Posted by Tim Stobbs on July 19, 2012
Well during the summer I’ve got a little bit more reading done so expect a few more book reviews in the next few weeks. First up is The End of Growth by Jeff Rubin.
Jeff points out that modern society is based on cheap energy and when oil breaks $100/barrel the cheap part vanishes quickly as prices keeps rising. What is really interesting is just how dependent is the world on cheap energy to fuel growth, which Jeff demonstrates fairly well in the book. So with huge sovereign debts all around the world Jeff is predicting the basic fundamental of economics endless growth might actually shift to a zero sum growth world. Where China could grow, but perhaps at the expense of the US for example.
After this point Jeff pointed out an interesting idea that the current economic theory doesn’t include oil prices and thus keeping interest rates low won’t help stimulate growth like in previous times if oil prices are too high (big deficits aren’t helping the situation either). The rules have changed, but the central bankers haven’t caught up to that yet. The new rules of the central banks should be to keep inflation in check and accept the lower growth. He also argues that in some countries that artificially keep energy prices low won’t help in the long run, people have to start adjusting now.
The bad news is your retirement planning projections of growth of your portfolio will need to shrink if Jeff is right. This is a huge shift on the standard assumptions of growth since if you are truly in a zero sum game to get any growth in a portfolio is going to take more than just using index funds.
Rather that dwell on doom and gloom of this situation, he points out that prices of energy supply might even help society. After all who needs a carbon tax when your basic price of power, gas and natural gas are high enough to shift energy patterns towards conservation like in the Netherlands where power is like $0.30/kwh or three times what I pay because of carbon taxes. My bill is low now because I don’t waste power, but at those prices a lot of other people would get serious about conserving as well.
So how do you take such a huge macro issue and bring it down to personal situations? Well on the personal side Jeff advises that you pay down your own debt ASAP. He also suggests that the new jobs will be in local manufacturing when it costs too much to ship things over seas and back. You might want to have many streams of income from different gigs to support you better if you lose a job in an industry in a down swing. Then at the end he suggests that perhaps less growth won’t be bad as we can have more time to slow down and breath again.
Of course in my mind all that advise sounds damn similar to what I’m trying to do while I’m going for financial independence. It could be interesting if society as a whole starts to learn to live with less stuff, smaller homes but more free time.
Regardless of if Jeff’s view of the world comes true or not, I did enjoy this book. It was a quick read and pointed out several interesting ideas for me to ponder. Also I give him credit for taking fairly complex economic ideas and presenting them in a easy to understand fashion.