August 17, 2022

US Population Growth Just Hit an All-Time Low. Here’s Why That’s Bad for Humanity

Population growth is inextricably linked to economic growth.

Population growth in the United States declined to an all-time low during the COVID-19 pandemic. Following a decade-long fertility slump, 2020 saw more people dying than being born in half of all US states. Early estimates suggest that the US population grew only 0.35 percent, the lowest rate ever recorded, and growth is expected to remain near flat this year, according to reporting from the Wall Street Journal.

WSJ writers Janet Adamy and Anthony DeBarros report, “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.”

The Malthusian View of Population

This demographic news comes at a time when limiting family size is widely encouraged in the media. In July, Meghan Markle and Prince Harry won an award for their “enlightened decision” to limit themselves to two children. And in response to a recent Census Bureau report of low population growth over the last decade, the Nobel Prize-winning economist Paul Krugman wrote in a New York Times column that, “In fact, in a world of limited resources and major environmental problems there’s something to be said for a reduction in population pressure.”

And it does seem plausible at first glance that having fewer people would result in greater prosperity. Afterall, a larger population will lead to more resource consumption, which would seem to suggest that the average member of the population would have access to a smaller share of 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.

The Malthusian worldview has even been represented in popular culture in recent years, especially in the character of Thanos, the ultimate nemesis of the Avengers. In Avengers: Infinity War, Thanos plots to save humanity from economic collapse by halving the population of life in the universe, thus leaving the remaining half with double the resources.

While Thanos is portrayed as the villian, the film never really articulates the flaw in his logic. But there is, in fact, a fundamental flaw in Malthusian thinking, whether it comes from Malthus, Meghan Markle, Prince Harry, Paul Krugman, or Thanos. And that flaw is known as the fixed pie fallacy.

The fixed pie fallacy is the idea that there is a fixed amount of resources in an economy, and thus that if there are more people to consume resources, the pie must be divided into smaller slices for each person. In this view, if the population continues to increase, eventually there will be more and more people left with nothing but crumbs. But this is a fallacy because in reality, each person is not just a pie consumer, but a pie maker as well. In other words, each new person is accompanied not only by a new mouth that consumes resources, but also a new mind and pair of hands that produce resources.

The question, then, is whether the average person consumes more than they produce, or vice versa. If they consume more than they produce, then Malthusians may not be pessimistic enough, and even a stagnant population would be unsustainable. If, however, the average person produces more than they consume, then a growing population is likely a powerful force for the economic success of a civilization, and the recent demographic decline may turn out to be among the most devastating economic consequences of the COVID-19 pandemic.

Humans as Machines of Production

Any animal species of which the average member is more consumptive than productive will eventually go extinct. And likewise, the average human must create far more wealth than they consume in order for human civilization to become as wealthy as it is today.

This is because, just as squirrels cannot consume more nuts than they collect, and lions cannot eat more zebras than they kill, production must necessarily equal or exceed consumption in the human economy as well. And judging by the vast cities, libraries of knowledge, vehicles, smartphones, computers, and other wealth abundant in modern society, the average human’s creative economic impact must exceed her destructive economic impact by multitudes. Otherwise, we would be living in either a wilderness 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.

Increasing population growth is arguably wonderful for those coming into existence, who are given the gift of life and become valuable entities for their own sake. But in addition, adding people to our world is wonderful economically for those of us who already exist, because most people who are left relatively free to engage in economic activity contribute to the supply of labor and innovative thought, thus making services and products more available due to their increased production relative to the amount that is consumed.

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 one person is alone on an island, she may spend half her working hours collecting coconuts from trees, and the other half building and maintaining her shelter and campsite. If, however, two people are together on the island and willing to trade, whichever one is relatively more suited to collecting coconuts (perhaps the taller one) can spend all her working hours doing that, and whichever is relatively more suited to campsite maintenance (perhaps the more mechanically inclined one) can spend all her working hours doing that. This will result in the set of tasks getting done more efficiently than they would without the division of labor, because of each person being relatively more suited to their task and also because of the greater accumulation of expertise each person will gain by focusing on a single field of work.

Any two people are at least slightly differentially optimized for any given task, because personal preferences, relevant experience, aptitudes, and even physical location in space at a particular moment are all variables that differ from person to person and affect how well a given task can be completed. Therefore, an increased division of labor will virtually always have the potential to yield economic benefits.

And what’s more, there is a fundamental asymmetry between each person as a “pie consumer” and a “pie producer”: Adding more consumers is merely arithmetical (if people consume more than they used to, it is because they are richer and can afford to), whereas adding more 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 discusses the catastrophic example of Tasmania, which was cut off from Australia by rising sea levels in the Bass Strait about 10,000 years ago. “Isolated on an island at the end of the world, a population of less than 5,000 hunter-gatherers divided into nine tribes did not just stagnate, or fail to progress. They fell steadily and gradually back into a simpler toolkit and lifestyle, purely because they lacked the numbers to sustain their existing technology,” Ridley explains. “By the time Europeans first encountered Tasmanian natives, they found them not only to lack many of the skills and tools of their mainland cousins, but to lack many technologies that their own ancestors had once possessed.”

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. On average, the working-age population grew at 2.7 percent during these booms, suggesting that explosions in the number of workers deserve a great deal of the credit for economic miracles. This connection has played out in dozens of cases, from Brazil in the 1960s and 1970s to Malaysia in the 1960s through the 1990s.”
Moreover, Sharma notes, “Indeed, countries with shrinking working-age populations have found it nearly impossible to produce strong economic growth. Going back to 1960, there are 698 decadelong periods for which data on a country’s population growth and GDP growth are available. In 38 of these cases, the working-age population shrank. The average GDP growth rate in these countries was a measly 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 theorum 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.

New forms of labor and specializations of knowledge are being invented every day, partly because so many people exist that a highly diverse marketplace can be sustained. In principle, there would be effectively no limit of problems to solve and tasks to valuably accomplish if there were only enough innovators to specialize in them. Therefore, mutual economic gains from an expanding marketplace can increase virtually indefinitely.

And the more these mutual gains proliferate, the more harmonious people’s interests generally become. As the economist Ludwig Von Mises wrote in his 1949 masterpiece Human Action, “The very condition from which the irreconcilable conflicts of biological competition arise–viz., the fact that all people by and large strive after the same things–is transformed [by the division of labor] into a factor making for harmony of interests. Because many people or even all people want bread, clothes, shoes, and cars, large-scale production of these goods becomes feasible and reduces the costs of production to such an extent that they are accessible at low prices. The fact that my fellow man wants to acquire shoes as I do, does not make it harder for me to get shoes, but easier.”

The Malthusian idea that a growing population is one in which each individual will find it ever-harder to get by may be true for most animal species (since they don’t typically specialize and trade), but in modern human society just the opposite is so.

A 2013 Gallup poll found that only 5 percent of American adults did not want children. This widespread desire to procreate tessellates beautifully with the economic truth that population growth is a tide that raises all boats.

If we want to expand the economic power of the United States and the global community generally, we should increase the human population. Who knows, we might even enjoy ourselves in the process.

This article, US Population Growth Just Hit an All-Time Low. Here’s Why That’s Bad for Humanity, was originally published by the Foundation for Economic Education and appears here with permission.  Please support their mission.