January 25, 2010


Our Vanishing Ultimate Resource (Steven Malanga, 01.25.10, Forbes)

News of a population bust might come as a surprise to many Americans. More than two centuries after English scholar Thomas Malthus argued that population growth exceeded the earth's ability to feed us--"The power of population is indefinitely greater than the power in the earth to produce subsistence for man," he wrote--the media continue to warn us about impending environmental catastrophe and mass starvation caused by an exploding human population. These Malthusian alarms persist even though the last 200 years have proved Malthus completely wrong. As the world's population shot up, starting around the time of the Industrial Revolution, worldwide standards of living rose in tandem. People proved far more resourceful in expanding food production, tapping new veins of natural resources and inventing technologies to accommodate a growing population than Malthus dreamed possible. When mass deprivation has occurred in modern times, it has invariably resulted from political tyranny and social chaos, not from an inability to derive enough resources from the earth.

Even as modern societies became more productive, something else happened that contemporary Malthusians have ignored: fertility rates began declining. In England the number fell from an average of nearly six children per woman in 1775 to 3.35 in 1875 to 1.96 today. In Germany the rate slumped from more than five children per woman in 1850 (earlier data aren't available) to 1.4 today; in Italy, from nearly five children in 1850 to 1.3 today.

The trend long went unnoticed because rising life expectancy kept populations expanding. But by the 1960s and 1970s more and more countries started seeing their birthrates sink beneath replacement levels. Today women in more than 60 countries, ranging from Austria, Canada and Poland to Japan, Singapore and South Korea, don't bear enough children to keep the population growing. In a handful of countries women average just one child over a lifetime, less than half the replacement rate. The fertility drop in many less developed countries hasn't dipped below replacement levels yet, but it's heading there fast. Over the last few decades Mexico's rate went from nearly seven children per woman to 2.3; Egypt's, from just under seven to 2.72; and India's, from nearly six to about 2.7.

What's behind the dwindling births? The chief factor is urbanization. Starting in the Industrial Revolution households began migrating from rural areas, where Johnny and Sally could work on the family farm to help make ends meet, to cities, where the modern economy made kids a financial burden, requiring them to spend more and more years in school to become employable. Nowadays it costs between $170,000 and $300,000 to raise a child through high school in the U.S. or Europe. And as urbanization has proceeded rapidly in many less developed countries--some 50% of the world's population now live in cities--fertility rates are collapsing everywhere. Also putting downward pressure on fertility rates is women's desire to work, which has delayed childbearing and thus narrowed their "fertility window." [...]

Demographers are scrambling to adjust their population projections, with little notice in the press. In the early 1990s United Nations researchers projected that the world's population would reach a maximum of 10 to 12 billion people (up from about 6.7 billion today). They subsequently scaled back that projection to 9.5 billion and then to about 9.1--adding, however, that it might be as low as 7.9. But the truth is that no one knows how this massive reversal will end. The U.N. demographers optimistically claim that the world's fertility rate, currently at 2.6 children per woman, will decline to replacement level and then stabilize. But there's no clear reason for that to happen; dozens of countries have seen their rates sink far lower. In his book Fewer Ben Wattenberg estimates that if the rate were to stop at 1.85 births per woman, the world's population could shrink to 2.3 billion by the year 2300. [...]

Since economic growth depends strongly on an expanding population--something poorly understood until recently--aging countries' economies face serious problems. As late as the 1960s Malthus-influenced neoclassical economists believed that population growth reduced a society's standard of living by dividing up the same "pie" into smaller and smaller slices. Economists have gradually come to understand, however, that in industrialized countries, population growth spurs productivity growth. This is partly because economies of scale and specialization of labor boost output per worker. Studies have found that an industrialized country whose population doubles can expect per-worker output to increase by 20%. Fertility decline may initially boost economic performance in less developed countries because having fewer children frees up resources but over time the effects of a shrinking population will prevail everywhere.

Further, economists have recognized that what's essential to wealth creation is human creativity, not natural resources. Famously disputing the neo-Malthusian warnings of Paul Ehrlich, author of the 1968 best-seller The Population Bomb, economist Julian Simon called people the "ultimate resource." Human beings, he observed, discovered how to convert oil, coal and uranium, which had sat worthless in the earth for eons, into energy. "The most important economic effect of population size is the contribution of additional people to our stock of useful knowledge," Simon noted. A growing population streams young workers into the labor market, and they are usually the most daring, entrepreneurial and even knowledgeable and inventive (successive generations of workers in industrial countries have typically been more educated than their predecessors). "Those who fear overpopulation share a simple insight: People use resources," Harvard economist Greg Mankiw wrote in 1998, summing up the argument. "The rebuttal to this argument is equally simple: People create resources."

Posted by Orrin Judd at January 25, 2010 3:29 PM
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