Jeff Rubin Explains the End of Globalization

Jeff Rubin, author of the new book Why Your World is About to Get a Whole Lot Smaller, spoke tonight at Seattle's Town Hall.

Rubin, who was formerly the chief economist at CIBC World Markets, shared his thoughts on how the world is going to change as we use up the world's cheap oil. Within 12 months of an economic recovery, the price of a barrel of oil will be back into triple-digit territory, according to Rubin.

As the cost of oil goes up, transportation will no longer be a negligible cost and must be factored into decisions made by consumers and producers.
As shipping costs eclipse labor costs, Rubin says it would be "penny-wise and pound-poor" to move a factory to China to save on wages. Manufacturing jobs will flow back from overseas to the U.S. as producers try to cut costs.

At the same time, the suburbs and exurbs will be emptying as paying for gasoline becomes more and more onerous. Rubin postulates that some surburban land could revert back to farmland as farmers also try to cut transportation costs and move closer to consumers. Essentially, the current era of globalization will be replaced by an era of localization.

Although price levels will go up as the cost of energy increases, Rubin is optimistic about the impacts of localization. "Peak oil does not have to mean peak GDP," he emphasized several times throughout his talk. More manufacturing jobs at home means a more diversified economy, and using less oil will make us more resilient in the face of future oil price shocks.

Rubin suggested that the government's auto bailout money would have been better spent if it had helped Detroit's automakers transition to making buses, trains, or light rail systems. However, he does not expect the government to be much help in the upcoming transition to a local economy. Instead he believes that the decisions of millions of individuals will drive this change. When asked during the Q and A session why he thought the government was not doing more to help he responded, "I don't believe in government. I believe in prices."