The problem of population
Tyler Cowen has a column in the New York Times that discusses the issue of population. I mostly agree with his policy recommendations, but what interests me is the underlying assumptions. What is the optimal global population? What is the optimal population for each country? How should global population be distributed?
Tyler notes that global population will increase sharply over the next century, with almost all of the growth occurring in relatively underdeveloped Africa and South Asia. In contrast, population will actually decline in some countries, and indeed is already doing so in Japan. So why should we care?
It’s an area that will prove central to understanding whether nations will grow richer — or will stagnate and lose global importance.
This begs the question of what we mean by “richer” and “stagnate” and “global importance.”
Later Tyler notes that many economists have steered clear of the difficult problem of population:
Many economists are uncomfortable with population issues, perhaps because they aren’t covered in depth in the standard graduate curriculum, or because they touch on topics that may be culturally controversial or even politically incorrect. That’s unfortunate. In the future, population economics — and associated social issues — are likely to be at front and center of our most important policy concerns.
This is probably correct, but leaves out one additional problem—we don’t have a good model. In my area (monetary economics) I take population as a given, and look for policies that will maximize aggregate utility, or utility per capita. If we take population as a given then those two goals are identical. Not all economists are utilitarian, but most use utilitarian assumptions in their analysis.
Even if population is assumed fixed, utilitarianism raises all sorts of thorny problems. For instance, can we really make interpersonal comparisons? But if we allow population to be endogenous then the problems multiply exponentially. Perhaps the biggest problem is determining our objective function; what are we trying to maximize? (And of course, who is “we?”) Is it total aggregate utility? Is it utility per capita? Those two objectives might lead to radically different policy conclusions.
For the sake of argument, let’s assume that utility is positive, on average. Even this seems like a leap of faith to me; I can’t even imagine how we could reach that conclusion scientifically. You’d expect the forces of evolution to program us with strong survival instincts even if most people “lead lives of quiet desperation.” Nonetheless, it seems completely unproductive to make any assumption other than that most people are net positive in utility.
The much tougher problem is whether to focus on average utility, total utility, or some third category (which seems implied in Tyler’s essay.) If average utility is the right criterion, the optimal global population might be quite small. Or it might not, we simply don’t know. I’ve lived in both Australia (1991) and England (1986), which are near the extremes of population density for the developed world (England is far more densely populated than metro Atlanta, and Australia has 1/10th the US population in an area almost as large as the continental US.) It seemed to me that living standards were considerably higher in Australia, mostly because it was much less crowded. But that’s obviously highly subjective; Australia lacks a city as sophisticated as London.
On the other hand if total utility is the right criterion, and if people in even poor countries are often surprisingly happy (as many surveys suggest), then the optimal population might be extremely large. Bryan Caplan has made a similar argument from a non-utilitarian perspective, as do religions like Christianity.
There are probably intermediate criteria that put some weight on both average utility and maximizing the number of geniuses (and hence culture and science,). Here I have something in mind that might view Germany as in some sense more successful than both Luxembourg and India, despite having a smaller total GDP than India and a smaller GDP per person than Luxembourg.
In any case, it seems clear to me that one reason that economists steer clear of the population question is that they don’t have any confidence in any particular “model.”
I also have a few observations about Japan’s falling population, which is something that Tyler views as being worrisome. I’m also a bit pessimistic about Japan, but it’s worth noting that it’s really hard to make an objective argument that falling population is a problem, in and of itself. Consider a few possible scenarios:
1. Suppose Japan’s population kept falling until it reached about half its current level of 125 million. It would still have almost as many people as Britain and France do today. Would that sort of population reduction significantly impact its ability to influence world events? A little bit, but It’s hard for me to imagine that Japan’s ability in the long run to hold onto the Senkaku/Diaoyu islands, for instance, will hinge on that sort of change in population. China’s already 11 times more populous, and has nukes. Either China will get he islands or it won’t–I doubt Japanese population will play much of a role. And are those tiny uninhabited islets actually very important–for reasons other than national pride?
2. Now let’s suppose that after Japan’s population falls in half, real estate becomes so inexpensive that the Japanese start living in Dallas-style McMansions and having 2.1 kids per family. So the population levels off and the Japanese islands are less crowded. Is that population “wrong”? It’s hard to say. Also suppose New Zealand’s population grows from 4 million to 40 million, at which point they call a halt to immigration and level off. New Zealand would still have fewer people than Japan. What should we focus on, levels or changes? Which country would have the “better” population policy? It’s a historical accident that these two highly fertile Pacific islands have such vastly different populations. Why should we regard either country’s current population as being even close to “optimal?”
3. Is aging really a problem? Aging is generally associated with better health. Suppose we made the retirement age for public pensions equal to life expectancy minus 25% of the gap between life expectancy and age 20. In other words, if life expectancy was 80, people would retire at 80 – 0.25(80-20), which equals 65. If life expectancy rose to 100, the retirement age would rise to 80. An aging population by itself does not create any special challenges for fiscal policy, unless we allow it to. I.e. unless we arbitrarily keep reducing the share of adult years that people are required to work before getting a public pension. On the other hand aging combined with a low birth rate, as in Japan, does put a temporary burden on the public sector, until Japan’s population levels off. But it’s a transitional problem, not a long run problem.
To summarize, I remain an extreme agnostic on all population questions. I have no idea what the optimal population is for planet Earth. If there is a “true” answer to that question, it might well be 20 billion, or 2 billion, or zero. And how much weight should we put on animal welfare? Given all that uncertainty, I’ll keep working to improve living standards for the people who are actually here, by advocating non-destructive monetary policies such as NGDPLT. I’ll let much smarter people like Bryan and Tyler wrestle with the big questions.
PS. You might think my real estate price argument is implausible, as Japan would still be much more densely populated than places like Australia. But Australia has strict zoning laws, and hence I’d guess that in 50 years houses in Sydney will cost much more than in Osaka.