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Thank you everyone, thank you for coming, it's going to be a beautiful day.
It's just testing us this morning with the fog.
But thank you for coming out in the fog,
and we really appreciate your presence
and it's going to be a really, really interesting morning.
And I thank all of our our panelists and special guests and moderators who'll be
introduced more appropriately at time.
At this point I want to introduce someone very special to all of us here at
the Chang School, and that's the Dean of the Chang School, Gervan Fearon.
He is
an amazing man,
this would not have happened without his support, and this conversation,
which can be controversial, wouldn't happen without his support.
He has taught at universities in Southern Ontario,
and was Visiting Scholar at the University of Washington. He is the
recipient of numerous awards including the Toronto Police Service Community Award,
and the Marcus Garvey Memorial Award, please welcome Dr. Gervan Fearon.
[applause]
Thank you Marie,
As I look out just across the audience and to all of you,
many of us know each other, many of us have worked together, many of us have
partnered on projects together.
And I think today's dialogue is really about the opportunity
for a post secondary educational institution here at Ryerson to the Chang School
for seeking ways for which we can partner to explore opportunities,
not simply for those of us who have already found our passion in our careers,
but particularly for those individuals who are trying to match their skills,
their talents, and their knowledge to that right job where they can bring
those opportunities to that employer to be able to make a significant contribution.
One of the things that we note in education is the reality that
a lot of the
new jobs being created, by definition, require some post secondary education.
And the throne speech of a few years ago highlighted that point,
but I think that's also highlighted by Statistics Canada and through our observations.
However, there is the reality that we're doing a great job
as post secondary educational institutions,
at getting students out and at developing skills, but not everyone has
the experience and the results of those skills being matched
to their capacity
when they find employment, and this is the core dialogue for today.
The other item that we note here at the Chang School is that we provide
opportunities for individuals to come back to university to develop their career
to develop... to do professional development and I think we do a great job at that.
But the area where we really wanted to use this opportunity to do a
better job at,
is to have engagement, to have dialogue,
to talk with you to get your ideas as to how we can do a better job, to get
your ideas as to how we can engage, to get your ideas
as to how we can actually contribute
to productivity and prosperity across the economy.
So the title of today's event,
prosperity
coming out of partnership is precisely why we're so pleased that
all of you are here, and we hope that it'll be an engaging dialogue and
I can tell you,
I had just the amazing pleasure of, over the years,
listening to and learning from
Jeff Rubin, so it is a wonderful pleasure having him here today and
indeed as you can see from the names of all our panelists,
having such a wonderful panel here to engage us as we work through
the questions as to how can a post secondary educational institution, how can
Ryerson, how can the Chang School actually contribute to both employment
to productivity, and to prosperity, and throughout the day, this will
be the dialogue, so thank you very much for being here.
[applause]
Thank you and the second half of this morning will definitely be...
the agenda will definitely be engaging you in
how we can work together. Government, we have
government representatives here, we have someone from
the Premier's office. We had more government representatives but this is a busy week
for government, so we have someone here from the Premier's office, some people
here from the Minister's office, we have people here from business, we have people
here from academia. We can't do it alone,
we have to work in partnership.
So that'll be mostly the second half of the morning, but to set the table
we have Jeff Rubin which I'll introduce in a moment. Now one of the ministers
that was supposed to be here but could not make it because it's a busy week
at Queen's Park,
don't laugh, it is a busy week at Queen's Park.
So I'm going to play a greeting from our Minister of
Training Colleges and Universities.
Hi my name is Glenn Murray. I'm the Minister of Training Colleges and
Universities in the Ontario Government.
I want to welcome you here to Toronto centre to my constituency
and really express the gratitude of the Government of Ontario to Ryerson,
and to all of you who've gathered here today to struggle with
what is a
really fundamental challenge for us in this new global
economy where 70% of jobs require a university or college education.
In this borderless world where capital moves around the world in split
seconds, the dynamics of employment and our economy or more complex than ever before.
And in the knowledge economy, in an economy in which innovation has replaced
production as the high-value wealth-generating activity in our society
and in fact,
our advanced production economy is almost entirely
beholden to our capacity
to innovate to be successful.
The questions and the discussions we're going to be having with
the panel today. The levels of employment and underemployment
for young people.
The challenges of the rich and diverse high-skilled workforce whose credentials
often aren't recognized in Canada,
because people with international
degrees and international educations have a great deal of challenge in many
fields in getting the experience they need to get the professional
accreditations, and to get the recognition of their competencies that their
credentials represent. These are all huge challenges to the complex economy
of Ontario in Canada right now, and I look forward to seeing the results
of your discussions as I hope they will help us inform better public policy
in higher education. Again, thanks very much
sorry I can't join you today, and I wish you great success.
And now, with no further ado, I'd like to introduce our guest speaker for the
first part of the morning,
Jeff Rubin, economist and author of
"Why Your World's About To Get A Whole Lot Smaller",
which won the Canadian Business Book of the Year,
as well as "The End Of Growth (But Is That All Bad?)".
You've received copies of the book
and Mr. Rubin is available for a few minutes at 10:45am to sign them
during our break.
He's a former Chief Economist at CIBC World Markets, and I read the book
in the last few days. It will not disappoint. It's interesting,
it's thought provoking,
and it gives some optimism as well.
Mr. Rubin... Jeff Rubin. [applause]
Thank you very much Marie.
Thank you for inviting me here today
to talk to you.
You know, back in 1973,
after the first OPEC oil shock,
President Richard Nixon
implemented the Emergency Energy Conservation Act,
where much to the chagrin of
U.S. motorists at the time,
he lowered the speed limit on interstate highways in the United States to
55 miles an hour.
And those kind of initiatives
more or less were
replicated throughout
the OECD world.
But when you change the price of oil
as dramatically as we've seen in the last decade,
from $20 a barrel
to over $100 a barrel,
you don't just change the speed at which you drive your car.
You change the speed
at which your economy can grow.
If we know anything about the performance of the global economy over
the last forty, fifty years, we know this:
feed it cheap oil,
and it runs like a charm.
But shock it with expensive crude,
and the engine of growth literally seizes up overnight.
You know, oil's a very magical fuel,
it packs an incredible amount of energy density.
It's not by coincidence that we remain so dependent on it.
We've been trying to ween ourselves off the stuff for the last 40 years ever
since the first OPEC oil shocks.
And to many respects, we've been successful.
When I grew up in this city, my parents' house,
and indeed most of the homes in North America,
were heated with an oil-fired furnace.
That's all been replaced by much cheaper natural gas.
And outside of the Middle East,
nobody really burns oil anymore to generate electric power.
That's also been displaced by much cheaper natural gas.
And when it comes to making
petrochemicals, we can certainly replace oil with natural gas as a feedstock.
But unfortunately, we haven't been able to replace oil for the one function that
the world demands it the most,
and that's as a transit fuel,
because no matter how you move goods around the world,
whether you move them by air,
whether you move them by boat,
whether you move them by truck,
or whether you move them by rail.
You're burning one fuel and one fuel only,
and that's oil.
And unfortunately it's the demand for oil as a transit fuel
that makes the world economy
evermore thirsty for it, whether we're talking about the Chinese economy,
or whether we're talking about the North American economy.
There are natural gas and propane powered vehicles.
They're less than 1% of the 240 million
vehicles on the road in North America.
And the reason for that is that oil packs four times the energy density.
So think of four times as large a natural gas tank,
or think of filling up four times as frequently.
You see, that energy dependency means that
oil becomes a critical input
into the performance of the global economy.
Every major recession
that we've seen in the last 40 years
has oil's fingerprints all over it.
1973, the first OPEC oil shock created what was at the time
the deepest recession.
A scant six years later, the Iranian Revolution,
or the second OPEC oil shock as it's been come to be known,
created not one, but two recessions,
the now infamous double-dip.
And of course in 1990-1991 when Saddam Hussain invaded Kuwait
and left half of its oil fields on fire,
and oil then spiked to the unheard of price of $40 a barrel,
once again,
lo and behold the oil consuming economies of the world rolled into recession.
And then last,
but by no means least,
the recent 2009 recession,
the deepest recession we've seen since the post-war period,
followed on the heels
of a $147 a barrel oil prices.
Of course the last recession is not viewed as an energy shock even though
it's perhaps the greatest energy shock we've seen.
Most economists,
central bankers, financial market pundits,
would have you believe that the last recession was really a financial market shock,
whose roots now lie in the failed U.S. sub-prime mortgage market.
Well no one of course has to remind me of
how troubling and significant
the sub-prime mortgage market was to financial institutions.
Why the hell do you think I'm an author now?
The financial institution that I used to work for
wrote down some $7 billion in these things called
"CDO"s, or
"collateralized debt obligations",
that were chock full of sub-prime mortgages.
And indeed risk averse institutions all around the world
were exposed to the U.S. sub-prime mortgage market
through ownership of these instruments,
without any direct involvement in lending in the U.S. sub-prime market.
If you're wondering why my former employer,
and indeed risk averse institutions all around the world
held so much of this stuff,
you've got to remember that it came with some pretty fancy wrapping paper.
Some triple-A wrapping paper.
Triple-A is the highest rating
that a rating agency can assign to a security.
It would say that the risk of default would be no greater
than say the Government of Canada defaulting on its bonds.
I guess what my former institution lost sight of
is just how rating agencies like Standard & Poor's or Moody's or Fitch get paid.
Rating agencies don't get paid by investors who follow their rating.
Instead, rating agencies get paid by the same entities they're asked to rate.
In economics when we have this kind of opposition of interest in the contract,
we call it
"a moral hazard problem".
In investment banking,
it's called "*** happens".
Well, there certainly was a lot of *** happening on Wall Street and Bay Street
at the time, but I would argue
that that was a symptom, not the cause.
There was something a lot bigger going on.
Because what no one seems to ask themselves is,
"What exactly pricked the sub-prime mortgage bubble?"
"How come in 2004, money was free, and you didn't need a
job to get approved for a mortgage,
and then in 2006 all of a sudden money wasn't free,
and all of a sudden you did have to send in a mortgage payment, and when you
couldn't, of course you sent in the keys
to your mortgage lender.
Back in 2004 the Fed Funds Rate was 1%, that's the
key borrowing rate in the United States.
Two years later it was 5.5%, what happened?
Well any central banker will tell you that your borrowing rates are a
reflection of your inflation rate.
The reason that money was free in 2004, not unlike the circumstances we see today,
was because inflation was 1%.
By 2006 inflation was over 5.5% in the United States.
What drove that huge increase in inflation?
Well, what drove that huge increase in inflation was the same thing that drove
inflation in any
other previous energy shock: oil prices.
The energy component of the U.S. Consumer Price Index was running at
around 35% annual rate,
and that was because of one price,
the price of oil.
Back in 2004, oil was thirty dollars a barrel.
And every oil analyst on Wall Street or Bay Street was going to tell you that's
exactly where it's going to stay.
Two years later it was $70 a barrel.
Two years after that it was almost a $150 a barrel.
If oil indeed would've stayed at $30 a barrel
like the market analysts told you,
we would've never saw that huge run up of inflation.
The Fed Funds Rate would've stayed around 1%.
All those good folk in Cleveland
would still be in their homes financed by zero interest rate sub-prime mortgages.
I dare say Bear Stearns and Lehman Brothers would still be around.
And I'd probably still be the Chief Economist at CIBC.
But that's not what happened.
Instead oil doubled and doubled again. But there was something very different
between this oil shock
and the previous oil shocks.
In the previous oil shocks,
somebody turned off the tap.
'73, '79, or somebody invaded a major oil-producing
country and disrupted production,
Kuwait, '91.
Today, the tap's wide open.
In 2008,
the tap was wide open.
Today 90 million barrels of it flow through it,
never more.
The only problem is,
we can no longer afford what's flowing through it.
You see,
peak oil ain't about what you can drill.
You're always going to have
more and more oil if prices go higher.
It's called the upward slope in supply curve in economics which is just a fancy
way of saying the higher the price, the more of a good will be supplied.
At $200 a barrel the world would be awash with oil.
We'd be getting oil out of all kinds of
formations like carbonates that we don't even tap.
The only problem is the other fundamental law of economics,
the downward slope in demand curve,
which is just a fancy way of saying,
the higher the price,
the less of it will be consumed.
It takes a $100 a barrel oil prices to get oil out of where
we're looking for.
But, can our economies grow with triple- digit prices. And if you're wondering
"Why does it take $100 a barrel oil prices to get oil
from places that we're relying on supply?",
just look at our own country,
the Alberta tar sands.
At $20 a barrel, you can't give the resource away.
At $100 a barrel, the International Energy Agency calls it the
third largest oil reserve in the world,
with 170 billion barrels of it.
Well you know what, that's just part of the story, there's an even bigger reserve:
the Orinoco heavy oil belt which is also a tar sands deposit in Venezuela.
According to the International Energy Agency, it's the largest oil reserve,
270 billion barrels.
At $20 a barrel,
even if Hugo Chavez
had the world's
most generous
giveaway royalties,
no one would touch it.
At $100 a barrel, all of a sudden,
China's made a $20 billion investment in the region.
You see, as I say,
the world's not going to run out of oil.
But what the world is running out of,
is the oil that we can afford to burn.
And that's as true of the Alberta tar sands
as it is of getting oil out of shale
in the Bakkens, as it is of getting oil drilling three to four miles below the
ocean floor,
as was the case with the ruptured Macondo well only a couple years ago,
as is the case of getting oil out of the Arctic, and as is the case of getting oil
out of the Venezuela heavy oil belt or the Orinoco.
Again,
the tar sands,
they're not new.
For centuries the natural outcrop of bitumen was used
by Native Canadians to waterproof their canoes.
As early as 1920 there was a pilot plant to get synthetic oil out of it.
The only thing that's new,
is that it's a commercially viable source of supply,
and what's changed is not the resource, what's changed is oil prices.
You know,
when oil prices fell to $40 a barrel in the last recession,
some people thought that that was evidence that oil was cheap and abundant.
On the contrary,
when oil falls to $40 a barrel, it's never more scarce,
because you shut off
about 30% of today's supply,
including the tar sands.
In 2009, they cancelled $50 billion in cap ex.
They cancelled plans for 8 heavy oil upgraders, because when oil fell to
$40 a barrel in 2009,
the cost of extracting and producing synthetic oil from bitumen
was no longer economically viable
because the cost was greater than the price of oil.
And that, unfortunately,
is the problem that we face.
Because what we're no longer talking about is a shock, a temporary supply disruption,
what we're talking about is where the supply curve lies.
You know I've been
touring around with David Suzuki
across the country, the eco tour and of course he's
very fearful of the increased
production from the tar sands.
And I said relax David,
because it's not up to Harper.
It's up to the cost curves.
Yes, at $200 a barrel, the tar sands can double production.
But find me the customers for $200 a barrel oil prices and
that's the quandary.
Well, this is not a message
that folk want to hear.
You don't hear
in the U.S. presidential debates
either candidate
deliver that kind of message and I suspect that you won't hear this kind of
message in the next Federal Election that we have here, because
the message is,
that economies
are not going to be able to grow at the same rates of growth
that we have become accustomed to.
And that is as true for the Chinese economy
as it is true for the North American economy.
You see, all of our growth expectations are benchmark to the last 40 - 50 years.
And we think that's the norm.
Believe me,
the last 40 - 50 years by any benchmark of economic history is not the norm,
it is the exception.
And we think that that exception
was driven by our own ingenuity and the fact that we have the internet.
That exception was driven by cheap oil and cheap coal which powers 70%
of the world economy.
And I might add that everything I've just said about oil
is equally true of thermal coal which is probably a bigger constraint on the
growth of economies of China and India than oil.
Thermal coal's over $100 a ton.
And just to put that in perspective,
that's the same kind of price increase that we've seen from oil
Again,
not that the world's ever gonna run out of thermal coal,
just as it's never gonna run out of oil,
but it is rapidly running out of the kind of oil and coal
that we can afford
to combust.
Well as I say,
not a message we want to hear,
so, not a message we're going to hear.
So if you're Obama, what do you do?
You call in your economic managers,
the Federal Reserve Board,
the U.S. Treasury,
and you tell them to step on the gas.
You tell them we're not getting the job creation numbers we need to see,
and if we don't get it,
I'm going to get kicked out of office soon.
So what does Ben Bernanke do?
He puts on the printing presses like they'd never been on before,
only they call it quantitative easing,
and he prints a whole lot of money, ok?
And on the other side,
we've got the Treasury running a trillion dollar budget deficit.
But you know what?
Neither a trillion dollar budget deficit nor zero interest rates is a solution
to the problem of
$100 a barrel oil.
It's not going to make our economies grow any faster,
it gives us a temporary spurt,
but in the end we're going to find that the cost they have put in pose,
are just going to make
the transition
to triple-digit oil prices
more difficult,
not easier.
As people in Spain and Greece who've already fallen off the fiscal cliff
understand,
yesterday's bailout
is today's cutback.
These kind of deficits cannot be run year-in, year-out.
That the stimulus they impart today
just means constraint tomorrow.
And as far as the effectiveness of zero interest rates,
listen to your own Governor of the Bank of Canada, Mark Carney,
who keeps interest rates of 1%
and then tells you not to borrow.
What the hell are you supposed to do when interest rates are 1%?
What's the whole idea
of keeping interest rates at 1%?
It's to encourage you to borrow and then spend in the economy.
Now, what he's rightfully pointing out is,
hey, you've already got way too much debt,
maybe the reason you got way too much debt is money's free and that's what
happens, I mean,
the sub-prime mortgage market would have never even been created in 2004
if the Fed Funds Rate wasn't at 1%.
But, you know, the reason that Carney's saying that is, I can't raise interest rates,
the economy's too weak, but what's holding people back from spending
is not the cost of credit.
And what's holding the economy from growing is not a lack of government spending.
What's holding the economy back is the same thing that held the economy back in
'73, '79, and '92,
and that's triple-digit oil prices and this is not an alternative for it.
But as I say,
that's not a message we want to hear,
so it's a message that we're not going to hear, except
that we may not be hearing it from the politicians,
but we're sure hearing it from our economy.
And it's not just us.
The Chinese economy can't grow at 10% when Brent's $112 a barrel.
The Chinese economy in the
official statistics is now growing at seven and eight.
When the smoke clears, the Chinese economy will be lucky if it grows at four to five.
Of course,
those are growth rates that will be well beyond anything we'll see in
North America.
That we're gonna go back to economic growth rates that we have not
experienced in the last 40 - 50 years,
and stepping on the gas, printing more money,
or running huge budget deficits is not the answer.
What is the answer?
Well, I think
what makes sense in this kind of economy
are things like
job sharing,
or Germany's Kurzarbeit program,
which saved about a half a million jobs in the last recession.
I mean, the biggest consequence of economies not growing,
I mean GDP is an abstraction that
economists and statisticians talk about
but when you don't have a job
you don't need an economist to tell you.
You know, you don't have a job,
and that's what we're going to have to deal with.
And I think the way to deal with it intelligently
is through job sharing,
that maybe, you know, 4 people take a 20% - 25% cut in time
and save a job.
After all,
we're not taxed on leisure time.
And I think that we're going to see some changes in the labour force that
are going to ripple down
to Ryerson University and indeed enrollment in all post secondary institutions.
If you look around
when you see economies stop growing
and you see the jobless rate rising,
you'll see it in one part of the labour market before you'll see it in any other part
and that's in
the youth unemployment part,
the 15-24 age cohort
in the labour market.
Even in Ontario, and Ontario is still growing,
the youth unemployment rate's 15%.
Go to some place like Greece or Spain
and the youth unemployment rate's 50%.
What are we likely to see?
Well we're likely to see people delay entry into the labour force.
We're likely to see people live longer and longer with their parents.
We're likely to see a huge increase in post secondary education.
At the same time,
we're likely to see fiscal restraint,
because tax bases are no longer growing.
So we're likely to see less and less generous transfers.
At the same time,
to make those less and less generous
transfers politically acceptable,
we're likely to see governments prevent universities from raising tuition fees.
So what happens in that world is that universities become
much, much more reliant
on private funding.
And that's probably going to be part and parcel
of a large
privatization of
government services,
not for any ideological reason,
but simply because cost is going to become
incredibly important
in a regime of which tax revenues are no longer growing.
At the same time what's happening at the other side of the labour force? Well,
you're seeing that the Federal Government's already announcing
that it won't be paying pensions until 67,
that's a move that's going to be replicated at the provincial side,
it's going to be trickling down.
You know in the building that I used to work for at BCE Place there's an
Avis rent-a-car there,
where basically all the people there are pensioners working.
I think we're gonna see in a world in which pension benefits become
increasingly less generous,
we're gonna see people work much longer past 65,
we're gonna see a grain of the labour force.
What kind of basic changes will there be
in this kind of economy? Well I talked a bit about the labour force.
I think there are changes in the structure of the economy,
and I think there's some good news here too.
In a world of triple-digit oil prices,
distance costs money.
Transport costs are no longer incidental. Transport costs for things like steel to
food become critical.
And all of a sudden we're gonna find that the whole model of a global economy
where we produce something at one end of the world
ostensibly to take
advantage of the cheapest wage rates,
and to sell it in the other end of the world
isn't gonna make a whole lot of economic sense.
When oil crossed into triple-digit oil prices
back in 2007,
I did a study when I was still the Chief Economist at CIBC World Markets,
that showed that it was cheaper to produce steel
in North America
than it was to import steel from China.
Because while the Chinese steel worker is
only earning a fraction of the North American
steelworker, how much labour time do
you think there is in making a tonne of steel anymore?
An hour and a half.
But when you consider what China has to do to manufacture steel,
to import iron ore from Brazil or metallurgical coal from Australia
to convert it into steel and then ship it back across the Pacific Ocean,
when the transpacific bunker charge got to over 80 dollars a barrel, all of a
sudden it was cheaper to buy both hot and cold
rolled steel in North America
than it was in China.
Who would've ever dreamt that triple-digit oil prices
will breathe new life
into our hollowed out rust belt.
But that's exactly what the transport costs that fall out of triple-digit oil
prices will do,
that we're gonna see the reemergence of local economies because the transport
cost from triple-digit oil prices is equivalent to like a double-digit tariff
on goods
shipped from distant places
like India and China.
So I think that, you know,
sectors that we thought were gone forever,
are coming back,
not just the manufacturing sectors, what about the agricultural sector?
You know the last thirty, forty years, all that farmland
they got paved into suburbs,
that was oil doing the heavy lifting.
It was cheap oil that allowed you to commute thirty to forty kilometers to work.
And it was cheap oil that allowed you to fly in fresh papaya and pineapples
in the middle of the winter.
You know, when I grew up in Toronto in the 1960s,
you wanted raspberries or blueberries in February?
You went to the canned goods section at Loblaws,
not the fresh fruit section.
We're going back to that world.
I survived,
there weren't people dropping dead of malnutrition in Toronto in the
1960s.
We're gonna see a return back to local produce,
because the cost of bringing in papayas
and oranges from halfway around the world
isn't going to be viable anymore.
And that means that
domestic food prices are going to rise at the same time that probably
real estate values in the far-flung suburbs will fall,
as the cost of commuting rises.
Well, you know, I'm an economist,
I believe in price signals.
I believe that prices will guide our actions.
I believe that triple-digit oil prices are going to lead us to some very green places,
because the same price signals that paved over those farms
with suburban sprawl
may reverse that suburban sprawl to the farms they were only thirty, forty
years ago.
And on that note I'd like
to just close up and talk a little bit about
perhaps the biggest beneficiary
of this world that I'm talking about.
As I mentioned in my opening remarks,
I've been travelling across the country with David Suzuki, you're probably
all familiar with him, he's I guess as close to an environmental icon as we
have in this country and for the last 35 years, the host of The Nature
Of Things, CBC's current affairs program.
It's called the Eco Tour.
It represents the intersection
of ecology and economics.
David considers the message that I bring
to be a game changer,
and I think in some respects it is.
Traditionally,
economic weakness
has been very negative
for the environmental movement,
because any time the economy weakens,
environmental concerns get shunted
to the back seat,
if not all the way to the trunk.
And certainly today is no exception
when you see the failure of global summits on emissions like
Copenhagen or Durbin, or when you see our own government or the U.S.
government shy away from any kind of environmental commitment they've made
because the overall imperative is to create jobs, I certainly understand that.
But I think I've
convinced David there's a bigger game at play here.
That the same economic weakness that relegates environmental policy
to the bottom of the heap
in terms of political choices that we may or may not make
also makes those choices increasingly irrelevant.
You know, emissions fell in the U.S. economy in 2009.
That wasn't because anything congress did,
the Waxman-Markey climate change bill died on the senate floor.
It certainly wasn't because of anything President Obama did,
he shied away from any environmental commitment he made.
It was rather because, guess what?
The U.S. GDP shrank,
and when the U.S. GDP shrinks,
carbon emissions shrink with it.
In fact not just in the U.S.,
in 2009, global emissions shrank.
Global emissions shrank because we had the lowest rate
of global economic growth in the last thirty years.
Now environmentalists will point out,
"But we saw emissions
rebound in 2011...".
Yes, but how sustainable was that economic recovery?
Look at Greece, look at Spain, look at ourselves, look at China.
All-around we're finding that this recovery,
as tepid as it may be,
is increasingly looking unsustainable.
Perhaps 2009 is the new benchmark.
Now if you're an investment banker,
that's probably not bullish.
But if you're David Suzuki,
that is very bullish, because
it takes the decisions right out of our hands.
And maybe when we see things like
glaciers the size of Manhattan
calving off the Greenland coast,
maybe that's a good thing, not a bad thing.
Maybe a smaller human footprint
is precisely what we need.
Thank you very much.
[applause]
Thank you very much Jeff.
I'd like to introduce the moderator for the next section
until 10:45am and like to engage the
audience, and have questions
from Arlene Bynon, well-known radio host
on the Arlene Bynon show on AM640, also a former
Global Television host
and
more important to me, a friend and someone I went to middle school with in
Hamilton, Ontario,
one of the greatest cities in the country.
Arlene Bynon, please come up.
[applause]
Marie and I were just educating Jeff on the power of Hamilton and I'm sure we
can work this all in somehow. Thank you so much for asking me to facilitate
the question and answers, so if anybody has a question,
we will come to you.
Thank you Jeff, I think my question really relates to
excise tax rates and the role IPIC plays
with respect to
the high cost of
gasoline at the pump, I think it's something
around 23 cents, and what your comments are on
how the government is either helping or hurting in this area
Well, anytime oil prices go up,
there's two things that politicians hear:
lower excise taxes, and if you're in the U.S.,
release oil from the strategic reserve,
which is the largest inventory of oil in the world.
I think both of them are the wrong things to do.
Prices are the neural pathways of the economy.
They convey information to us.
They tell us what is scarce,
and hence, encourage us to consume less.
Or they tell us what is bountiful
and encourage us to consume more.
The message from triple-digit oil prices,
I know we don't like to hear the message,
but the message from triple-digit oil prices is:
consume less,
not consume more.
When we
release oil temporarily from the strategic reserve, which has been done in
the United States,
we can temporarily override that message so you can happily fill up,
because oil's fallen $5 a barrel that day,
but the strategic reserve is a finite resource. If you withdraw from it,
you have to build it back.
So in day 1, it artificially depresses the price of oil,
in day 30 when you have to replenish it, it artificially raises the price of oil,
Excise taxes.
You know, funny about the U.S.,
the U.S. often accuses other countries of energy subsidies, particularly China,
India, and that usually happens at the refinery level and that is true.
But you know subsidy is very much in the eye of the beholder.
The U.S. has
among the lowest gasoline excise taxes in the world.
Is that not a subsidy?
Well, the U.S. doesn't consider that a subsidy,
but low excise taxes encourage you to do what?
Consume more oil.
When triple-digit oil prices is telling us to do what? Consume less oil.
So I don't think that's the response. Now it is true that
excise taxes are a huge part in the price of oil.
If you would go to British Columbia right now you will notice that you pay
more to fill up your tank
than you do in Toronto, even though B.C. is
a lot closer to Alberta oil, and the reason is
because of different excise taxes.
Canada is about middle of the pack.
Europe for example,
has been effectively paying for triple-digit oil prices for the last ten years,
precisely because of carbon and excise taxes.
And if you go to Europe,
you see people drive very different cars.
And you see people have very different driving habits than in Canada
and the United States.
And that's the future,
not the past.
If you want to look at what
our highways will look like in 5 - 10 years when oil's charging $7 - $10 a gallon,
just look at Europeans because excise taxes they've been paying that
for the last 10 years.
I drive an Audi, half of the models Audi makes
doesn't even sell in North America.
The car would be too underpowered or small for our tastes.
Our tastes are gonna change.
Our tastes are determined by prices.
So, you know,
I argue the solution here
is to use less energy,
because that's the way that you immunize our economy from triple-digit oil prices.
Jeff, can I just say, on that topic,
one thing you haven't talked about is natural gas, which is
kind of dirt cheap these days. / It is.
Is it not going to affect this, I mean if I'm paying more
to drive or ship my brussel sprouts here but if I'm heating my home more cheaply
wouldn't that have an effect? / Where we can substitute
natural gas for oil, believe me
we have,
prior to the first OPEC oil shock,
90% of the furnaces in this city were oil-fired.
I doubt less than 5% of the furnaces in this city are oil-fired,
it would be no different if we were talking Chicago or anywhere else in North America.
And with the exception of a few places in the Maritimes and New England,
nobody burns bunker fuel to generate electricity anymore.
Natural gas is cheap, in fact,
per B.T.U. (British thermal unit) or per unit of energy,
right now natural gas has never been as cheap
as it has compared to oil,
six times cheaper.
So the obvious question is,
"Jeff, you worked 20 years in the investment banking industry,
wouldn't people arbitrage that price spread in a nanosecond?".
Well you would if you could, but they're apples and oranges because again,
what drives the demand for oil in the Canadian economy,
what drives the demand for oil in the Chinese economy,
is the demand for oil as a transit fuel: jet fuel,
diesel,
gasoline,
and natural gas is not
a substitute for that,
and the evidence of that is that yeah sure, there are some taxis in this city,
limousines, that have propane tanks.
Just don't be taking a lot of luggage with you to the airport because half of
the truck is the gas tank,
and that's not an accident because oil packs
four times the energy
of natural gas.
So until we can replace
natural gas with oil as a transit fuel,
even though natural gas because of shale gas is so cheap in North America,
it's not pulling down
the price of oil.
And just to close up on that, remember,
natural gas is very cheap in North America because of shale gas or tight gas.
You go to Asia,
you go to Europe,
natural gas is about
4 - 5 times as expensive.
Another question we have...
Hi I want to thank you first for your optimistic take on it, it's always good to
hear that maybe we're going in the right direction sometimes, but I still need a bit
more cheering up.
I wonder if we are not still... what I worry about is that actually
what this will drive is further inequality, that we will
have new meaning to the term "jet setters" that
only some people will be out there travelling
and doing the other things that we see as normal now.
Well that's an interesting question,
I mean, are toll roads
a good or a bad idea
in this world?
I guess it depends on who's driving.
You know, back in 1910,
Model T,
only the rich drove.
Poor people
couldn't afford cars, couldn't afford to drive.
Maybe we shouldn't be using our taxes for roads
if only rich people drive.
Maybe toll roads make sense.
I see a world in which we're going to be driving
a whole lot less and relying much more
on public transit.
And again I think look to Europe
as a pretty good leading indicator
of what North America will look at
when we have to start paying those fuel costs and
we're in the process of starting to pay for them.
I think instead of bailing out
GM so they can build new
car plants in China, because that's the only place they're building car plants
these days, we should've taken that $13 billion and invested it in
in public infrastructure.
And I think Obama should've done the same thing in the U.S.,
but that's not
the message we want to hear, just like
you know, we don't want to hear that our economy can't grow at 3% a year.
But I think, you know, I question whether we want
taxpayer's money devoted
as much to roads and crumbling road infrastructure,
when less and less of us are going to be driving on roads,
that maybe in that world, user pay is
maybe the most equitable thing.
Again, that's a different world than the world were coming from,
but I don't think that driving is going to be as accessible to the general public
and private car ownership in the years ahead
as it has been in the last 20 - 30 years.
Thanks Jeff, I'm just curious...
if you have a view on electric vehicles and
how that may shift the paradigm because I think
you listen to a lot of folks right now and that's a real sleeper and may hit a tipping
point in the next little bit here. / Or maybe a view on the whole
green energy paradigm. / Yes.
Yes. You know,
I have a chapter in my book called
The Danish Solution,
the Globe actually serialized that called Denmark's Dirty Little Secret,
and Denmark is a country that is well-known for wind power, 20%
of the power comes from wind.
And when you land in Copenhagen, the island's surrounded by windmills and that's
exactly what they want you to see.
And...
But what people don't know is where Denmark gets the other 80% of it's power.
It gets it from coal,
that's right coal, the same percentage as China relies on coal for its grid.
So the obvious question is,
"Why has China's emissions gone through the roof,
and Denmark,
a country that actually just doesn't talk the talk
but walks the walk,
they have lowered their emissions
below 1990 levels and yet they both rely
80% on coal?".
And the answer, and it's not an answer that they readily give,
is it matters not whether the power
comes from wind
or from coal,
you're paying
30 cents per kilowatt for it, ok?
And when you pay 30 cents per kilowatt hour for power,
guess what happens?
You use less power.
And it's the coal you save
by using less power
that really drives
the emissions that people in Copenhagen
use 30% less power than people
in North America,
and that's what really
provides Denmark with its success.
Denmark doesn't want to tell you this story.
Denmark doesn't want to tell you this story because
they want to sell you a wind turbine.
And Denmark's the leading manufacturer of wind turbines.
But the real good news story is,
you don't have to be particularly suited for wind,
anybody can lower their emissions.
That big coal-burning states like Montana or Alberta can lower its emissions
without building a single wind turbine, all you gotta do is charge 30 cents
per kilowatt hour for power.
Power demand will fall and emissions fall. But of course,
we don't want to hear that message because we equate
our well-being
with energy consumption per capita.
The more energy we consume,
the happier we will be.
Or, so we think.
But you know what?
Copenhagen
ain't some kind of energy wasteland.
There aren't thousands of people lined up at the Canadian and U.S. embassy looking for
visas so they can move to big coal states like Montana and Alberta.
Surveys show Denmark to be one of the happiest places in the world.
People from all over the world want to come to Copenhagen.
Maybe there is an answer here.
Jeff, I just want
to tag onto that,
as you were speaking, I was struck...
By the feedback? / Well no....
I'm used to that. I was struck by the politics of all this.
I know you've been touring with David Suzuki,
you're just telling us something about Denmark,
and when we land there, we see the windmills, we equate it
with an environmental movement in a conscientious approach to the earth.
Is this a big change, is the politics now out of the environmental movement?
Is it not a left and a right thing, and that you know, even the environmentalists
are going to have to change perhaps as
greatly as you think the rest of us have to change.
My view would be a little bit different, I'm an economist.
I always look at prices as my starting point.
Why does Denmark do that? Denmark does something else that I want to explain to you.
All those folks riding a bicycle?
You know why they ride a bike?
Because if you have a V8 engine in your car,
you get hit with a 180% surcharge.
That's like the price of three cars for one car.
What makes Denmark take these policies where in Toronto, we voted out a mayor who
wanted to add a $65 charge
to owning a car?
Well, here's a clue to start with.
You know all that coal that they discourage with 30 cents per
kilowatt hour?
Where does that coal come from?
Not from Denmark.
It doesn't have any coal. It comes from Germany.
And when they slap a 150% - 180% surcharge on that
BMW 535
or Audi A6,
guess where that car is built.
Not in Denmark,
they don't have any auto assembly,
in Germany.
You see,
people respond
to the cards Nature's dealt them.
People in Denmark aren't genetically greener
than people in Canada.
People in Denmark have no hydrocarbons of their own, ok?
So they had to innovate.
Why did Japan go 30% nuclear?
Because it's a country that consumes 5 million barrels a day and produces
less than 200,000, ok?
So Japan has been more conservationist.
I can guarantee you,
that if Denmark had the largest vehicle assembly in North America,
like Ontario does,
they would not be slapping 150% surcharge on cars.
Just as I can guarantee you, that if the tar sands were in Chicoutimi
or in Sudbury,
we'd want to build a pipeline as fast as we could
to anywhere we can get world oil prices and all of a sudden Alberta would be
worried about global warming.
So it's only the capriciousness of nature
that determines how green we are
because it's the natural resource endowments,
it's the energy that we have or we have not,
what's changing is that even in places that have the energy, and Canada,
the tar sands would be a perfect example,
or the U.S., the bakken shale oil.
Even in places we have energy, the cost of getting that energy
out of the ground
is forcing us
to look at places like Denmark and Japan
who have had to react a lot earlier.
So to finally answer this gentleman's question and it's not the answer
he wants to hear
but it's my view,
I don't think
the real contribution of wind and solar
is the megawatts that it adds to the grid,
I think where wind and solar become part of the solution,
is the prices that we need
to allow it to feed into our grid,
because at those prices
we're going to consume less energy,
and that's ultimately what we have to do.
Hi. I'm Peter Miller, I'm here on behalf of Interactive Ontario and many of the companies
and people that work in that sector are young people, many of them graduates of this
esteemed facility.
And a couple of things come up based on what you've said.
One, many of them are self-employed,
probably under-employed, you don't talk about that,
you talk about employment sharing,
but I'm interested in your views whether that's a demonstrable trend. Secondly,
you mentioned Denmark, and
I wonder what your views are on the whole notion of a
gross happiness index are really
looking at these things in a different way.
That's Bhutan. / Sorry?
That's Bhutan but I hear you.
Oh ok.
No but I mean, in the UK there's some interest in...
I don't think Denmark's quite gone there, but yeah I hear you.
No I know, but you were mentioning the happiness, I mean is that even possible?
Ok. Well I mean ok it is true that if you
look into a happiness,
personal satisfaction,
countries like Denmark
always come out way ahead of the United States. So obviously
energy consumption per capita
is not the be all of our happiness.
Now certain levels of energy are, and that's really what separates the
developing from the developed world.
I'm just saying there's a lot of low hanging fruit,
that using less energy
does not mean going back into the stone age.
And I think Copenhagen versus Toronto, 30% difference
in power per household demonstrates that, ok?
So, you know,
on the underemployment,
there's just no way, and unfortunately your president of this
institution thought I was advocating,
this is not what I'm advocating, I'm simply
recognizing the one plus one equals two reality that
you know, when GDP growth goes from 3% to 1%, or in
China's case,
from 10% to 5%,
you can't generate the same number of jobs you could.
There's just no way of getting around that,
it's not that I'm endorsing
50% youth unemployment rates in Spain or even
15% unemployment rates in Ontario, but I'm saying you know what?
This is the contours of the new economy
and we should recognize that and try to develop policies
that best help us adjust to that.
And you know, I think increases in post secondary education are going to be
part of the solution.
Ironically they're coming at a time when
fiscal transfers
to such institutions will be squeezed and if I'm
likely right about the direction of the economy, that fiscal stance won't
be changing because the tax base won't all of a sudden be growing more rapidly
in the future, so that's another thing that
you know, we have to recognize and we have to adapt to even if it's not the
most pleasant prospect.
You know, I see a world changing, I come from a world where
you had one job, ok?
Like, I was the chief economist of an investment bank
for twenty years, but
somebody else could be an auto worker for twenty years, I see that world changing.
I think we may have multiple jobs.
You know, I think part-time employment is probably going to be part of the way
in which the labour market adjusts to a much slower growth economy,
and certainly job sharing is going to be part of that and I think, you know,
it was pioneered quite well in Germany.
Now, it's a heavily subsidized program in Germany,
and probably in other places including maybe even Germany, those fiscal
subsidies won't be able to be sustainable.
But in practice I think that it makes sense,
four people take a 25% cut in their leisure time, after all,
you're not taxed on leisure, you certainly are taxed on income, and in
this country you don't have to be making that much income before you hit
pretty significant tax rates.
So that's the way to adapt.
Again, in no way is this
a defense
of the youth jobless rates, it's a statement of empirical facts,
that anytime the economy slows and the jobless numbers rise,
look at the youth segment of the labour force, defined 15 - 24,
and I can guarantee you that doesn't matter whether you're talking Brazil,
China,
Canada, Spain, it's that segment that's going to rise the most.
And that's a segment that's directly going to impact
you know, enrollment in places like Ryerson.
Well let it fly!
That's what I'm here for.
Jeff, fascinating concepts,
and very thought provoking.
From an economics perspective, you talk a lot about prices,
from a human capital perspective, we think of people.
I wonder if you can speak to what you see as some of the strategies and things
that need to be done
to build a more robust
human capital base in this region.
We have
a lot being done in terms of looking at strategies for immigration, we're looking at
how we strengthen our financial institutions and align our educational
institutions to the needs of our industry.
What is then, you see as the human capital
opportunity in a coordinated manner going forward?
Well human capital to me,
to a large measure means education,
what kind of things should we become educated in?
Well, where are the jobs going to be and where are they not going to be?
I argued that we're going to see a resurgence of a sector that
used to be
very important in this part of Canada,
but has shrunk,
is a skeleton of what it used to be,
and I'm talking about the manufacturing sector.
And I'm not just talking about the auto industry, I'm talking about the Brantfords,
the Peterboroughs,
that are a shell of what they were 20 - 30 years ago that have seen all
their employers move thousands of miles away, as workers in Southern Ontario
couldn't compete with sweatshops in China and India.
I see them coming back.
I see them coming back because of the very changes in prices
that sent them away.
You know, in a world of $20 a barrel oil, it's a straight wager,
it's a straight wage comparison.
And a world of $100 oil it's not just a straight wage comparison.
So what kind of skills do we have?
You know, I think there's going to be a need for tool and dye workers.
You know, there probably isn't a whole lot of tool and die
programs in Southern Ontario because why the hell should there be, you know.
When was the last time we were hiring any of those workers, well,
those workers are coming back.
I think we're going to make things ourselves,
that we're not going to access everything we consume from halfway
around the world,
and I think, you know, the Brantfords, the Peterboroughs,
they're coming back. Let's make sure
that there's a labour force that has the skills
to work in those manufacturing jobs because they certainly... those kinds of
skills have not been featured by educational institutions in this
province
and for good reason.
Well, if something's growing,
in a world of zero-sum, what's shrinking?
Well, in the last 30 years, as the manufacturing sector has shrunk,
it's all been expansion of the service industry.
In particular one sector of the service industry.
The industry that I come from,
the financial sector.
There will be
a need for investment bankers,
and there will be a need for hedge fund managers,
but they won't be 20% of GDP, ok?
We're going to see the financial service sector likely shrink
back to the proportions it was 15 - 20 years ago.
I think we're going to see that as a result of another financial shock,
it was
sub-prime mortgages, if there's another financial shock, it's going to be sovereign
defaults out of Europe.
But just as,
you know, my former institution didn't think it was involved in the sub-prime
mortgage market,
there are a lot of financial institutions that don't think they're involved in
the European debt market that are going to find out ex-post
that unfortunately they own a little piece of Greece and Spain,
and that's probably going to lead to
reregulation of the sector.
And that's probably going to lead to a diminished role, that sector. As I say,
you know, there is a need for that sector. There is a need for investment
bankers, they're just not going to be 20% of GDP, so maybe,
more tool and die workers,
less people in the financial service industry,
would be a way that I would see,
providing the educational skills that are going to be required
by tomorrow's labour force.
Jeff, as you were mentioning alternate fuel sources, and letting the market decide what the
price is, I guess
two questions, the subsidy for electrical
inputs and ethanol as an additive to oil.
Ok, well ethanol is, in my opinion,
the most insane thing we've ever done,
and that's corn-based ethanol.
We're diverting
corn from
feeding cattle and feeding people to feeding our engines.
And the only thing that's gone up more than oil is food prices.
They've gone up 220%.
And it's not just corn prices, because of course, we now, in the United States,
produce more corn to produce ethanol than animal feed.
And so what does that encourage? Everybody to raise corn so it's not just affecting
corn, but as people rotate from other crops into corn,
those prices increase as well.
You know, again let me put this in terms that everybody understands.
Instead of trying to figure out how to turn cow ***
into high octane fuel,
why don't we just drive less?
And that's exactly what triple-digit oil prices will get us to do.
Although it's a message we don't want to hear.
As far as
other alternative fuels,
the idea of electric cars.
Well guess what, you know,
batteries are not a form of energy, ok?
Batteries store energy.
So about eight years ago, I walked down about 38 flights of stairs.
I was at Wood Gundy seeing a client,
because the power went out.
One too many air conditioners were on in
Southern Ontario and the grid from
Northern Ohio
to the Niagara frontier up into Southern Ontario went out.
I think the city was without power
for 12 - 14 hours.
Now try plugging in 240 million vehicles
and see what happens.
Because that's the vehicle stock on the road.
Where would we get the power? Well, the only way that we could get the power,
forget about 240 million vehicles,
let's just power up 20% of those vehicles, so let's just say 40 million vehicles?
Where could we generate the excess power on the grid so that we could plug in
every night, 40 million vehicles?
Well we could do what,
you know, our climate change partners in China and India are doing, build about
a hundred coal plants right now.
But I think we'd soon find that the emissions saving at the tailpipe
would be dwarfed by what's going up the smoke stacks to generate that
electric power.
And that's why
alternative energy is at the margin, ok?
Sure there's the Tesla, it's a hot car.
If I lived in Southern California,
I'd be very tempted to drive it.
But, you know, it's less than one percent
of the cars on the road, and not just electric,
but electric and natural gas powered.
And as long as it's one percent
of the cars on the road,
then it's not pulling down oil prices.
Again,
ability to subsidize things, Solyndra, the biggest U.S.
solar company, a $500 billion disaster for the U.S. taxpayer.
You know, the days of fiscal largess are over, I mean when they're
closing hospitals and schools,
they don't have billions to fork out
to alternative energy subsidies. / Jeff, what about
ingenuity in all of this, I know you touched on
it a little bit, but,
the world that we live in is, you've got to admit, I mean,
things don't happen in a predictable way anymore.
Look at our Blackberries, look at our Blackberries.
Seriously, so are you haunted by, I mean, we are hard wired for faster, higher, stronger.
Right. / Do you think we might
find a way to keep gobbling things up?
Well, if you look at the history of...
you look at our history,
our history's one of
innovation.
Who's to say
that in the future,
we won't find an alternative to oil
as a transit fuel?
But unfortunately,
a rendez-vous
with the oil prices that we can no longer afford,
is not in 20, 30 years,
it's right now.
Brent's $112 a barrel today.
So, in the here and now,
the solution is not our ingenuity.
The solution is consume less energy.
And that's exactly what triple-digit oil prices do,
because, you know what?
Goods, nor you,
move around
telepathically.
Your Blackberries and Apple iPods
are useless
as a transit fuel.
And our problem is that we think the growth of the last 50 years
is because we're so brilliant.
I think,
when you look at what's really driven the growth, is cheap oil
and cheap coal.
And yes, we have technological innovation, we're pulling out one and a half million
barrels of oil every day from the tar sands.
We couldn't do that 30 years ago, and we're pulling out oil out of the
bakkens out of shale that we couldn't do 30 years ago.
But that's not good enough.
You see, it's not good enough for the oil industry
to use their technological innovations
and continually pull out oil from resources they couldn't before,
what they've got to do is pull them out at oil prices that we can afford to burn.
And that unfortunately
is the problem. It's the intersection of the supply and demand curve.
It's the intersection of the prices we need to access deep water shale or
oil tar sands and the prices our economy can afford to
consume, and unfortunately that intersection is not bullish for our
growth rate.
Thank you, Jeff.
My pleasure, thank you Arlene, take care.
[applause]
Thank you very much, and Jeff
has generously agreed to stay and be part of
the second part of the morning, which is a panel to look at these issues
more intensely.
We are going to have a
15-minute break now, where Jeff has kindly offered to sign your books,
and then resume again at about 4 or 5 minutes after 11am.
Thank you very much.