Economic growth and population growth are intricately intertwined.
During the COVID-19 epidemic, population growth in the United States reached an all-time low. In half of all US states, more people died than were born in 2020, following a decade-long fertility downturn. According to preliminary estimates, the US population expanded at the slowest pace ever recorded, 0.35 percent, and growth is expected to remain near flat this year, according to reporting from the Wall Street Journal.
"With the birthrate already drifting down, the nudge from the pandemic could result in what amounts to a scar on population growth, researchers say, which could be deeper than those left by historic periods of economic turmoil, such as the Great Depression and the stagnation and inflation of the 1970s, because it is underpinned by a shift toward lower fertility," write Janet Adamy and Anthony DeBarros for the Wall Street Journal.
The Malthusian View of Population
This demographic news comes at a time when the media is heavily promoting family size restrictions. Meghan Markle and Prince Harry received an award in July for their "enlightened decision" to have only two children. "In fact, in a world of limited resources and major environmental problems, there's something to be said for a reduction in population pressure," Nobel Laureate economist Paul Krugman wrote in a New York Times column in response to a recent Census Bureau report of low population growth over the last decade.
At first appearance, it appears like having fewer people would result in higher wealth. After all, a greater population means higher resource use, which would appear to imply that the typical citizen would have a lesser proportion of the population's resources. This perspective has been popular ever since the economist Thomas Malthus published his seminal 1798 work, An Essay on the Principle of Population, in which he argued that exponential population growth would necessarily outpace increases in food production, leading to mass starvation.
In recent years, the Malthusian worldview has been reflected in popular culture, particularly in the character of Thanos, the Avengers' ultimate foe. Thanos schemes to save mankind from economic collapse in Avengers: Infinity War by halving the population of life in the cosmos, leaving the surviving half with double the resources.
While Thanos is shown as the villain, the film never fully explains his reasoning error. However, whether it comes from Malthus, Meghan Markle, Prince Harry, Paul Krugman, or Thanos, Malthusian thought has a basic error. The fixed pie fallacy is the name for this defect.
The fixed pie fallacy holds that an economy has a certain number of resources, and that if additional individuals want to utilize those resources, the pie must be split into smaller portions for each person. According to this viewpoint, if the population continues to grow, more and more individuals will be left with nothing but crumbs. This, however, is a myth because, in fact, each person is both a pie consumer and a pie creator. To put it another way, each new individual comes with a new mouth that consumes resources as well as a new head and pair of hands that generate resources.
So the question is whether the typical individual consumes more than they generate, or the other way around. Malthusians may not be pessimistic enough if they consume more than they create, and even a stable population would be unsustainable. If, on the other hand, the average individual creates more than they consume, a growing population is likely to be a tremendous driver for a civilization's economic prosperity, and the COVID-19 pandemic's recent demographic collapse may turn out to be one of the most catastrophic economic repercussions.
Humans as Machines of Production
Any animal species whose average member consumes more than it produces will eventually become extinct. Similarly, in order for human civilization to become as prosperous as it is now, the ordinary person must generate significantly more money than they consume.
This is because, just as squirrels can't eat more nuts than they harvest, and lions can't eat more zebras than they kill, production in the human economy must always equal or surpass consumption. And, given contemporary society's large cities, libraries of information, automobiles, smartphones, computers, and other wealth, the typical human's creative economic influence must outnumber her negative economic impact by a factor of several. Otherwise, we'd be living in the middle of nowhere or a wasteland.
For most of human history, humanity subsisted, but only barely. Incomes almost never exceeded $3.50 per day in today’s dollars. But ever since the industrial revolution allowed humans to multiply their productivity with technology and science, economic growth per capita has skyrocketed and the portion of the population living in extreme poverty has diminished from over 80 percent to less than 10 percent. All of this occurred while the human population exploded from less than 1 billion in 1800 to almost 8 billion today.
Given that economic growth comes from people (their labor, their innovations, their investments), the fact that the global economy has been growing rapidly, not stagnating or shrinking, almost every year for the last several centuries demonstrates that on average, people are adding more wealth to the economy than they’re subtracting. Indeed, past population growth has been correlated, and likely causally linked, with economic growth, and there is no reason to think that additional people wouldn’t continue this trend.
Increased population increase is undoubtedly beneficial to those who are born, since they are given the gift of life and become valued individuals in their own right. In addition, adding people to our world benefits those of us who already exist economically, because most people who are left relatively free to engage in economic activity contribute to the supply of labor and innovative thought, thereby increasing the availability of services and products due to increased production relative to consumption.
Increasing the Division of Labor
The benefits of a larger population are more than just the fact that the average person produces more wealth than they consume. There is also the important fact that a group of people engaging in the division of labor form an economy that is far greater than the sum of its parts. This happens because as a workforce grows, so do the opportunities of its members to specialize.
This is easy to see if you start with a small example.
If you're alone on an island, you may spend half your time gathering coconuts from trees and the other half creating and maintaining your shelter and encampment. If two people are on the island and willing to trade, the one who is better at collecting coconuts (perhaps the taller one) can spend all of her working hours doing so, and the one who is better at campsite maintenance (perhaps the more mechanically inclined one) can spend all of her working hours doing so. Because each individual is more suited to their role and because focusing on a particular sector of work allows each person to achieve a bigger accumulation of skill, the set of activities will be completed more effectively than they would without the division of labor.
Because personal preferences, relevant experience, aptitudes, and even physical position in space at a given instant are all elements that range from person to person and impact how effectively a given work may be accomplished, any two persons are at least slightly differentially optimal for any given activity. As a result, higher labor division almost always has the potential to provide economic gains.
Furthermore, each person's role as a "pie consumer" and "pie producer" is fundamentally asymmetric: Increasing the number of consumers is just arithmetic (if individuals consume more than they did previously, it is because they are wealthier and can afford it), but increasing the number of producers increases production exponentially.
Scaling Up from the Island
Population size has been a crucial aspect of economic progress from the marketplaces of the stone age to those of the modern day. In his book The Rational Optimist, biologist Matt Ridley delineates how insufficient population sizes held back hunter-gatherer societies by limiting their division of labor.
“A band of a hundred people cannot sustain more than a certain number of tools, for the simple reason that both the production and the consumption of tools require a minimum size of market,” Ridley writes. “People will only learn a limited set of skills and if there are not enough experts to learn one rare skill from, they will lose that skill. A good idea, manifest in bone, stone or string, needs to be kept alive by numbers.”
Ridley cites the disastrous case of Tasmania, which was shut off from Australia around 10,000 years ago due to increasing sea levels in the Bass Strait. "A population of less than 5,000 hunter-gatherers separated into nine tribes, isolated on an island at the end of the earth, did not simply stagnate or fail to advance. "They eventually slipped back into a simpler toolbox and lifestyle," Ridley adds, "purely because they lacked the numbers to support their present technology." "When Europeans first contacted Tasmanian indigenous, they discovered that they lacked not just many of their mainland counterparts' abilities and instruments, but also numerous technology that their own ancestors had formerly had."
Fast forward to contemporary times, and similar effects of demographic trends are being noticed. Ruchir Sharma reports in Foreign Affairs magazine, for example, “To get a better handle on how demographics will limit national economies in the future, I looked at population trends in the 56 cases since 1960 in which a country sustained economic growth of at least six percent for a decade or more. During these booms, the working-age population rose at a rate of 2.7 percent on average, implying that massive increases in the number of employees deserve a large share of the credit for economic marvels. This link has been demonstrated in dozens of cases, ranging from Brazil in the 1960s and 1970s to Malaysia in the 1960s and 1990s."
"Countries with diminishing working-age populations have found it practically hard to create substantial economic development," Sharma adds. There are 698 decade-long periods for which statistics on a country's population and GDP growth is available, dating back to 1960. The working-age population shrank in 38 of these situations. These countries' average GDP growth rate was only 1.5 percent."
The father of modern economics Adam Smith put it simply in his iconic 1776 book The Wealth of Nations when he wrote, “The division of labor is limited by the extent of the market.“
Of Monkeys and Shakespeare
There's a theorem that says if you give enough monkeys typewriters and enough time, they’ll produce Shakespeare. Likewise, add enough humans to the marketplace and they’ll produce self-driving cars, synthetic meat, NFTs, Neuralink, CRISPR-Cas9, 3D-printed replacement limbs, and also Shakespeare. And the list goes on.
Every day, new types of labor and knowledge specialties are developed, in part because there are so many individuals that a very diversified economy can be supported. If there were enough innovators to specialize in each topic, there would essentially be no limit to the number of problems to solve and activities to valueably complete. As a result, the reciprocal economic benefits of a growing marketplace can grow eternally.
The more these reciprocal benefits multiply, the more harmonious people's interests become in general. As the economist Ludwig Von Mises wrote in his 1949 masterpiece Human Action, "The precise circumstance that gives birth to biological competition's irreconcilable conflicts—namely, the fact that most individuals aspire to the same things—is turned [by the division of labor] into a factor that promotes interest harmony." Because many people, if not all people, want bread, clothing, shoes, and vehicles, large-scale manufacture of these items becomes viable, lowering production costs to the point where they are affordable. The fact that my neighbor desires shoes in the same way that I do does not make it more difficult for me to obtain shoes, but rather makes it simpler."
For most animal species (since they don't often specialize and trade), the Malthusian theory that an increasing population means each individual would find it ever-harder to get by is correct, but in contemporary human civilization, the reverse is true.
A 2013 Gallup poll found that only 5 percent of American adults did not want children. The economic truism that population increase is a tide that rises all boats tessellates elegantly with this popular urge to procreate.
We should grow the human population if we wish to increase the economic strength of the United States and the global community in general. Who knows, we could even have fun while doing it.