Population panic

Thanks to Thomas Piketty, lots of people are talking about population growth, or rather, the lack of it. He cites it as one of the reasons for the growth in inequality. Most obviously, low population growth means fewer children keeping a bigger share of their inherited wealth. More importantly, though, population growth has, over the past two centuries or so, been one of the main forces behind economic growth.

As the western world comes out of its demographic sweet spot, that period when the working population was at its greatest relative to the dependent population, it is likely that economic growth will slow down. Without a significant increase in productivity, a smaller working population will struggle to maintain the rates of GDP growth we saw in the last century.

This Huffington Post piece summed up the problem:

If you’re looking for somebody to blame for rising inequality, blame babies. Or, rather, the fact that there soon won’t be enough of them.

[T]he slower-growth future Piketty foresees will be at least partially the result of slowing population growth. Typically, population growth drives about half of all economic growth. Here is a very, very long-term chart by Piketty that shows what population growth has done since the birth of Christ, along with forecasts of what it is going to do for the rest of this century:

The problem is that, historically at least, population growth and economic growth have gone hand-in-hand, with output per person roughly matching population growth. Per-capita output has been a little higher than population growth since the Industrial Revolution, thanks to productivity gains, but not by all that much.

If population growth falls back to the 0.1 percent-per-year rate that prevailed before 1700 — as many forecasters now expect — then global economic growth could be well below 1 percent per year, down from about 3 percent in recent decades.

One way to avoid a Piketty-style oligarchy, says Matt O’Brien in the Washington Post, is to have more children: 

There are easy ways and then there are hard ways to increase growth. The easiest is just to let more people into the country. The calculus is simple: more workers means more GDP (which makes past wealth a smaller piece of the pie). Specifically, the CBO estimates that immigration reform would increase the size of the economy by 5.4 percent in 2033.

The other way to add people, of course, is to try to make life easier for parents, so they can work more and have more kids. That’s not as easy, but it is doable—and it comes down to day care. Reihan Salam points out more mothers started working in Quebec after it introduced subsidized child care in 1997. And France, unlike most of its European peers, has pushed its birthrate back up near replacement level in large part because of its system of parental tax breaks and day-care centers (or “crèches”).

The hard way to increase growth is to make our workers more productive—that is, to improve education. That could mean adopting Common Core standards. Or charter schools. Or school vouchers. Or vocational training. Or more—and smarter—college aid.

Hang on though. That declining population growth on Piketty’s chart is what we’ve been saying we wanted for the past half century. For most of the postwar period, the United Nations has been trying to persuade people to have fewer children, especially in Africa.

Every time the UN population projections are published, there is a flurry of OhMyGod articles about the 9 billion people the world will have by 2050 and the 10 billion it will have by the end of the century.

But, as Robert Peston would say, here’s the thing. The 9 and 10 billion is what happens if everything goes according to plan. If people in Africa have smaller families and people in the west have slightly larger ones, which is what the UN thinks will happen, then population growth will slow, giving us our 10 billion. That’s the blue line on the chart and the central projection illustrated on Piketty’s graph above. However, if fertility were to continue at the rate it has for the last decade, then things would start to get very interesting. Barring a global catastrophe, the population would go close to 30 billion by the end of the century.

These are only projections but demographic ones tend to be more reliable than economic ones. If the world continues to have lots of children, then its population will be a lot higher a few years from now. The demographers might be out by the odd few million here and there but the overall pattern is fairly predictable.

If the world population grows according to the UN’s medium projection, the blue line in the graph, we will reach just over 9 billion people 40 years from now. The corollary of these falling birth rates, though is that a quarter of most countries’ populations will be over 60.

Percentage of the population aged over 60 – 2012 and 2050

Source: United Nations

Source: Global AgeWatch

Just as they have done everything else at a much faster rate, emerging economies will find their populations ageing at a faster rate too. Countries which now have relatively young median ages may catch up with, or even overtake, those of developed economies by the middle of the century.

Source: Pew Research

 

Percentage of Population Over 60

(Selected countries – 2012 and projected increase to 2050)

Source: United Nations

Once again, this is because things are going according to plan. People in emerging economies are more prosperous, are better educated and their health has improved, so they live longer and have smaller families.

To suddenly start calling for more babies, then, seems a bit perverse, given that we have put so much resource into achieving the current position. We can’t increase life expectancy, maintain the dependency ratio and lower the rate of population growth at the same time. As I have said before, if the top of the pyramid grows, the bottom has to grow too or it won’t be a pyramid any more. If we want to maintain economic growth by having a large working-age population, we will need the population to grow faster.

Of course, you don’t need to think about this for too long to see the implications. Children get old too and, if they live to a ripe old age, then the top of the pyramid grows once more so the bottom must grow too.

Could the world sustain a population of 30 billion people by the end of this century? Some are questioning its ability even to cope with the 9.6 billon predicted for mid-century. The UN estimates that food production will need to increase by 60 percent by 2050. And that, remember, is if the population increase goes according to plan.

The decline in population growth may be bad news for economic growth but we are probably stuck with it. In the longer term, for the generations to come later this century, it may not be a bad thing. Suggesting that Malthus might possibly turn out to be a teensy bit right is enough to get you tarred and feathered in most economics departments. All the same, a world with 30 billion people in it sounds like just as frightening a prospect as a slowdown in economic growth, albeit for future generations not ours.

As Matt O’Brien said, increasing productivity is hard but achieving that, and redefining what we mean by working age, may ultimately be a better option than trying (or hoping) to increase the population. We won’t see rapid economic growth driven by legions of young consumers again. Certainly not in the West and probably not anywhere else either. If we keep waiting for that, we will be disappointed. Global Greying denial is as damaging as any other sort. We will need some clever solutions to deal with the challenges of slower population growth and an ageing society. Both things, though, are the result of things we said we wanted; population control and increased life expectancy. It’s a bit late to change our minds now.

Update: On a similar theme, a must-read from Tomas Hirst.