The economics of falling populations

BUBONIC PLAGUE killed between one and two thirds of Europeans when it struck in the 14th century. Covid-19, mercifully, has exacted nothing like that toll. Its demographic impact, however, is likely to be significantly larger than the nearly 3m tragic deaths so far attributed to the coronavirus thanks to an associated, worldwide baby bust. Births fell by about 15% in China in 2020, for example, while America recorded a 15% drop in monthly births between February and November of last year. As a consequence, the pandemic may have brought forward the projected date of peak global population by as much as a decade—into the 2050s. A shrinking planetary population might seem like a wholly welcome thing given the world’s environmental challenges. But fewer people may also mean fewer new ideas, yielding a very different sort of future than optimists tend to imagine.

Humankind did not attain a population of 1bn until the 19th century, but the total then grew rapidly. A second billion was added by the 1920s, and nearly six more in the hundred years since. Plenty of fretting has accompanied this explosion; “The Population Bomb”, a book by Paul Ehrlich published in 1968 (between billions three and four), warned of looming global famine. Most projections before the pandemic, however, suggested that global population would plateau in the latter half of the 21st century. Some analysts have argued that our numbers will not just stabilise but decline. In “Empty Planet”, a book published in 2019, Darrell Bricker and John Ibbitson, two Canadian journalists, wrote that as fertility rates fall—a clear trend across rich and emerging economies—they tend ultimately to sink below the replacement rate of 2.1 children per woman. Nearly half the world’s people now live in countries with fertility rates below replacement levels. Barring an unforeseen demographic detour, global shrinkage looms.

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Messrs Bricker and Ibbitson point to potentially positive consequences of a falling population such as reduced pressure on scarce resources, a decline in environmental damage, and increased autonomy for women, although they also note there would be economic disruptions, such as a scarcity of care workers and problems with the sustainability of government debt. History also suggests population decline can be economically beneficial in some ways. In the wake of the Black Death in the 14th century, a scarcity of labour relative to available land and resources led to higher real wages and more freedom for workers.

Yet a recent paper inspired by their book, by Charles Jones, an economist at Stanford University, argues that over the long run any positive economic effects that come from a shrinking population may be cancelled out by the reduction in humankind’s creative capacity. If ideas drive growth and people are the source of ideas, he writes, then the fate of our species depends crucially on long-run population trends.

In the absence of new ideas, growth must eventually grind to a halt. The adding of labour or resources or capital (machinery and such) to an economy can boost income, but with diminishing returns; in the absence of technological progress, ore becomes harder and costlier to mine and there are ever fewer valuable tasks to be done by an extra worker or industrial robot. New ideas, though, allow an economy to do more with less or create new and valuable tasks to occupy labour and capital. Technological progress has thus enabled steady growth in real income per person over the past two centuries even as global population has soared.

But new ideas must themselves be produced. An economy can increase the flow of ideas by adjusting its use of human resources: by investing more in education and encouraging more people to work in research rather than production, for instance. But while these solutions sufficed to generate lots of new knowledge in the 20th century, Mr Jones says, they are themselves subject to diminishing returns. (The share of a population working in R&D can only rise so high, for example, and as it does the productivity of each additional researcher is likely to drop.) A decline in the absolute number of brains might thus place a serious dampener on innovation, he writes, and thus on prospects for continued growth in incomes. Using a simple model, Mr Jones suggests that the world may face two potential outcomes in future. If fertility stabilises at a high enough level, an “expanding cosmos” scenario awaits, in which the stock of knowledge, population and incomes all rise ever upward. Alternatively, a cycle of falling population and reduced idea creation could lead to an “empty planet” outcome, in which living standards stagnate while population figures dwindle.

Models like Mr Jones’s are less interesting as literal descriptions of how economies work than as illustrations of how different factors might affect future economic developments. It is possible, for instance, that computing advances might increase the productivity of research, or even enable the automation of some forms of idea generation, reducing the constraint he identifies.

At the same time, his work gestures at underappreciated sources of complacency. Rich economies may have worried too little about the growing numbers of researchers needed to generate steady improvement in computing power, for instance, out of a misguided assumption that there will always be more people available to don a lab coat. They may also have undervalued human potential more generally: by failing to prioritise education, or welfare programmes which might allow households that would like to have children to do so comfortably, with the same urgency as they have looked after other critical resources. Strangest of all, in the eyes of future inhabitants of an emptying planet, may be rich governments’ present disquiet at fast-growing populations in the developing world. That advanced economies did not invest lavishly in the talents of the world’s poorer billions may come to look existentially foolhardy. ■