Wednesday 28 May 2008

Everybody's Talking Globalization and Oil Prices but Inflation is the Real Worry

Judging by the number of media that have reported the story, and the comments on the CBC website, a report by Jeff Rubin and Benjamin Tal, Will Soaring Transport Costs Reverse Globalization?, has revealed the hatred of globalization many people seem to harbour.

What they should really be worried about is the rising specter of inflation, which will do everyone a lot more harm. The same CIBC World Markets report contains a prediction that 2009 will see much higher inflation. Already, a BBC report says world economies are being hit by higher oil prices. Who cares where the steel in your toaster comes from if it costs 15% more along with everything else you buy and your job gets downsized in a slowdown? CIBC notes that Canadian inflation has only been kept at bay so far by the rise in our dollar.

Perhaps oil costs will cause a slowdown or even a partial reversal in the growth of world trade (aka globalization) but it won't be more than temporary. The transport industry will adjust - e.g. in the short term by slower steaming (see this study of optimal ship speeds and oil consumption) and in the long term by building ever larger containerships (not faster ones as this website shows) that lower unit costs or by adopting nuclear power (see this serious assessment by a US government body) as Sir George Thomson predicted more than 50 years ago in his remarkable book (so many of his predictions, based on physical laws - he was a nuclear prize winning physicist - are spot on) The Foreseeable Future "I think that we may expect shipping to go nuclear about the time that the natural oil gives out."

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