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Michael Hlinka: Are there anybody who has questions right now? I've sort of been hogging
this. I think the protocol is to... Please go to the microphone sir, if you don't mind.
And what I would ask... It looks like a lot of people have questions, which is fantastic.
Please try to keep your comments, questions relatively brief so everybody gets a chance.
S?: Okay, thank you. In the jacket cover it says here that you predict a bigger, longer
economic crash than the one that hit us in 2008, and it'll soon be upon us. I happen
to share that view and I'd be very interested in your opinion, given that or assuming that,
in what form should one hold one's wealth?
[laughter]
Jeff Rubin: I thought I'm not working at the [inaudible].
MH: [laughter] The investment banker.
JR: I think in a very liquid form.
[laughter]
JR: And I think in today's environment, there's a time for the offence to be on the field,
and there's a time for the defense to be on the field. And when the defense is on the
field it's not about how much you make, it's about how much you don't lose. And right now,
I think that the place to be is in cash because I don't think that short-term interest rates
are gonna stay here very long. History will tell you that zero interest rates and record
deficits is a marriage that's not gonna last, and by being in cash you're gonna be in a
position to take advantage of that. In a world of no growth or in a world of much slower
growth than we have become accustomed to, that's a pretty challenging environment for
at least today's stock market because today's stock market still has expectations that our
economies are gonna be able to operate like they did 10 years ago when oil was $20 a barrel.
JR: And probably potentially the worst place to be right now would be at the long end of
the bond market because of course, if interest rates rise, the price of a long-term bond
will fall. Okay? When Greece defaults and Spain defaults, usually when you have sovereign
defaults, the cost of borrowing doesn't go down; the cost of borrowing soars. And as
I say, being in cash is probably the place to be. I will add one other little kicker
here, and that is that I believe that triple digit oil prices is going to take the Canadian
dollar to places that it's never been. And that certainly is going to be something that
one wants to be aware of, not only in terms of managing one's money and foreign exchange
exposure, but I think that looking at what kind of economy Canada will be, I think the
fault lines in Canada are gonna run very much along energy lines between those who have
oil and those who don't have oil. And just look how radically already oil has re-shaped
the Canadian economic federation.
JR: Ontario which for years and years had been the check writer for equalization is
now the country's largest have-not province. That's because Ontario is the largest oil
consuming province. Look at Newfoundland, a fiscal basket case. Well, guess what? The
off shore oil industry has made it a have province. So, already we've seen how oil has
dramatically re-defined the haves and have-nots. And I think as we see some of the knock on
effects of oil in both the currency and the different fiscal paths the provinces take,
we're gonna see those divisions become even wider.
S?: Good evening, thanks for being here. I teach actually what you talk about, ecological
economics at the University of Waterloo. It's not exactly what you're saying but a very
similar thing. It's about the no growth future that we have to face literally someday. My
concern tonight, when I got up and looked around was, what you're talking about, yes,
it affects a lot of us for 10 or 15 years but in 25 years I'll be dead, for sure, almost
guaranteed. I'm almost 60 so 25 years I'm thinking I'll be gone. And the average age
in this room is not what I would call "youthful".
[laughter]
S?: Sorry, sorry! Sorry, but if you just look around, right? And so, I'm wondering a lot
of this is really about the people a lot younger than us in this room. It's about, I suppose...
Part of the people I teach at university, and it's hard to get some of this stuff across
to them to say... Especially because a lot of people at university have a lot of money
anyway. That's why they're there. We have a lot of international students. They have
tons of money, or they wouldn't be able to afford to come here. What is your message
to the younger generation? Yes, we can do lots of re-regulating and I agree, de-reg...
I worked in the investment business and I didn't do the CFA, but I did the Canadian
Accreditors Course, and Money Markets, and all that stuff. And de-regulating with a combination
of investment dealers and banks was insane during the Thatcher-Reagan period. When we
did it, it was just nuts, and we did do it, and now we're paying for it. But so, there's
lots of stuff we can do in the short-term, 5-10 years, talk about lots of policy change
and reducing oil demand and all that sort of stuff. And I teach urban planning as well.
It's all about reducing oil consumption as far as I'm concerned. Sorry. My point is,
what do you have to say for the young people? [laughter]
JR: Okay, well. I think...
S?: Young people in particular.
JR: The first thing that I think you are gonna see young people do is stay at home more.
And the next thing I think you are gonna see young people do is enrol more in post-secondary
education. Because already we are noticing when the economy slows down, the part of the
labour force that becomes the weakest, where unemployment rates rise the most, are youth
unemployment rates. And youth unemployment rates in Canada, and Canada has a low national
unemployment rate compared to most places, is already in the teens. I think our labour
force is gonna get greyer. Just as the kind of economic circumstances that I say will
induce students to stay longer living with their parents, to be in school more, the same
time I think we are gonna see pensioners returning to the labour force. That people aren't gonna
be able to live on their pensions, that the capacity of pensions to pay the benefits that
they have in the past in a static economy are gonna be undermined.
JR: And I look at my old building where I still have a parking spot, BCA place, and
there is an Avis Rent-A-Car in the downstairs, and you look at who is jockeying cars, and
they're all like 65, 70 years old, and all seem to be having a pretty good time of it.
One thing that we haven't changed is our definition of the labour force. We continue to define
it when we measure unemployment rates, etcetera as 15-65. But look at what's happened for
life expectancy over the last 40-50 years in North America. I don't think it's any more
realistic to assume that people are just gonna stop working at 65. I think in fact, the kind
of economic realities that lie ahead of us, we're gonna see people continue to work long
past their formal age of retirement.
JR: So, on end of the labour force, the pensioners, I think they are gonna have an even larger
role in our economy than you see today. The other tail of the labour force, young people,
I think they are gonna play a smaller role in the labour force. I guess we'll have a
more educated population, but we'll also as I say, probably have a population where people
are gonna stay at home with their parents longer. And that's gonna have a major impact
on what kind of housing activity we have in the economy as well.
MH: Sir?
S?: You brought up the idea of a 30% reduction in energy consumption here in North America,
and you compared it to Denmark and Japan. But unfortunately in the areas of housing,
food consumption, energy consumption, we're not modelled the same way as Japan and Denmark
is. Our cars are bigger, we consume more food, and our housing certainly is much larger in
terms of accommodation. So, until we change those values in this part of the world, we're
not gonna achieve a 30% reduction in energy consumption. The other side of the coin is
where the government is today in terms of policy, in terms of Samsung with a seven billion
dollar project that's going to fail? That's where it's costing us for energy consumption.
We never stayed on the coal model. It's gone. And now we're not even gonna go on the nuclear
model, because the latest announcements have shown that there is gonna be 30, 40, 50 billion
dollars to get that going again as well. We're sort of lost in a black hole in this province
in terms of energy consumption. Do you have any ideas?
JR: Well, you say with today's values here, we're not gonna be able to do what Japan and
Denmark has done. And you're absolutely right. In my first book I talked about how people
in the Middle East believe that they have some God-given right to consume as much cheap
oil as they want, and oil is something like... Gasoline is something like 30 cents a gallon
in Saudi Arabia. But you know what? People in Ontario also have a view or certainly had
a view, that they had a God-given right to consume as much cheap power as they wanted.
But they weren't next to Ghawar as they are in Saudi Arabia, but they were next to Niagara
falls which was the largest source of hydroelectric power.
JR: I guess what I'm saying is people's values are rooted in the economic conditions in which
they live. The reason that Japan and Denmark has these attitudes towards energy conservation
is you're talking about two places that don't have a lot of hydrocarbon endowments. I'm
sure if Denmark had the tar sands or Japan had the tar sands or huge coal deposits, they
may have a different sensibility around energy consumption. But as an economist, I have a
lot of respect for the power of prices. And the kind of energy consumption that people
in Ontario were accustomed to in the past, those days are over. And I think that we are
gonna see that as energy prices start to rise... And believe me power prices in this province
have only one direction to move, we're going to change.
JR: I'll give you an example, like, when was the last time my kids ever turned off the
lights? Never. Okay. But what do we pay for power in Toronto? I don't know, seven, eight
cents per kilowatt power. If I had to pay 30 cents per kilowatt hour as they do in Copenhagen,
I can guarantee you that Jack and Margo would shut off the lights. Because if they didn't,
I wouldn't give them any allowance. So again I hear what you're saying that, that we come
from the culture of the car. Remember when the previous city council got voted out because
they wanted to go and slap a $65 surcharge on owning a car? Well, compare that to Denmark
where it's like a 180% surcharge on buying a car. But realize that this is a car-manufacturing
place. So, I think the hopeful message here is that as energy prices change, so do our
behaviour. And I think that in the here and now, the adjustment lies not in some magic,
new source of energy. The adjustment lies in changing the way we live so that we're
less dependent.
S?: I would like to get your view on one more thing. Okay?
MH: Very quickly, sir.
S?: Okay. There's 2.8 million barrels of oil that leave Canada going to the United States.
That's one million more barrels per day than all of the United Arab Emirates and all the
Arabian pro... States provide to the United States of America which is only 1.8 million
barrels per day. That's Statistics Canada information. So the question to you is other
than the fact that we're 1500 miles away from Alberta, why are we paying these kinds of
prices in Canada when we've got the resources in the first place and we're giving away for
nothing?
JR: Well, I don't know about giving 'em away for nothing, but I'll tell you one thing we're
doing, we're leaving... If you look at 2011 prices, about an average a $20 a barrel on
the table for every barrel of oil that we send down to Cushing, Oklahoma which is where
the Keystone Pipeline ends. May I humbly suggest that the reason the Keystone XL Project was
cancelled was not because Barack Obama is particularly fussed about environmental concerns
or the emission profile of tar sands, but that he enjoys reaping a $20 a barrel fuel
subsidy at the expense of Canadian producers. Because that's the difference between the
price of oil that comes into any US seaport which is priced off Brent and the price of
oil that they pay Canadians for. And the only reason that we accept $20 a barrel less for
oil is we got nowhere else to ship it from, because Calgary has always been looking south
for its market when that's not the market.
JR: Let's just add up what kind of numbers we're talking. The tar sands ships about two
million barrels a day from Alberta at $40 a barrel. You're talking something in the
neighbourhood 30 days 1.2 billion a month, 15 to 18 billion dollars left on the table.
That dwarfs the National Energy Program, dwarfs the National Energy Program. And if you may
recall, Albertans are still *** about that 40 years after the fact, okay? I don't
think Albertans quite realize how much money is being left on the table. And it's not just
money left on the table for Canadian oil producers, but also for the Alberta government in royalties,
and also for the federal government in foregone corporate income tax collection. So all I'm
saying is if we're gonna be a petrol power and if we're gonna be a petrol currency, let's
at least get full value for what we're selling. And we're not gonna be getting full value
for what we're selling by selling it to the States.
[applause]
S?: Thank you.
MH: Sir, next question.
S?: There was a very interesting experiment by the president of Iceland and I wonder whether
you have any thoughts of what lessons that decision has on Canada and did he make the
right move? If you remember he did snub the World Bank and said "I'd rather listen to
the people". So I'd like to hear your response on that?
JR: You mean Iceland vis-a-vis the banks?
S?: That's right.
JR: Yeah, well here's a perfect example that Iceland had no real history having a banking
sector, all of the sudden thought it was gonna become a global finance centre and unlike
the Canadian banks, the bank I used to work for wrote down some seven billion dollars
in sub-prime mortgages but they didn't cost Canadian taxpayers anything; they cost CIBC
shareholders. In Iceland and in places like Ireland like the Anglo-Irish Bank, when financial
markets blew up, basically hospitals and schools were closed because it was the taxpayer who
had to take over. And I think, the story, it's just another aspect of the story, how
quickly we forget that nothing has really changed, that we're all as vulnerable to a
financial shock today as we were four years ago. And when you look at places like Iceland
and Ireland, the fiscal legacy, the debt that they've left behind for average taxpayers,
one wonders why the banks haven't already been nationalized.
S?: Having listened to you this evening it sounds to me that your basic message is very
similar to what the environmentalists are advocating, which is basically that we need
to consume less.
JR: Less is more.
S?: Yes. But, it sounds like you approach... Well obviously your background is economics,
and I just want to make a comparison. People like Al Gore, they're basically going around
the world exhorting people, saying that, "You have a moral obligation to consume less for
the future of our planet and the future of our children." Where as you approach it from
a very logical point of view, and it almost seems like, despite the similarities, that
you don't... Okay. So I'll make a comment... Would you consider yourself to be an environmentalist?
And secondly, to what extent do environmental concerns inform your views?
JR: Do I consider myself to be an environmentalist? Well, I guess it doesn't really matter whether
I consider myself to be an environmentalist or not. I guess the real issue is, what does
triple digit oil prices mean for the sustainability of our world? And my whole book, if there's
a recurring theme, is a theme of unintended consequences. And I think one of the surprises
of triple digit oil prices is that it ultimately may be the most powerful tool we have in supporting
the sustainability of our ecology. Because if we indeed take the risk of man-made emissions
seriously, and there seems to be with every passing year compelling evidence to suggest
that, "Yes, there is some pretty dramatic changes in our climate", then I think that
this is maybe the most single important thing we're doing. People will go... One review
in "The National Post" said, "Well, climate change is small solace compared to higher
unemployment rates".
JR: Well, if you happen to live in a coastal area that's about to inundated by rising sea
level, you might take issue with that assessment. And I'd argue for those of us who believe
that we really are flirting with environmental disaster, what triple digit oil prices does,
is takes that right out of our hands. And probably... I don't want to speak for it,
but probably someone like David Suzuki, would say, "That's a good thing, not a bad thing".
Because as I say, I'll put my money on the economy when it comes to determining emissions,
rather than any Copenhagen, any Waxman-Markey Bill, or any initiative that policy makers
may or may not do.
MH: That was a great summary. Ladies and gentlemen the book is "The End of Growth".
[applause]