By Ronald Demos Lee
The world’s population increased by 50 percent between 1900 and 1950 and by 140 percent between 1950 and 2000, and is projected by the United Nations to increase by just under 50 percent between 2000 and 2050. Of the 3.44 billion increase in the number of people between 1950 and 2000, only 8 percent was in developed (i.e., rich) countries. The remaining 92 percent of the increase was in less-developed, or poor, countries (LDCs), reflecting the large difference in fertility levels and, to some degree, the different age distributions. Life expectancy in developed countries rose from 66.1 years during the period from 1950 to 1954, to 75.3 years in 2000. For LDCs, life expectancy rose from only 41.0 years during the same period to 63.0 years in 2000. Over that same time, the number of births per woman fell from 2.8 to 1.6 in developed countries and from 6.2 births per woman to 3.0 in LDCs. Birthrates in LDCs remain high enough to contribute substantially to population growth.
Lower birthrates and longer lives lead to “population aging” (i.e., more elderly people and fewer children). Population aging is most rapid, and has gone furthest, in the developed world. The median age in developed countries rose from 28.6 in 1950 to 37.3 in 2000, while in the United States it rose from 30.0 to 35.2. In LDCs, by contrast, the median age in 1950 was only 21.3, rising to 24.1 in 2000. Of course, individual countries vary. In Japan, Italy, and Switzerland the median age was over 40 in 2000, whereas in Uganda, Yemen, Niger, and Somalia it was under 16.
Population aging matters for many reasons, but first and foremost because of the costs of retirement (pensions and health care). In the developed countries, these costs are borne principally by the central government and funded through taxes on the working-age population. The old-age-dependency ratio—that is, the population aged 65 and over divided by the population aged 15 to 64—is a key indicator of population aging. Other things being equal, the tax rate for pensions will be proportional to this ratio. In the developed world, this ratio has risen from .12 in 1950 to .21 today, and is projected to increase to .44 by 2050. If, in the developed countries, the elderly in 2050 are to receive the level of benefits given to the current elderly, then the level of payroll taxes needed to fund government pensions will more than double by 2050. Due to higher fertility and immigration, the U.S. population is projected to remain younger than those of other OECD countries, and the pension problem will be less severe. Health costs, however, pose an even more difficult problem because of Medicare, the socialized health-care system for the elderly in the United States. As the population ages and spending per elderly person rises, government spending on health care will likely soar.
Workers paying for the current retirees do so with the understanding that they, in turn, will collect from the next generation of workers. Population aging generates intense political pressure to modify this implicit contract with the government by such devices as delaying the age of retirement or reducing the size of the benefit. The fear of population aging is a strong political force in many developed countries, leading to policies intended to induce people to have larger families. Such policies include banning abortion and contraception (Romania), offering prizes and financial incentives for births (France), and instituting generous paid-leave policies for women who stay home to care for their babies (Sweden). Although the increased costs of the elderly are to some degree offset by declining government and private costs of raising children as the ratio of children to the working-age population declines, population aging increases the total deadweight loss, a loss that always comes about from taxation because most of the child costs are private, while the costs of the elderly are mainly paid by taxpayers.
The projected median age for the developed countries in 2050 (46.4 years) is only slightly higher than that for East Asia (44.3). Projected population aging is a serious problem for LDCs, just as economic development and urbanization are weakening traditional family-based support systems for the elderly.
Fluctuations in Generation Size
Fluctuations in generation size also cause problems. When a small generation pays high taxes to support a large retired one, as will soon happen in the United States, many of the smaller generation will feel unfairly burdened. Changes in generation size also affect the labor market. When the small U.S. generation born in the depressed 1930s reached the labor market in the 1950s, its small size relative to the demand for new workers brought easy employment, high wages, and rapid advancement. But when the baby-boom generation reached the labor market in the 1970s, it experienced relatively high unemployment, low wages, and slow promotion. This picture is complicated by immigration, as well as by changing patterns of international trade and education.
Population and Development
Although population aging and bulging age distributions are real concerns, many people’s greater fear is that global population growth will overwhelm the capacity of economies and of the global ecosystem.
This fear of population growth is not new. thomas robert malthus and other classical economists worried that as the growing population made land increasingly scarce, rising food prices would eventually choke off further economic and population growth, leading to the “stationary state.” For classical economists, natural resource constraints, particularly of land, were at the heart of the problem. But the economic importance of land has dwindled in the modern world. The share of the labor force in agriculture has declined from around 80 percent to around 5 percent in many developed countries, while industrialization has caused agricultural output to fall to even less than 5 percent of total production.
Even within agriculture, land has become less important as productivity has been boosted by other inputs, including labor, fertilizer, pesticides, insecticides, new seed varieties, irrigation, mechanical or animal draft power, and education. Contrary to the predictions of the classical economists, real food prices have historically fallen. Since 1800, for example, the price of wheat, adjusted for inflation, has fallen by about 90 percent.1 Also contrary to the classicals’ predictions, from 1961 to 2002, the world’s per capita food production increased by 0.6 percent per year, for a total increase of 27 percent. The incidence of famines has diminished, not increased, and modern famines arise not from population growth but, rather, from wars (recent disturbances in Africa) and mistaken policies (e.g., the Great Leap Forward in China). Although hunger and malnutrition are serious problems in many parts of the world, they result more from poverty and uneven income distribution than from deficiencies of agricultural production due to population growth.
So the classical economists’ emphasis on land as the critical limiting factor was undermined by the ability of technical progress and capital accumulation to expand output. Economists came to view natural resource constraints as unimportant. Instead, investment and capital accumulation, the creation and transfer of technology, and appropriate institutions and policies (e.g., private property and free-market prices) were seen as the keys to economic development.
In the 1940s and 1950s, economists who studied population had a new concern. They argued that when population grows more rapidly, a greater proportion of current output must be set aside to create capital—housing, tools, and machinery—for new members of the population. All these investments must increase, they noted, at the same time that more children per family tend to reduce domestic saving rates. If the additional investment does not take place, they claimed, then capital will be diluted: new generations will be less well equipped than older ones. Standard economic growth models—those of Robert Solow, for example—imply that “capital dilution” should have relatively small effects: an increase in the population growth rate from 2 percent per year to 3 percent per year, for example, would eventually reduce per capita output by about 7 percent. In any event, statistical analyses of the international record did not find that more rapid population growth depressed rates of growth of per capita income. More recent studies, however, have found that in the 1980s and 1990s, population growth and growth of per capita income were negatively correlated.
Of course, per capita income is not an ideal indicator of economic well-being in any case. A couple that has an intended birth simultaneously raises its well-being and reduces its family per capita income.
While some economists were emphasizing these Malthusian views, two others, Ester Boserup and the late Julian Simon, argued forcefully that population growth has positive economic effects. Simon pointed out that another birth means another mind that can help think up ways of using resources more efficiently. More population could also stimulate investment demand, break down traditional barriers to the market economy, spur technological progress, and lead to harder work (the latter because the presence of more dependents in the household raises the marginal utility of income relative to leisure and leads to longer hours of work). They noted also that a larger population can more easily bear the costs of providing certain kinds of social infrastructure—transportation, communications, water supply, government, research—for which the need increases less than proportionately with population. Indeed, Simon argued that the ultimate resource was people, and that the world would be better off with more of them.
By the 1980s, policymakers were confused. Was population growth good? Was it bad? Did it matter at all? A reassessment in the 1980s revealed a surprisingly high degree of agreement among economists that population growth matters less than had previously been thought, in part due to the flexibility of free, competitive markets. In market economies, when population growth makes resources more scarce, the prices of those resources rise. This leads consumers to reduce their use of these resources and to find substitutes. The higher prices of resources also give producers an incentive to find new supplies and to substitute cheaper resources as inputs. But, more important, technological progress often reduces prices of resources, even in the face of higher demand (see natural resources).
The real prices of most minerals have been falling historically, not rising. The total costs of natural resources as a share of national output have not been rising. The one exception is petroleum prices, but part of that is due to opec, not to rising population. Before OPEC exerted control on the world oil market in 1973, the real price of oil had been falling. And even at about fifty dollars a barrel in late 2004, the real price of oil is less than 60 percent of the level it reached in 1980. In 1980, Simon wagered environmentalist Paul Ehrlich that mineral prices would decline in real terms during the following decade. They agreed to follow five minerals: copper, chrome, nickel, tin, and tungsten. In 1990, Simon won the well-publicized bet and collected his money. Between 1980 and 1990, the inflation-adjusted price of all five minerals fell—copper by 18 percent, chrome by 40, nickel by 3, tin by 72, and tungsten by 57.
While economists were concluding that population growth is relatively harmless, ecologists and environmentalists such as Paul Ehrlich and Garrett Hardin sounded the population alarm. They pointed out that the biosphere provides essential, although uncounted, inputs to economic activity, and they worried that its limits and fragility place bounds on sustainable levels of production. These bounds, they said, had already been surpassed, and the global economy, they thought, was profligately consuming ecological capital rather than living off the “interest” it yielded.
Although mineral depletion is probably not the real problem, some of the ecologists’ warnings appear correct. The reason, interestingly, is that many renewable resources—air, water, fisheries, land, forest cover, ozone layer, and species—are not privately owned and are not subject to the market. Instead, they are held in common. Therefore, as Garrett Hardin points out (see tragedy of the commons), no person who uses these resources takes account of the damage he or she imposes on others. Individuals and companies, for example, can sometimes dump pollution into the air and water without being made to bear the full cost of environmental degradation. The costs are passed on to society as a whole. Consequently, economic incentives encourage overuse. Because the automatic signaling mechanism of market prices is absent, price changes serve neither as an incentive for preservation nor as a signal of increasing scarcity. The problem, then, is not population per se, but rather lack of private property rights or explicit regulation of the use of the resource.
Worries about population growth have now come full circle: from the classical concern for limited land, to the emphasis on physical capital, to the more recent emphasis on human capital and the ameliorative influence of competitive markets, to beneficial aspects of population growth, and back to the natural constraints urged by ecologists. This time, however, the concern is for renewable natural resources, many of which fall outside the market. For some, the urgency of population control on ecological grounds is obvious. Others, who see potential market solutions for these resource problems, remain skeptical.
As for the more narrowly economic reasons for restraining population growth, decades of research are still inconclusive. For a few countries with very dense populations, such as Bangladesh, China, and Egypt, it seems clear that increasing population density on agricultural land contributes to rural poverty. For a few others with exceptionally rapid population growth, such as Somalia and Burkina Faso, the case is also clear. For other countries already facing rapid population aging, such as Japan, Germany, and Taiwan, higher fertility may well bring benefits.
See Bjørn Lomborg, The Skeptical Environmentalist, p. 62.