Prosperity and Economic Growth Don’t Require Population Growth

Valerie Tarico ✒ No, Prosperity and Economic Growth Don’t Require Population Growth – With Robots and AI, the Opposite May Be True.

Recent depopulation alarmism serves wealthy investors, not ordinary people.

Many people assume that population growth is key to a flourishing economy. But if what you care about is the prosperity of ordinary families and individuals, that isn’t true. In his influential book, Capital in the Twenty-First Century, Economist Thomas Piketty noted that national economic growth@

always includes a purely demographic component [meaning population growth] and a purely economic component, and only the latter allows for an improvement in the standard of living.

The disconnect between population growth and standard of living is easily illustrated. Imagine a little country that has ten workers who make $50,000 each for a total of $500,000. Now imagine that the next generation has twenty workers, but they only make $40,000 each, for a total of $800,000. The national economy is up but individual income has fallen. From the standpoint of a nationalist, the $800,000 is preferable. But the workers were better off in the first generation.

Across long periods of time and many countries, the relationship between population growth and growth in individualprosperity has generally (though not always) been modestly negative. This means that faster population growth maps to slower per capita economic growth.

But from recent reporting about declining birthrates, you’d never know that. Reporters often frame a smaller, stable, or even more modestly growing population in negative language, using words like “weak” or “anemic” to describe moderate population growth and “flat” or “stalled” when population is stable. Depopulation alarmists predict one or another “crisis” at some point in the future rather than talking about any relief from present-day ecological pressures or benefits for women and working families.

A recent New York Times article offers particularly dramatic examples of loaded language. The title, “Long Slide Looms for World Population,” sets the stage for more drama in the lede and body, “Fewer babies’ cries. More abandoned homes. . . .” A stable population is called “stagnant,” and greater longevity is described primarily as a problem. The “strain of longer lives and low fertility. . . threatens to upend how societies are organized,” they say, echoing the Pope, who described the changing Italian family as a cold, dark “demographic winter.” The authors invite readers to “Imagine entire regions where everyone is 70 or older.”

Unfortunately, this article follows an all-too-familiar template now that we are nearing the downward slope of the 20th century population bubble. Even though human numbers will continue to swell for decades and maybe generations, lower fertility and longer lives are framed as threats rather than opportunities or signs of success. (A celebratory tone might sound like this: Thanks to science and a lot of hard work, childbearing is more often voluntary and we now live twice as long as our ancestors. These two trends have some highly desirable side benefits. Now, let’s get creative and tackle the new challenges that come with new territory.)

How does individual standard of living grow?

Most research on standard of living examines per capita GDP (gross domestic product), meaning the dollar value of goods and services produced per person in a given region or country. Mind you, GDP per capita is far from a perfect indicator of well-being. When income grows only for the rich, it goes up. When people can eat from their own garden instead of buying food, it goes down. When a parent is forced to put their infant in daycare rather than staying at home, it goes up. When people take more leisure and so work fewer hours, it goes down. When wildfires destroy homes that have to be rebuilt, it goes up. But however crudely, it at least attempts to capture the wellbeing of individuals.

Population is not a multiplier in this equation. We all recognize that people in a small country with a stable or even shrinking population may enjoy more income and wealth than people in a large and rapidly growing country. Think Japan vs Nigeria. But here is something less intuitive: Wealth and income per person may shrink while population and national GDP grow, and they may grow while population shrinks. Japan’s below-replacement birthrate means that national GDP growth has slowed, but solid growth in individual prosperity defies naysayers. In the latest year available, 2019, Japanese GDP per capita grew by 2.78 percent. (The US number was 3.65 percent.) Similarly, some cities in the US where population is shrinking have standards of living that are rising.

Why is that? Private companies, governments, and individuals have many ways to increase how much each person can produce and take home.

A more skilled workforce (education). When education provides economically relevant skills, productivity increases and, along with it, prosperity. Growing income and wealth can follow from training in specific trades like carpentry or engineering, but also from training in non-specific skills like communications or strategic thinking.

Better tools (innovation). Education not only helps individuals to do their work better and smarter, it also leads to more innovation, humanity’s greatest economic lever. Investing time or money in innovation is risky, as most such investments fail. But improvements in technology can lead to vast increases in productivity. The same tree cutter, regardless of education, is far more efficient wielding a chainsaw than an axe. As robots and AI develop, fewer human workers will be needed in many roles, and the level of goods and services able to be produced by each individual will take another leap, as is underway in Japan.

More tools (investment at scale). For better technology to upgrade the economy at large, it must get produced at scale and distributed widely. That takes up-front investment, also called capital. When the potential benefit to society is great but private investors are unable or unwilling to commit, governments or nonprofits can fill the gap.

Full participation in education and work (inclusion). Every economy includes some people who can’t work, such as children and infirm elders. But to maximize prosperity people must be able to learn and work to their potential. If a society excludes women from full participation in the economy either deliberately or through neglect of reproductive empowerment, if it erects barriers to people of some races, if it fails to broadly distribute access to education, then the economy cannot operate to its potential.

Nimble adjustment to opportunities (flexibility). Per capita productivity is greater when both workers and investors are able to move easily among opportunities in response to new technologies or other shifting economic conditions. This requires a flexible job market and a flexible investment market, with good information flow to both. In the USSR, centralized control made this kind of nimble adjustment impossible—with painful consequences—, but good governance can do the opposite.

The private, public, and philanthropic sectors can each contribute to standard of living by fostering the invention and diffusion of better technologies and supporting a skilled, nimble, inclusive workforce. (Likewise, they each have roles to play in protecting against factors that decrease per capita prosperity, such as resource depletion, social instability, and over- or under-regulation that cause sluggish or less valuable production.) In other words, there are many levers, and many people who can pull them. But the key point here is this: None of these pro-prosperity factors depends on population growth. If anything, population growth appears to put downward pressure on growth in income.

Why do so many reports lately seem to get this garbled?

As best I can tell, the recent wave of handwringing about lower birthrates has several causes. Population growth does benefit some people, and it happens that those who stand to gain from population growth (as opposed to those who stand to lose from it) disproportionately provide the demographic and economic information that flows to reporters who are looking for stories. In addition, there are real challenges ahead as countries and other economic entities adapt to demographic change.

Capitalism—capital over labor. Population growth makes capital more valuable relative to labor. All else being constant, it creates more competition for jobs, which means workers are willing to accept lower wages. Similarly, more people means more buyers, which can increase the price of goods. Much analysis of birth trends as they relate to economic trends is written by or for investors, who seek to internalize benefits from population growth in the form of faster, higher returns on capital and who are comparatively impervious to potential downsides.

Socialism—pyramid funding. A second body of data related to population demography is produced by and for bureaucrats who are seeking to manage social programs. Many of these programs, like American social security, have come to rely on what might be called an intergenerational pyramid scheme—lots of young people who pay for benefits their elders only partially earned. Simple fixes proposed by think tanks on the Left and Right have been blocked by opposition across the political aisle. Rather than modernizing Social Security, Congress has relied on population growth.
Nationalism—demographic muscle. In international forums, more population often equals more strength even if it decreases individual prosperity. Aggregate GDP and aggregate military strength can sway alliances and agreements, whether by persuasion or threat. Even if legions of foot soldiers no longer determine military might, bulk still carries geopolitical sway. Consequently, nationalists may be prone to tout population growth and see a stable or shrinking population as threatening, especially if population is growing elsewhere.
Politics—vote-seeking. Both left- and right-wing political operatives see demography in electoral terms. In the US, the Left has long crowed that differential birthrates and immigration, components of “the Rising American Majority” are on their side. Right-wing commentators, meanwhile, fret about the loss of traditional American (aka Euro-derivative, Protestant) culture, and the threat posed by liberated women. Recently, some on the Left have begun to frame political objectives such as more immigration in economic and nationalistic terms arguing that immigration is a “necessity” to offset lower domestic birthrates.
Religion—sanctified breeding. The world’s largest religions evolved to outcompete other sects in part through competitive breeding. Consequently, conservative religious teachings often encourage higher birthrates. Some of these teachings are transparently pro-natalist, as in the biblical commandment to “be fruitful and multiply,” or the Catholic ban on modern, effective birth control. But others simply sanctify traditional gender roles or celebrate motherhood as the pinnacle of female devotion. This pronatalism is deeply imbedded in culture and makes a slimming birthrate cause for suspicion. In the US, popular Catholic commentators like Ross Douthat are predisposed to alarm about lower birthrates.
Media—addictive alarmism. In today’s media environment, optimism is often seen as naïve, and genuinely balanced articles have trouble competing with doomsaying because they lack a strong emotional valence. Consequently, reporters and editors are drawn to seek the potentially alarming threads in any change and then weave stories around that emotional core.

What about China?

Stories about bending population curves often point to China as an object lesson. In October of 2015, China replaced its coercive one-child rule with a two-child limit, which increased to a three-child limit in May of 2021. Does this indicate that Chinese economists see population growth as necessary to prosperity? Unlikely. China’s government has a range of “superpower” goals, including regional hegemony, which may benefit from a large population or aggregated economic clout. But the main factor appears to be that China’s demographic shift (rampant population growth followed by a sharp drop off) is happening too fast for social and economic systems to adjust, in particular, the ratio of workers to retirees. Rapid change tends to cause problems in social structures, which are typically optimized for a specific set of conditions.

Just like the draconian one-child rule, implemented when China was facing resource depletion and hunger, recent moves including the three-child limit are top-down strategies for adapting to China’s current point in a demographic arc, which was, in fact, accelerated by the one-child rule. But if China is to be seen as an object lesson to the world, perhaps we should look a little closer at the adaptive strategies currently underway. The national government has long enforced a retirement age of 60 for men (and 50 to 55 for most women!), set when life expectancy averaged 40 years in the 1950s. Now, with healthier elders and fewer young people, this is being raised to 65 to allow workforce participation as people are able. Oxford Economics predicts that China will have up to 14 million industrial robots by 2030. Electronics manufacturer Foxconn replaced 60,000 workers with robots in a single factory.

Disruptive technologies bring new sets of problems, and the technologies that have allowed us to have fewer babies and live longer are no exception. These are good kinds of problems to have. Past generations each faced their own circumstances—intersections of culture, technology, population and politics—and chose what they hoped were the best available courses of action. We must do the same. But we can only do so if we accurately understand the realities on the ground. The belief that we need 20th century population growth to grow 21st century income and wealth simply doesn’t stand up to scrutiny.

Valerie Tarico is a psychologist and writer in Seattle, Washington.

She writes about religion, reproductive health, and the role of women in society.