The award earlier this month of the Nobel Peace Prize to Muhammad Yunus and his Grameen Bank of Bangladesh has directed attention to the phenomenon of microfinance, which Yunus and his bank have pioneered. The term refers to the making of tiny loans to poor people in underdeveloped countries, like Bangladesh. The amounts are sometimes only tens of dollars, the borrowers are small farmers, shopkeepers, artisans, and other minute commercial enterprises--overwhelmingly female (97 percent)--and the interest rates, which are designed to compensate the lenders fully, are high‚Äîsometimes as high as 20 percent a day. Although Yunus's motivation is not primarily commercial, the high interest rates and a relatively low default rate (in part because groups of women related to or friends with the borrower often agree to guaranty repayment of the loan), said to be only 1 percent, enable the Grameen Bank and its imitators (collectively referred to as "MFIs"--microfinance institutions--to cover their costs. The MFIs provide other services to poor entrepreneurs as well, but the loans ("micrcredit") are the most interesting feature of this experiment in helping poor countries throw off their poverty.
Microfinance began with the Grameen Bank in the 1980s, and to date the bank has disbursed almost $6 billion in loans to some 6 million people. The total number of borrowers from all microfinance institutions is expected to reach 100 million by next year. The aggregate value of these loans is a drop in the bucket so far as alleviating Third World poverty is concerned, but the award of the Nobel Prize is a vote of confidence that may encourage continued growth of the program.
What exactly microfinance has to do with "peace" is obscure. The causes of war are complex, and it is by no means clear that poverty is a major one. In any event the actual contribution of microfinance to peace must be slight and speculative.
So the award of a Nobel Peace Prize to Yunus was questionable, but that is not to criticize Yunus's project. The experiment is a worthy one, though its success has yet to be demonstrated despite glowing appraisals by Kofi Annan and others. It may simply be the latest development fad.
It does however seem superior to philanthropy in the sense of handouts, which in this case would mean giving grants (or heavily subsidized loans) to small entrepreneurs on the basis of competitive applications. For that is a competition in rhetoric. Middlemen would spring up to assist the applicant in writing a persuasive application, and the fees charged by the middlemen would be a good example of how the prospect of obtaining economic rents (crudely, something for nothing) channels the expected rents into costs. And the grants would frequently be misallocated. The high interest rates that the microfinanciers charge induce self-selection by the borrowers: a borrower has to have confidence in the project for which he is seeking microcredit in order to be willing to assume the burden of servicing his debt. Of course such confidence is sometimes, and perhaps among the poor often, misplaced.
An obvious question is why, if microfinance is remunerative, commercial banks and other commercial lenders did not enter the market long ago; for as I said, microfinance began in the 1980s. One possibility is that regulations designed to protect the solvency of banks limits their ability to make risky loans. Usury laws may be an obstacle too, if they are differentially applied to ordinary lenders as distinct from microfinanciers--yet the Grameen Bank seems to be an ordinary stock corporation, not a nonprofit. More important may be the existence of a close substitute for microfinance in the form of informal loans by relatives and clan members, a method of financing that is feasible (and extremely common) in societies in which the clan and the extended family can discipline members by threat of ostracism and other informal sanctions. The total capital possessed by the family or clan might be slight by usual commercial standards, yet if only one or a few members have any real entrepreneurial prospects, the limited capital may be sufficient to finance their tiny projects. So microfinance is perhaps best understood as a device for easing the transition from an economy based on trust to a normal commercial society.
As a substitute for trust, microfinance has obvious drawbacks. Extremely high interest rates, though justified not only by the risk of default (and the opportunity cost of money, that is, the riskless interest rate) but also by the very high transaction costs of a tiny loan (since those costs are largely fixed, rather than varying with the size of the loan), burdens the borrower with very heavy fixed costs, since he must repay the loan regardless of the success of his enterprise. The higher a producer's fixed costs relative to his total costs, the riskier his enterprise, since if demand for his product falls or his marginal costs rise he will find it extremely difficult to adjust by cutting output; the cut will reduce the revenue out of which he has to pay principal and interest on the loan. Borrowing at astronomical interest rates seems an unlikely formula for commercial success--and the more unlikely the poorer the borrower.
In the family or clan alternative, trust may provide an extremely low-cost substitute for the transaction costs involved in microfinance. Perhaps then microfinance will occupy a narrow niche in capital markets between family and clan resource pooling at one end and commercial lending at the other. Indeed, the fact that the overwhelming majority of microfinance borrowers are women suggests that the particular market failure that microfinance corrects is discrimination against women in the family and clan capital markets.
An alternative form of microfinancing would be equity rather than debt financing, on the model of private equity firms like Blackstone and the Carlyle Group. Of course these multibillion dollars firms have no interest in making $100 loans in Bangladesh. But the Grameen Bank could presumably furnish equity in lieu of loans to its customers, thus sharing the risk with them and so reducing the risk to them; and it is a superior risk sharer because of size and diversification. But maybe the bank would find it too difficult to evaluate projects, or would fear being inundated by applications from the impecunious.
I end on a skeptical note. The evidence for the efficacy of microfinance in stimulating production and alleviating poverty is so far anecdotal rather than systematic. The idea of borrowing one's way out of poverty is passing strange. And I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit. Also, recall that Grameen Bank has lent almost $6 billion to some 6 million persons. This implies an average loan of almost $1,000, which in a country like Bangladesh is not chicken feed and makes one wonder how much of the Grameen Bank's loan portfolio is actually microfinance. (Yet the bank's financial statement indicates that the average loan balance in 2005 was only $85--I don't understand how this squares with the aggregate figures that I gave above, which are also published by the bank!) Then too, the bank has been in operation since 1983, which is more than 20 years and indicates that the average number of borrowers is only 300,000 a year, with presumably many repeat borrowers. Bangladesh has a population of almost 150 million people. It is true that the microfinance movement is growing--and as it grows we may see default rates rising and the microfinanciers adjusting, as the Grameen Bank may already have done, by greatly increasing the minimum size of loans. Think back to that low default rate for the Grameen Bank. The bank does not have written loan agreements and does not sue defaulters or invoke other legal remedies against them. The natural inference to draw is that the bank is extremely selective in its choice of persons to whom it is willing to lend, and such selectivity, if imitated by other microfinanciers, must greatly limit the scope and impact of microfinance.
I suggest, albeit tentatively, that there may be a good less to microfinance than its boosters claim.
I applaud the granting of the Nobel Peace Prize to Muhammad Yunus and the Grameen Bank. Sure, reducing poverty has at most an indirect connection with peace by encouraging democracy. Still, the Peace Nobel prize has often been so political- it is different from other Nobel Prizes since the Peace Prize is awarded by the Norwegian Parliament- and frequently of such dubious merit, that it is a welcome change to have the Prize given to someone who has really helped the very poor of the world.
Yet, all economists who have studied microfinance agree that it will never be more than a minor factor in ending poverty in any country. Economic growth requires secure property rights, encouragement of private enterprise, openness to international trade, stimulation of education, limited and sensible regulations, and reasonably honest government. Microfinance makes only a small direct contribution to any of these variables.
However, microfinance does accomplish something useful, and that is how it should be evaluated. So far microfinance has been mainly oriented toward women, although itthat is not necessary. It started in the primarily Muslim rural areas of Bangladesh, where women had great difficult borrowing money in any way to earn income as tiny scale entrepreneurs. Study of several of these programs suggest that in fact payback rates have been high since borrowers have been subject to great social pressure to repay, they have few alternative ways to borrow, and because of other factors. These studies also suggest that women who borrow gain bargaining power within their families. This shows up as an increase in the education of daughters and also sons, greater spending on medicines, and on women's assets, like gold, in families that have women who borrowed under one of these programs.
These programs are usually quite flexible, and sometimes approach the equity type loans that Posner advocates. If someone is having trouble repaying debt due to no fault of her (or his) own, microfinance lenders, as well as other lenders in these communities, often wait until times get better, instead of demanding all payments be made on time. In effect, microfinance often work out to be loans with returns that are quite sensitive to how well borrowers do.
Microfinance has spread to rural parts of non-Muslim countries, and these loans too are primarily given to women. Evaluations of the effects of loans in non-Muslim countries also show high repayment rates, and that female borrowers repay at higher rates than, and generally outperform, male borrowers. So loans in other countries appear to have similar effects as in Muslim countries like Bangladesh.
I do not believe there is much of a puzzle about why commercial institutions have not made such micro loans. For one thing, enforcement of repayment by any particular borrower from the group of all borrowers in a local area was originated by the Grameen Bank, and would not be easily copied by for-profit banks and moneylenders. But even if commercial lenders could have the same high repayment rates, these loans have not typically earned the rates of return required by commercial lenders in poor countries. The Grameen Bank and other groups active in making micro loans have had some financing from NGO's that do not seek to make commercial returns on their spending. So my belief is that despite the seemingly "high" interest rates on these loans, they have earned returns, adjusted for servicing, risk, and other costs, that are below market interest rates in their respective countries,
If private groups want to make gifts to rural women in poor countries, making them through micro loans is a much better way than many alternatives. Loans at considerable interest rates aid donors select among a huge number of persons who believe they deserve help. For by requiring recipients to engage in productive activities that yield enough returns to pay interest and repay principal, micro loans in effect choose to help those with ideas and a willingness to work hard. What is a better way to choose among too many people who are really poor? In my judgment, it is always better as far as possible to reward people who try to help themselves.
The focus on women may be a good starting point in many countries since they have entrepreneurial ideas, and yet often have great difficulty in borrowing commercially, or even from their families. Still, one risk here is that the apparent borrower is a woman, but the real borrower is her husband, brother, or father, and she is simply a front for them. Moreover, many men in poor rural areas also have great difficulty getting access to funds, so these programs should include many more male borrowers as they grow in scope.
Individuals like Pierre Omidyar, one of the founders of eBay, has made a $100 million contribution to Tufts University for that university to invest in profit-making microfinance programs. I share his apparent belief in the principle that competition among for-profit firms is the best way to organize and allocate resources in an economy. It may be possible to get a fully for-profit sector that has large resources, and makes the small micro loans pioneered by the Grameen Bank. I hope so, but the many for-profit moneylenders and banks in poor countries in the past did not manage to make such small loans at rates that were both profitable and appealing to borrowers. So I am not convinced that his vision and that of some other American entrepreneurs will be successful. But their vision of harnessing incentives from the for-profit sector is the right way to try to improve microfinance.
For a long time I have found the practice of polygamy intriguing, and have wondered why opposition to this form of marriage is so strong in the United States and most of the world ‚Äìsee my A Treatise on the Family, 1981,1993, Harvard University Press. I have been reflecting on this subject again as a result of the arrest several months ago of a fundamentalist Mormon leader in Utah who was charged with practicing polygamy, among other things. The Mormon Church since the 1890's had suspended the practice of polygamy under pressure from the United States Government. The act of having more than one spouse is now a felony in Utah, punishable by up to 5 years in prison, although authorities usually do not go after polygamists.
While the ferocious opposition to polygamy seemed strange even in the 1970's when I first wrote about this practice, it is much stranger now in light of developments during the past couple of decades. These developments include a successful movement to legalize contracts between gays that allow them to live as married couples, even though there is ongoing emotional debate about whether such couples can legally be considered "married". Gay couples can also adopt children. They can legally have their "own" children too through using male sperm to impregnate one partner of a lesbian couple, or through hiring women to become pregnant from the sperm of one member of a male homosexual relation. Men and women can be "serial" polygamists in the sense of marrying several times over their lifetimes after divorcing their prior spouses. Married women and men can have boy friends and girl friends without any legal difficulties, and have children with persons other than their spouses.
I have no problem at all with serial polygamy, with allowing gays to have contracts that are equivalent to being married, or to allowing gay couples to be called married. I have much more difficulty with children being raised by gay couples since that form of parenting is a venture into the unknown, but maybe that too is ok. My intent here is not to comment on these practices, but to ask why then does the strenuous opposition to polygamy continue?
Although polygamy encompasses both polygyny, where a man has several wives, and polyandry, where a woman has several husbands, polygyny has been far more common in human (and other) societies. This explains why I concentrate on polygyny, although my arguments apply also to polyandry.
The most frequently encountered argument against polygyny is the claim that it exploits women, and is a continuation of the traditional subjection of women to men. Women were indeed exploited in many monogamous and polygynist traditional societies, when they were frequently forced to marry men that they did not want to.
That hardly describes the situation these days in the United States, the rest of the developed world, and much of the developing world. Women choose their partners, and refuse to marry men who they do not want to marry, regardless of their parents' feelings or the ardor of suitors. In this world, a woman would not have to enter into a polygamist household if she would not want to. Would-be polygamist men would have to persuade second or third wives that it is worth it, because of their wealth, good looks, kindness, or in other ways. If she is willing to become an additional wife, why should laws prevent that?
What about a first wife who suddenly finds out that her husband is planning on taking additional wives? She could divorce him, share their property, and receive child support for any children they have in virtually all states without having to prove any "fault" on his part. Moreover, she could write a contract before marriage stipulating that he cannot take additional wives. The contract could provide for damages In the event of a divorce due such a violation of the contract. Judges would surely take that into account in distributing property, custody rights over any children, and the size of child support.
Some oppose polygyny because they believe too many women would be "swept off their feet" by smooth-talking actual or potential polygamists. If that were a great concern, women could be required to be older before they could legally marry into polygamist households, or a "cooling off" period could be mandated before they could do that. Yet isn't it offensively patronizing to women to believe they cannot make their own decisions about whether to enter into marriages that contain other wives? We do not offer men any special protections against the "wiles" of women, so why do women need such protection? Indeed, I believe that in marital decisions women are more thoughtful and far-sighted than men, partly because marriage has meant much more to women than to men.
The claim that polygyny is unfair to women is strange since polygyny increases the demand for women as spouses in the same way that polyandry would increase the demand for men. If men were to take multiple wives, that increases the overall competition for women compared to a situation where each man can have at most one wife. This argument against polygyny is like arguing that a way to increase the economic prospects of minorities is to place an upper bound on how many members of these groups a company can employ. Of course, actual laws that try to improve the economic circumstances of minorities often in effect take the opposite form by placing lower, not upper, bounds on their employment in different companies. That too is not sensible but I save that for another day.
Even though women as a group would gain from allowing polygyny, and men as a group would be hurt, not all members of each group would be affected in the same way. Men who do not have much to offer women would be more likely than under monogamy to remain unmarried, at least until they become older and wealthier, or more matured. Similarly, educated and otherwise attractive women who have a lot to offer might suffer if they have to face competition from several women who individually have less to offer, but collectively can offer as much or more. Perhaps opposition from such groups that would be hurt by polygamy is the political economy explanation of why that form of marriage has been outlawed in most of the world.
My argument for polygamy is one of principle to bring out certain fascinating issues. For, in fact, polygyny would be rare in modern societies even if fully allowed. Polygyny was popular in the past when men valued having many children. That is no longer the case, since few couples want more than three children, a number that usually can be easily attained with a single wife. So the main motivation for polygyny has vanished with the arrival of the knowledge economy where fathers as well as mothers now want a small number of educated children rather than many ill-educated offspring. Note that polygyny is rare even in those Muslim countries that allow it, such as Iran.
I conclude with two questions. Why the strong opposition to polygyny if it would be so rare? If modern women are at least as capable as men in deciding whom to marry, why does polygyny continue to be dubbed a "barbarous" practice?
Becker has posed an intriguing question: if a woman thinks she would be better off as a second or third (or nth) wife rather than as a first and only wife, or not married at all, why should government intervene and prohibit the arrangement? From an economic standpoint, a contract that makes no one worse off increases social welfare, since it must make both of the contracting parties better off; otherwise they would not both agree to the contract.
The question has achieved a certain topicality because of the movement to legalize homosexual marriage. One of the standard objections to such marriage is that if homosexual marriage is permitted, why not polygamous marriage? The basic argument for homosexual marriage is that it promotes the welfare of homosexual couples without hurting anybody else. That seems to be equally the case for polygamous marriage.
But is it? My view is that polygamy would impose substantial social costs in a modern Western-type society that probably would not be offset by the benefits to the parties to polygamous marriages. (For elaboration, see my book Sex and Reason (1992), particularly Chapter 9.) Especially given the large disparities in wealth in the United States, legalizing polygamy would enable wealthy men to have multiple wives, even harems, which would reduce the supply of women to men of lower incomes and thus aggravate inequality. The resulting shortage of women would lead to queuing, and thus to a high age of marriage for men, which in turn would increase the demand for prostitution. Moreover, intense competition for women would lower the age of marriage for women, which would be likely to result in less investment by them in education (because household production is a substitute for market production) and therefore reduce women's market output.
Of course, forbidding the wealthy to buy a particular commodity is usually inferior to taxation as a method of reducing inequality. Yet we do forbid the buying of votes, which could be thought a parallel device to forbidding the "buying" of wives: one vote, one wife. We think that vote buying would have undesirable political consequences. So might polygamy. In societies in which polygamy is permitted without any limitation on the number of wives, wealthy households become clans, since all the children of a polygamous household are related through having the same father, no matter how many different mothers they have. These clans can become so powerful as to threaten the state's monopoly of political power; this is one of the historical reasons for the abolition of polygamy, though it would be unlikely to pose a serious danger to the stability of American government.
In polygamous households, the father invests less time in the upbringing of his children, because there are more of them. There is also less reciprocal affection between husband and wife, because they spend less time together. Household goverance under polygamy is bound to be more hierarchical than in monogamous marriage, because the household is larger and the ties of affection weaker; as a result, "agency costs" are higher and so the principal (the husband, as head of the household) has to devise and implement means of supervision that would be unnecessary in a monogamous household. (An additional factor is that women in a polygamous household have a greater incentive to commit adultery since they have less frequent sex with, and affection for, their husband, so the husband has to watch them more carefully to prevent their straying.) This managerial responsibility deflects the husband from more socially productive activities.
A woman who wanted a monogamous marriage could presumably negotiate a marital contract that would forbid the husband to take additional wives without her consent. However, she would have to buy this concession from the husband, which would make her worse off than if he were denied the right (in the absence of a contractual waiver of it) to take additional wives. Allowing polygamy would thus alter the distribution of wealth among women as well as among men.
Against all this it can be argued that polygamy would be uncommon in a society such as that of twenty-first century United States. But the less common it is, the fewer the benefits to be anticipated from legalizing it. And I am not sure that it would be all that uncommon. Although few American couples want to have more than two or three children, a polygamous union is not a couple. If a couple has three children, the ratio of adults to children is 2:3. In a polygamous household consisting of a husband, two wives, and four children, the ratio of adults to children is higher: 3:4. So the per-parent burden is less, even though there are more children.
Because polygamy is illegal everywhere in the United States, few Americans think of it as an option. If it were made respectable by being legalized, who knows? There are 400 American billionaires, and several million Americans with a net worth of at least $6 million. Nor, with most women working, is it obvious that a man would have to be wealthy in order to attract multiple wives, though presumably men who wanted to be polygamists would have to be able to offer some financial inducements, since most women would prefer to be a man's only wife. As more and more men attempted to become polygamists, the "price" they would have to pay for a wife would rise, so polygamy would be a distinctly minority institution. But it would not necessarily be trivial in size or harmless in its social consequences, which would be likely to exceed those of homosexual marriage. Polygamy is banned in most advanced societies and flourishes chiefly in backward ones, particularly in Africa. This is some evidence against legalizing it.
This posting is stimulated by comments made about my passing reference to overpopulation in Subsaharan Africa in the recent blog on DDT and by an article in the Wall Street Journal last week called "The Coming Crunch" that notes with concern a prediction that the population of the United States will reach 400 million in 35 years.
Concerns about overpopulation are ridiculed by conservatives because of the mistaken predictions by Paul Ehrlich (not to mention Thomas Malthus!) in his book The Population Bomb and by other anticapitalists since the first Earth Day (1970), and have spread to liberals because the only way to slow or stop the growth of the U.S. population is by curtailing immigration (e.g., the "fence"). Although I have been strongly critical of the shoddy arguments of Ehrlich and other doomsters (in my book Public Intellectuals), I believe that overpopulation is a serious issue and deserves dispassionate analysis. Just because the problem of overpopulation has been exaggerated in the past doesn‚Äôt mean it is not a problem today. The future may not resemble the past. The belief that the mistakes of Malthus, Ehrlich, and other past prophets of doom show that current concerns with overpopulation are unfounded is on a par with the belief that we shouldn't worry about terrorism because many fewer Americans have been killed by terrorists than in automobile accidents. Such arguments confuse frequencies (the past) with probabilities (the future).
Economists stress the "demographic transition," that is, the tendency of the birth rate to decline steeply as a nation becomes wealthier. But apart from the fact that not all nations experience significant economic growth, such growth tends, other than in Europe and Japan, not to make the rate of population growth zero or negative. Most demographers forecast that world population, currently somewhat more than 6 billion, will rise to between 9 and 14 billion by mid-century.
I shall address the following questions: what are the costs of population increase (1) to the country in which the increase occurs, (2) if that country is the United States; and (3) to other countries; (4) what are the benefits to the country in which the increase occurs and (5) to other countries; and (6), when the costs exceed the benefits, what if anything should be done to slow or arrest population growth?
1. If the arable and otherwise inhabitable parts of a poor country are densely populated, increased population will result in significantly higher costs of food and other agricultural products by requiring more intensive cultivation, or cultivation of poor soil. It will also increase the cost of water, and time spent in commuting and other transportation. This seems to be the situation in India and much of Africa. And notice that China, though it is en route to becoming a wealthy country, has not abandoned its "one child" policy. That policy is an inefficient method of limiting population growth, but is evidence that China does have a problem of overpopulation. Surely India does as well, though like China its economic output is growing rapidly.
2. The United States is not densely populated, but that is only when density is computed on a nationwide basis, i.e., if the total area of the country is divided by the population. Particular areas, mainly coastal (including the Great Lakes coasts), are densely populated, and further population increases in those areas would increase commuting times, which have lengthened in recent years, and in some of these areas (such as California and Arizona) would place strains on the water supply. In principle, however, these problems can be solved by pricing, including greater use of toll roads. Increased commutes impose environmental costs, but tolls could be based on those costs.
3. The greatest costs of further population increases are likely to be costs external to individual countries and therefore extremely difficult to control by taxation or other methods of pricing "bads," because most of the benefits of these measures would be reaped by other countries. These are environmental costs, mainly global warming and loss of biodiversity, about which I have written at length in my book Catastrophe: Risk and Response (Oxford University Press, 2004). Of course, population growth per se does not increase global warming, but the burning of forests and, most important, of fossil fuels does, and these activities are positively correlated with population. Not only is it now the scientific consensus that global warming is a serious problem, but its adverse effects are appearing sooner than expected; it is by no means certain that a technological fix will be devised and implemented before the effects of global warming become catastrophic.
4. Population growth in productive societies increases the society's total output and hence its geopolitical power. It also has a positive effect on innovation by increasing the size of markets. Innovation involves a high ratio of fixed to variable costs (it costs hundreds of millions of dollars to develop a new drug, yet once it is developed, the drug may be very cheap to produce), so the larger the market for the innovative product or process the likelier are the fixed costs of invention to be recouped in sales revenues.
Some people also believe that the larger the population, the more innovators there will be, assuming that a fixed percentage of the population consists of innovators, whatever the size of the population. This is a questionable argument for population growth, as it ignores the fact that a fixed percentage of the population presumably also consists of potential Hitlers and Stalins and Pol Pots, and thus the absolute number of these monsters grows with population growth. Moreover, a population increase that is due to a higher birth rate (as distinct from immigration) increases the number of young people in a society, who are impressionable and therefore more likely than older people to be drawn to extremist politics, including terrorism. In addition, greater competition among innovators may reduce the potential returns to each innovator by increasing the number of simultaneous innovations, and may thus reduce the incentives to innovate.
The relationship between aggregate population and creativity seems in any event very loose. The citizen population of Athens in the fifth and fourth centuries B.C. was roughly 25,000, but produced intellectual and artistic works that dwarf those of entire continents. Furthermore, technological growth currently favors destructive over beneficial technologies. The increasing lethality and availability of weapons of mass destruction--the proliferation problem--has a greater short-term downside than benign inventions have an upside, especially since much innovative activity is focused on increasing longevity, and thus population. Policies that accelerate the rate of technological advance are dangerous unless the advance can somehow be channeled into productive forms. It cannot be.
A dubious benefit of population growth is that it lowers the average age of the population and therefore the burden of the elderly. That is a Ponzi scheme rationale for encouraging growth of population, since as soon as the growth ceases, the average age will shoot up--especially if it is correct that population growth increases the rate of medical innovation and thus the life span!
5. An increase in one nation's power reduces the power of other nations; so there is again a negative externality. The increase in the world's Muslim population is a negative externality for non-Muslim nations, especially the European nations, with their shrinking or about-to-start-shrinking populations. But by the same token an increase in the non-Muslim population of Europe would probably be a boon for the European nations. And an increase in the rate of innovation in one nation will benefit other nations unless intellectual-property laws are extremely strict (which would have its own negative economic effects).
6. If, apart from poor countries, the major costs of population growth are external to the particular nations in which population is growing, there is very little that can be done, given the weakness of international institutions, which is due in turn to the number and diversity of nations that have to be coordinated for effective action against global problems. Moreover, limits on immigration do not reduce global population growth and thus do not respond to the global-warming problem. Rich countries, however, can aid poor countries to reduce their rate of population increase by encouraging family planning and, in particular, female education, since educated women have higher opportunity costs of fertility, and hence fewer children, than uneducated ones. Where, as in the United States, the costs of population increase are concentrated in particular areas (whether in geographical areas or along highways), the costs can be neutralized by increasing prices proportionally tied to density by taxation or other methods of pricing negative externalities.
Posner makes as good a case as can be made for worrying a lot about overpopulation, but I do not believe the case is good enough. I will argue that at this time, in the United States and most other parts of the world, greater population has greater benefits than costs. I will to some extent be reiterating arguments I made in my blog posting on October 3, 2005.
In considering the effects of greater population it is important to distinguish clearly between more rapid population growth and larger population levels. I start first with an evaluation of population growth rates. With the present system of financing social security and medical care of the elderly, faster population growth helps since it increases the number of working individuals relative to the number of retired persons. For taxes on workers provide the revenue to finance the spending and care of retirees. So with greater numbers of younger person relative to older persons, tax revenues would rise relative to payouts to the elderly. To be sure, I have argued in previous blog postings for a different system of financing income and health care to the elderly, but until we get these reforms, additional younger persons help reduce the burden of the elderly. Although the present system has clear flaws, it is not a ponzi scheme in the sense that it could continue for many, many generations if there are enough younger persons with the incomes to be taxed.
Younger persons also produce a disproportionate share of the new ideas and products, whether in science, business, or the arts. Declines in their numbers, absolutely and even relatively, lead to more stagnating societies. These innovations have been good for economies and culture, unless one believes that the typical person in the world was better off 250 years ago.
Population grows faster in a country mainly if either fertility is higher or more people immigrate into the country. Both contribute to an increase in the number of younger persons, although the fertility effects on the number of working individuals are delayed. Immigration has an immediate effects since most immigrants are young and of working ages, but there is opposition in most countries to large numbers of immigrants. Higher fertility will tend to negatively affect how much parents and societies invest in younger persons because the total cost of these investments become greater where there are more children to invest in. This is a serious consideration for many African countries, or Asian countries like Bangladesh, with very high birth rates, but is much less important in Europe or Japan or China where birth rates are low. Even in the United States the typical family has only a little less than two children, so the trade off with investment per child is not a big factor here either.
Although, of course, faster population growth will lead to larger populations, population level effects differ from these population growth effects. I believe there are two fundamental positive aspects of larger populations. The greater the population, the larger the market for new products, such as medical drugs, iPods and other high tech innovations, and for still other new products that depend on larger markets. This has been convincingly demonstrated in studies of pharmaceutical innovations-for example, the larger the number of elderly persons, the more new drugs developed to help diseases of the elderly (see e.g., Acemoglou and Linn, ‚ÄúMarket size in Innovations: Theory and Evidence From the Pharmaceutical Industry‚Äù, Quarterly Journal of Economics, August, 2004.).
In addition, the larger is the level of population, the greater the scope for the division of labor, either within a country, or worldwide when considering world population levels. It might seem that with 6 billion persons on the earth, there is more than enough population for the finest degree of specialization and division of labor. However, the growth of global trade has made the gains from increasing degrees of specialization and trade much greater than in the past. Outsourcing and the rapid growth of China and India are just examples of this development.
The advantages of greater population are more questionable for poor dense populated countries with high birth rates. Bangladesh, Pakistan, and some African nations fit this description. Yet, I would not overemphasize this point since India, which is a rather densely populated country with only limited high quality land and other natural resources, showed that it could grow rapidly once it reformed economic policies. So I am doubtful whether India's large and rapidly growing population had in the past hindered its growth in per capita incomes or improvements in health of the average Indian family.
To be sure, the main focus nowadays of the opponents of greater population is the effects on the environment, both within nations, and globally through greenhouse warming and other forms of global pollution. It is interesting how the arguments of Malthusians and neo-Malthusians have shifted over time as each of their predictions bit the dust. Yet while these falsified predictions makes one alert to the dubious assumptions of many Malthusian-like arguments, it does not mean there is no reason to be concerned about harmful environmental effects.
Clearly, with per capita income, technologies, and pricing held fixed, greater population would lead to increased congestion and emission of more harmful pollutants. But there is no reason to believe that these variables will be held fixed. Per capita income will be growing, and given my arguments above, perhaps even faster with larger populations. Then the so-called Kuznets environmental curve will kick in. This curve summarizes a well-documented empirical relation that as a country's income begins to grow, at first its environment gets worse. Then, however, the environment gets better as the country spends more on reducing pollutants and has better technologies to do this.
My argument above also suggests that technologies to control pollution are likely to be rising in population, country or worldwide, because the market for these technologies from both the private sector and from governments would expand. The error made in many of the scariest environmental scenarios is the implicit assumption that technologies are held fixed as population and other variables of environmental concern increase. In fact, technologies progress rapidly in the modern world, and more rapidly as population is larger or per capita incomes are larger. So while I am not claiming to have disposed of the many legitimate environmental concerns of greater population, I do believe that they are considerably exaggerated by neglecting the Kuznets curve, and the effects of exogenous and induced technological advances.
There is growing concern in rich countries, especially in the United States, about the increase in consumption of fats and sugar, and the related increase in obesity. These trends are particularly noticeable among teenagers and even younger children, who consume large quantities of fast foods and soft drinks. Some localities, like New York City, and countries like Denmark, have proposed to either phase out or restrict sharply the use of trans fats in french fries, margarine, and other foods. The concern goes far beyond trans fats, however, and includes proposals to restrict the sale of foods high in saturated fats, such as big Macs.
One proposal receiving some attention is to impose a tax on foods that contain high quantities of saturated fat in the hope of cutting down consumption of these foods. The basic law of demand states that a tax on saturated fat would raise the price of fatty foods, and thereby would reduce their consumption. A good analogy is with other "sin"taxes, such as the very heavy tax in most countries on cigarettes, or the large tax in many countries on alcoholic beverages. These taxes have greatly raised the price of these goods and reduced their consumption. For example, it is estimated that every 10% increase in the retail price of cigarettes due to higher taxes cuts smoking by about 4% after the first year, and by a considerable 7% after a few years. Responses are greater in the longer run because more people decide over time not to start smoking (or drinking), and many of those who were smoking (or drinking) eventually manage to quit or cut down the amounts used.
I do not know of any estimates of the responsiveness of the consumption of bad fats to higher fat prices, but I am confident it would be reasonably large, particularly for teenagers and lower income families who have the highest rates of obesity, and are more sensitive to these prices. I also believe it would be possible to define a fat tax that would effectively target foods that are high in saturated fat content. Yet I would like to express some doubts about whether that would be good public policy.
First of all, public policy should not ignore the pleasure consumers get from cheeseburgers, french fries, and other high fat foods, or for that matter from soft drinks, smoking, alcoholic drinks, and other such "sins". Good policies require that these pleasures are more than offset by strong negative public consequences.
Although the growing obesity of teenagers and of adults too during the past 25 years may be partly related to the greater consumption of fats, a stronger factor seems to be the increased time spent at sedentary activities, and a corresponding reduced time spent exercising and at other active calorie burning activities. These sedentary activities include watching television, surfing the Internet, playing computer games, communicating on chat rooms and through instant messaging, listening to music on iPods, and other devices. For a careful analysis of the growth in weight of teenagers that concludes that increased sedentary activities is the main culprit, see the 2006 PhD thesis by Fernando Wilson in the Economics Department of the University of Chicago.
The reduced exercise rate of teenagers is not mainly because they are too fat to have the energy to be active, but rather due to technological developments, such as the internet, computer games, iPods, television, and the like. Put differently, lack of exercise has caused obesity (to a large extent) rather than that obesity has caused reduced exercise. I doubt if there would be much of a call for taxes on computer games, or iPods, or use of the Internet in order to reduce obesity. Dr. Michael Roizen has pointed out, however, that certain types of computer games do require manual dexterity and other exercise.
Suppose, however, that increased fat consumption is the major cause of the gain in weight. Is this enough reason to justify active public interventions? I raise this question not only because of the pleasure received from eating foods with saturated fats, but also because doubts have been raised about the connection between excess weight and medical problems like cardiovascular diseases, diabetes, cancers, and other serious diseases. Of course, no one denies that extreme overweight is dangerous to health, such as a body-mass index (BMI) of over 45. This would mean that a male of average height weighs over 300 pounds, and less than one % of the American male population is that heavy relative to their height. And often an important distinction is drawn between overall weight and how much is concentrated in the belly, the later being much more hazardous to health.
A possibly more important consideration than the connection between fat consumption and weight may be that the consumption of fats crowds out diets richer in fruits and vegetables. Diets heavy on fruits and vegetables appear to reduce the incidence of various serious diseases, such as colon cancer and heart attacks. If such diets were to be encouraged, a more direct and powerful approach than taxing fat consumption would be to subsidize fruits and vegetables. Yet teenagers, the group that elicits greatest concern, are likely to have weak responses to lower prices of fruits, and of vegetables like broccoli.
Even if excess weight and bad diets are very unhealthy with present medical knowledge, is it irrational for teenagers and other young persons to ignore the recommendations of nutritionists and medical associations, and to consume diets heavy in fats and gain weight? Not necessarily if they recognize the trade off between present pleasures and future harms, but which they may not recognize. An additional and highly important consideration that is almost never mentioned is that the next 20-30 years will probably bring at least as much improvement in medical knowledge and new drugs as the past several decades did. We now have drugs that greatly reduce the potential health hazards of high (bad) cholesterol, drugs to lower blood pressure greatly, drugs to reduce the consequences of mental depression, and many other important drugs that were unavailable a few decades ago.
The not so distant future will very likely see big advances in fighting various cancers, colon and lung cancer included, in preventing or better controlling adverse effects of diabetes, in preventing or slowing Alzheimer's disease, and in reducing still further the risks of strokes and heart attacks. The many teenagers who are unaware of these medical trends, and are inactive, gain weight, eat few veggies, and consume much fat will still benefit from these medical advances during the next several decades.
Yet suppose medical progress slowed down, and that heavy saturated fat consumption significantly would raise the probability of contracting a major disease in the future. Are public policy interventions then justified? A common affirmative answer relies on the fact that overweight people who get serious diseases use health resources that are partly financed by taxpayers. This argument has some merit because of heavy taxpayer involvement in health spending.
But the major flaw is in the health payment system that would be largely corrected by providing stronger incentives to economize on health spending through encouraging health saving accounts, and requiring compulsory private catastrophic health insurance. These important changes in the health delivery system would give individuals much greater incentive then they have at present, partly due to greater insurance company pressure, to reduce their health spending by getting into better shape, eating better diets, and in other ways. To be sure, if the health delivery system were not greatly improved, the health spending "externality" from consuming fat would become more relevant.
I believe that aside from this externality argument about the use of taxpayers' monies, there is little reason for governments to intervene in eating decisions, with some important exceptions. The main ones might include policies to give greater publicity to the health advantages of better diets, and policies that kept unhealthy foods and possibly soft drinks out of school cafeterias and school dispensing machines. Perhaps a "say no" campaign against saturated fats would work, but I am dubious about its effectiveness.
Sometimes I wonder whether much of the public outcry over the gain in weight of teenagers and adults stems mainly from the revulsion that many educated people experience when seeing very fat people. Surely, though, this should hardly be the ground for interventionist policies!
I share much of Becker's skepticism about a "fat tax" (see my article with Tomas J. Philipson, "The Long-Run Growth in Obesity as a Function of Technological Change," Perspectives in Biology and Medicine, Summer 2003 Supplement, p. S87), though I would look favorably on a tax on soft drinks; I would even consider a ban on the sale of soft drinks to children, as I explain later.
The case for a fat tax, as an economist would be inclined to view it, is that a high-calorie diet contributes to obesity, which contributes to bad health, which imposes costs that are borne in part by thin people (thin taxpayers, in particular). I do think, despite skepticism in some circles, that obesity, even mild obesity, has negative health consequences, including diabetes, high blood pressure, joint problems, and certain cancers, and that much of the cost of medical treatment is externalized. But as Philipson and I emphasized in our article and Becker emphasizes too, lack of exercise is also an important factor in obesity. Moreover, the significance of an externality lies in its effect on behavior, and I am dubious that people would consume fewer calories if they had to pay all their own medical costs rather than being able to unload many of those costs on Medicaid, Medicare, or the healthy members of private insurance pools.
Indeed, if as I believe obesity is positively correlated with poverty, reducing transfer payments to people of limited income might result in more obesity. Indeed, high-caloric "junk food" might conceivably though improbably turn out to be the first real-world example of a "Giffen good," a good the demand for which rises when the price rises because the income effect dominates the substitution effect. A heavy tax on high-caloric food might so reduce the disposable income of the poor that they substituted such food for healthful food, since fatty foods tend to be very cheap and satisfying, and often nutritious as well. However, this is unlikely because food constitutes only a small percentage (no more than 20 percent) of even a poor family's budget.
A fat tax would not only be regressive; to the extent it induced the substitution of more healthful foods (as opposed to the Giffen effect), it would as Becker notes reduce the utility (pleasure) of the people who love junk food. This assumes that the junk-food lovers are rational and reasonably well informed, so that they trade off the pleasure gains of eating such food against the health costs. Here I begin to have doubts. I don't think the fact that obesity is correlated with poverty is due entirely to the fact that fatty foods tend to be cheap as well as tasty and satisfying. I suspect that many of the people who become obese as a result of what they eat do not understand how, for example, something as innocuous as a soft drink can produce obesity. I also suspect that producers of soft drinks and other fatty foods are ingenious in setting biological traps--designing foods that trigger intense pleasure reactions caused by brain structures formed in our ancestral environment (the prehistoric environment in which human beings attained approximately their current biological structure), when a taste for fatty foods had significant survival value. (The producers of soft drinks and other junk food also place vending machines in schools, when permitted.) I am doubtful, however, that much can be done about this problem. I do not think, for example, that a campaign of public education would be effective, because it could be neutralized by industry advertising (which, however, would have the indirect effect of a tax--it would increase the food producers' marginal costs) and because the people who most need the education are probably the least able to absorb it.
However, the consumption by children of soft drinks that contain sugar presents a distinct and perhaps soluble social problem. Soft drinks have virtually no nutritional content (unlike foods rich in cream or butter), and recent studies indicate that they are a significant factor in obesity, as well as a source of caffeine dependence and dental problems. They also have good substitutes in the form of drinks sweetened artifically rather than by sugar. And while generally parents know better than government what is good for their children, many parents who permit their children to drink soft drinks do not. Banning the sale of soft drinks to children could not have a Giffen effect and would not be much more costly to enforce than the ban on the sale of cigarettes to children, and might well be a justifiable policy measure.
Now any measure for improving public health has the following limitation: if people are healthier and live longer, this does not necessarily reduce their lifetime expenditures on health care. Most of those expenditures are incurred in the last six months of life, and no matter how long people live, they will eventually enter that terminal phase. However, the longer their healthier lives, the lower their average lifetime health-care expenditures and the greater their productivity, as well as the greater their utility since poor health reduces utility. (Besides its health effects, obesity reduces physical comfort and attractiveness.) I would therefore expect a ban on sale of soft drinks to children to yield a modest net increase in social welfare.
I want to reply to some of the comments on both my last posting, which was on the NAS report on women in science, and also the previous one, on DDT.
Women in Science . I notice that the comments in defense of the NAS report tend to be--defensive; and also emotional. One comment suggests that if a committee 17/18 female is likely to be biased, any male who comments on the report is likely to be biased too. But I did not suggest that the committee should have been composed primarily of men, only that it should have been more balanced, and that the fact that the only man on the committee could not, because of his position, dissent from the report, made his inclusion, as the lone man on the committee, entirely unprofessional. Another commenter vigorously denies that there is any difference between men and women, then states that he prefers female doctors because they are more caring!
A number of comments point to the range of differences between men and women, encompassing behaviors (crime, sports), preferences, test results, psychology, and much else besides, including the tendency of women in science to prefer the less mathematical fields (I gave the example of primatology). These differences could I suppose all be the product of discrimination, but that seems highly unlikely.
One comment states that the underrepresentation of women in science may be a result of path dependency (where you start may determine where you end up)--the fewness of women in science in past times. This is not persuasive, because there were virtually no women in academic law when I was a law student in the 1950s, but now about half of all law professors are women.
One last point: a good test for whether there is discrimination against or in favor of a group is its average performance in the profession alleged to be a site of discrimination relative to that of the majority. If women were discriminated against in science, one would expect the average woman in science to outperform the average man in publications, awards, etc., simply because only women who were better than men could overleap the discrimination hurdle. But if there is discrimination in favor of women in science, then the average man should outperform the average woman, because then it is the men who have to overcome the discrimination barrier. (If there is no difference in average performance of men and women in a given field, the inference is that there is no sex discrimination in that field--employers and other performance evaluators regard sex as irrelevant.) Since men outperform women in science rather than vice versa, the inference is that there is discrimination in favor of women.
DDT and Overpopulation I repeat my abject apology for calling DDT a herbicide rather than a pesticide. Some comments suggest that the mistake reveals my complete incompetence to discuss environmental issues. That seems a bit harsh. The reason for the mistake was simply that herbicides play a particularly important role in diminution of genetic diversity--thanks in part to the ban on DDT--so I was thinking about herbicides when I was considering the effects of DDT.
Some comments point out correctly that interior spraying won't eliminate mosquitoes and therefore malaria; and that is true. But complete eradication may not be cost justified. Costs and benefits must be compared at the margin. If 99 percent of deaths from malaria can be eliminated by interior spraying, it may not be worthwhile to spend billions of dollars developing and producing a vaccine. That is why I find the Gates Foundation's campaign to eradicate malaria puzzling. (Actually, I don't think it's very puzzling. There is often a strong political and public-relations dimension to foundation giving, even foundation giving for activities thought nonpolitical, such as saving lives. Somehow giving money to spray the interior of houses with DDT lacks pizzazz and could even be thought politically incorrect.)
Most of the comments fasten on the following paragraph in my posting: "Not that eliminating childhood deaths from malaria (I have seen an estimate that 80 percent of malaria deaths are of children) would be a completely unalloyed boon for Africa, which suffers from overpopulation. But on balance the case for eradicating malaria in Africa, as for eradicating AIDS (an even bigger killer) in Africa, is compelling. Malaria is a chronic, debilitating disease afflicting many more people than die of it, and the consequence is a significant reduction in economic productivity." Many commenters regard "unalloyed boon" as a particularly callous chardacterization. I think some of the commenters don't understand the meaning of the word "unalloyed." I did not say it was a good thing that children die of malaria; I just said that it was not just a good thing, if the deaths reduce population. Now, they may not, as one comment explains, because a family that loses a child to malaria may decide to have another child in its place, and indeed if the family is risk averse it may end up having more children because of the high risk of losing one or more of them to malaria than if there were no such risk. That is an interesting empirical question. I suspect that on balance there will be fewer children surviving to adulthood, simply because of the cost of additional children.
I continue to insist that overpopulation, including in subsaharan Africa, is a real problem. It is true but absurdly irrelevant that New York City has a greater population density than Africa. Overpopulation is not a simple matter of dividing people by square miles. In an agricultural society, population density tends to be negatively correlated with wealth, simply because the land must be worked harder to obtain food. Good land is not the only resource that is in limited supply--so is fresh water, forest products, game, and mineral resources. Scarcities in these resources can be overcome, but only at a cost. It is true as several comments point out that as a society grows wealthier, the birthrate tends to drop (the "demographic transition"), but Africa seems to be trapped by extreme poverty exacerbated by overpopulation.
Is it foolish for China to try to limit its population? If not, the case for limiting the African population is much stronger, because Africa has a far less productive population.
And so far I have been speaking only of the effects of population on the populous country. There are external effects as well. The effects of population on the destruction of forests and on the demand for electricity and cars are major contributors to global warming.
Beyond Bias and Barriers: Fulfilling the Potential of Women in Academic Science and Engineering, is a book-length study published last month by the National Academy of Sciences. The study was conducted by a committee appointed by the NAS (along with the National Academy of Engineering), and it concludes that women's underperformance in academic science and engineering relative to men is caused not by any innate differences between men and women but by subtle biases, and by barriers in the form of refusing to make science jobs more "woman friendly." The study is available online at https://darwin.nap.edu/books/0309100429/html/R7.html.
The study will, one hopes, be carefully dissected by experts, but I will be surprised if it stands up to expert scrutiny. Of the 18 members of the authorial committee, only one was a man, and only five were members of the National Academy of Sciences and only one was a member of the National Academy of Engineering. The one man, Robert J. Birgenau, although a distinguished physicist, happens to be the Chancellor of the University of California; for him to have dissented from the report would have condemned him to the same fate as Lawrence Summers, and swiftly too. The composition of the committee shows remarkable insensitivity. The theme of the report is the importance of unconscious bias with respect to issues of gender; did it not occur to the members and to the NAS and NAE that women might have unconscious biases regarding the reasons for the underperformance of women in science and engineering relative to men?
Economists, foremost among them Gary Becker, have done a great deal of work on issues of sex discrimination and women's career choices. The only economist on the committee, however, was Alice Rivlin, a specialist in the federal budget. Her Brookings website lists works such as "Restoring Fiscal Sanity," but lists no book or paper relating to gender issues.
The problem of the committee's biased makeup would be less serious if the report itself were transparent, but it is not. Although it cites a great many academic studies, it does not give the reader enough information about them (the methods used, the robustness of the findings, the quality of the journal in which the study was published, the professional standing of the authors, the reception of the study in the relevant professional community, etc.) to enable an evaluation. Some of the observations in the report suggest a distinct lack of academic rigor, as when it reports that Japanese schoolgirls do better on math tests than American schoolboys. Since there is much more job discrimination against women in Japan than in the United States (see, e.g., https://www.pbs.org/nbr/site/research/educators/060106_04c/), one would expect Beyond Bias and Barriers to predict that Japanese girls would do very poorly on math exams.
The report expresses particular concern with underperformance of black women in science and engineering, who underperform not only white men and women but also black men, even though black women generally outperform black men in educational attainment. This suggests that maleness rather than race explains differential performance in science. Other obvious objections to findings favored by this biased report are ignored. For example, there is a large difference in the average research output of male and female scientists. However, that difference is greatly diminished when the comparison is between male and female scientists in leading research universities; the obvious but unmentioned reason is that these universities are not discriminating in favor of women but merely applying the same high standards to both sexes. No one thinks that no female scientists are comparable to excellent male scientists; the issue is why there are so few female scientists in those top-tier universities. Another example: from the fact that the gender gap in science has diminished in recent decades one cannot reason, as the report does, that there are no genetic or otherwise innate differences in preferences or aptitudes for a scientific career. If a gender or racial gap is due partly to discrimination and partly to innate factors, then eliminating discrimination will narrow the gap, but will not eliminate it.
The study is notably deficient in comparisons between women in science and in other demanding occupations. Women do better, relative to men, in academic law than they do in academic science, mathematics, and engineering yet law is a highly demanding field. And how to explain their domination of primatology, a scientific field? The problems that women in science face, particularly in highly mathematized fields such as physics, in combining family and career seem no different from the problems they face in other fields inside and outside of science. If the report's ambitious program of making science woman-friendly, for example by more financial aid, day care, and the stretching out of degree programs, were extended--and why shouldn‚Äôt it be?--to other demanding fields, there would be no basis that I can find in the study for predicting that more women would enter science rather than the fields that they appear to prefer.