #11
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Oh, and Ramo didn't have to leave his job at Henry Kissinger's consulting firm to publish his book.
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Old 06-21-2009, 11:40 AM   #12
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Globalization is never going to disappear. There will be other ways to keep bridging distances, oil sources aren't infinite, that's something we could (and did) see coming decades ago. And like Salome said, the internet and other new media around it have made the world oh so much smaller than it ever was before. McLuhan predicted it already in the sixties with his ideas about the global village.
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Old 06-21-2009, 12:07 PM   #13
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Globalization is never going to disappear. There will be other ways to keep bridging distances, oil sources aren't infinite, that's something we could (and did) see coming decades ago. And like Salome said, the internet and other new media around it have made the world oh so much smaller than it ever was before. McLuhan predicted it already in the sixties with his ideas about the global village.
Although the internet has made the world smaller in some ways, the underlying infrastructure to deliver the goods is still largely oil-dependent. I don't think globalization will go away either, but it can (and has) shrunk with the economic crisis. China has shuttered thousands of factories, and the Baltic Dry index plunged. Stimulus packages are starting to emphasize and require the purchase of domestically produced goods. As melon alluded to, the "low-hanging fruit" such as agriculture may be the first to go trade-wise. Highly specialized goods and services will continue to thrive.
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Old 06-23-2009, 06:17 AM   #14
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Although the internet has made the world smaller in some ways, the underlying infrastructure to deliver the goods is still largely oil-dependent. I don't think globalization will go away either, but it can (and has) shrunk with the economic crisis. China has shuttered thousands of factories, and the Baltic Dry index plunged. Stimulus packages are starting to emphasize and require the purchase of domestically produced goods. As melon alluded to, the "low-hanging fruit" such as agriculture may be the first to go trade-wise. Highly specialized goods and services will continue to thrive.
Of course a lot of areas are mainly oil-dependent still. But, like other sources in the past which are almost not available (or technologically/economically winnable) anymore, there will be new sources. Some areas will continue to shrink with increasing oil prices and fewer capacities. But there will be solutions again, I'm sure.
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Old 06-23-2009, 09:34 AM   #15
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But there will be solutions again, I'm sure.
Absolutely - it's just a matter of how wild the ride to getting there will be.

Now that we've seen how succeptible our just-in-time global systems are to oil price shocks we can start to build in protections and resilience. I think it will happen in fits and starts with more price shocks to come which will force local sustainability in stages as front-line protection while building a more resilient global system on new, affordable, clean energy.
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