In a previous entry I gave an optimistic view about the possibilities of sustainable growth, while Posner was more pessimistic. He argued in part that continuing population growth in the world might make economic progress not sustainable for many nations. Since I am positive about the effects of larger population, we decided to return to population for this week‚Äôs discussion.
Japan is a good starting point since its population fell in 2004 as a result of several decades of low birth rates and almost no net immigration. Is Japan or the rest of the world better off because its population fell rather than continued to increase? Without large net immigration, countries with about half the world's population, including essentially all of Europe, China, Japan, and many other Asian nations, will experience declines in population during the next decade or so because they have birth rates that are substantially below replacement levels. Will these countries be better off with lower population, and would the world benefit if their populations declined? I believe the answer is no, that particularly in modern knowledge-based economies, on balance population growth helps rather than hurts income growth and general welfare.
Most of the worry about negative effects of population growth is based directly or indirectly on the ideas of Thomas Malthus that were first expressed in a pamphlet published in 1798. What is ignored in the modern neoMalthusian discussions is that there is an enormous difference between the effects of larger population on income per person in the traditional rural economy of Malthus' time, and its effects in a modern knowledge-based economy exemplified by the United States, Western Europe, and Japan. Higher population may reduce per capita income in traditional agriculture because of diminishing returns to more farm workers (although see my discussion of Africa at the end), but it has the opposite effect in a modern economy. The reason for this reversal from the Malthusian fear of population is that the production of knowledge is generally subject to increasing, not decreasing, returns; that is, larger populations stimulate greater investments in knowledge that tend to raise per capita welfare.
For example in the case of new drugs, manufacturers have greater incentive to invest in discovering treatments for common rather than rare diseases since by definition common diseases have larger markets. More generally, expenditures on innovations tend to be more profitable as population and the total demand for new products rises since it is then more possible to recoup the often very large initial costs of developing the products. Drug producers and other innovators charge much more than the cost of producing each unit in order to recoup these development costs.
Adam Smith starts out his great book The Wealth of Nations with a discussion of why the division of labor, and hence economic progress, is limited by the extent of the market. By this he meant that the incentive to specialize on more narrow skills is larger when the market for these skills is bigger. He develops this theme with a famous discussion of specialization in a pin factory. Since the number of sellers and buyers who interact together determines market size, the Smith analysis would also say that economic progress is greater, given per capita incomes, when population is larger.
In a world with six billion people, there might seem to be little room for additional specialization as population rises further. But great possibilities are still available for further gains from international specialization when population grows, as illustrated by the large and generally beneficial effects on the world economy as the large populations of China and India have entered into the world trading system. As world population grows further, the degree of international specialization across nations will increase further in ways that are hard to predict in advance.
Another frequently claimed benefit of larger populations is that they produce geniuses like Einstein and Darwin, and other imaginative innovators, and that the discoveries of these rare individuals benefit everyone. I will not stress this effect since I agree with Posner in his comment on sustainable development that the number of evil geniuses, such as Hitler and Stalin, is also greater in larger populations, and their evil deeds also affect more or less everyone.
Neo-Malthusians who fear larger populations typically stress the effects on pollution and on the demand for non-renewable resources, like oil and natural gas. Clearly, the demand for fossil fuels and other non--enewable resources grows with population as well as with economic development. However, during the past 150 years, the real price of fossil fuels like coal and oil fell rather than increased as world population exploded, and more and more economies prospered. More efficient use of fossil fuels and discoveries of new reserves of these fuels, and innovations that produce alternate sources of energy, like nuclear power, explain why prices of fossil fuels did not rise along with population and industrialization. Larger populations stimulated the search for new resources and new sources of energy because they increased the market for these discoveries (for the reasons I gave earlier about the positive effect of larger populations on incentives to innovate). That is, while larger populations may use more fossil fuels, they also stimulate the effective supply of these fuels and of substitutes.
Obviously, given per capita incomes, larger populations also tend to produce greater pollution both locally and globally as more cars are driven, industrial output rises, and more homes burn fuels. It is well documented that local pollution eventually begins to fall rapidly as countries develop and their populations increase because of new discoveries that reduce pollution, and also because more of the incomes of richer countries is spent on controlling the output of pollutants.
I believe the same will happen to the risk from global warming. Not only will countries impose greater restrictions on output of greenhouse gases, as in the emission trading system of the European Union, but probably even more important will be the development of new ways to absorb C02 and other gases from the atmosphere. For example, Wally Broecker, Professor of Geochemistry at Columbia University and a major researcher on the oceans and abrupt climate change, believes that it will be possible before long to effectively capture and store the CO2 in the atmosphere in cost-effective ways. If that happens the growth of CO2 in the atmosphere can be greatly slowed down and possibly even reversed.
Posner also worries in his comment on development about the possible negative effects of an aging population. I am concerned about that too, but a growing share of the elderly population is a consequence mainly not of population growth, but of low birth rates that produce a slowing down, not speeding up, of population growth. The countries with the largest share of the elderly, countries like Japan and Germany, have very low birth rates that are not offset by enough immigration of young people. So the most effective way to reduce the share of the elderly while still having increases in life expectancy is to encourage rather than discourage greater population growth either through greater immigration or higher fertility.
More traditional economies, like those found in sub-Sahara Africa, may still be subject to diminishing returns from greater population, although even here I have real doubts about the applicability of traditional Malthusian analysis. African populations have increased greatly during the past 25 years mainly because mortality has fallen substantially. This continent's population is expected to continue to grow rapidly even though fertility will continue to fall, especially as Aids is brought under greater control. If lower death rates mean better nutrition and better health, the productivity of each worker improves because they have more energy and stamina. The greater productivity of each worker could easily swamp any diminishing returns from greater labor input, so that per income per worker is likely to rise rather than fall as the number of workers increases due to better health.
Of course, the poorer nations of Africa and elsewhere need to have governments that pursue sensible and generally pro-growth policies rather than their tragic catering to various special interest groups at the expense of growth. As India dramatically has demonstrated, the main obstacle to economic progress is not population growth, but bad economic policies. Once India began to get its economic house in order- this started with the reforms of the early 1990‚Äôs- India's economy took off while its population was growing rapidly and birth rates were high. Africa‚Äôs growing population will not be an obstacle to greater economic progress if it moves more quickly to having freer economies, greater competition, and lower levels of corruption. Indeed, with greater economic development, a growing population becomes an asset to a region and to the world for all the reasons I have given.
Of course, it is possible that vast increases in the world's population to many times the present six billion persons may create serious problems. However, the forecasts are for no more than nine or ten billion persons by the year 2050, mainly because fertility falls sharply with economic development and increased education of women. I do believe that such an increase in population is far more likely to be a positive stimulus to the world's economic progress broadly defined than it is to retard such progress.