Population decline not an economic catastrophe

OSO has a great article on whether the demographic transition (or population decline) will be as economically apocalyptic as population boosters claim. I’ll quote it in full.

One of the greatest errors made in modern studies of demography and economics is the assumption that population decline and an ageing population is somehow disastrous.

Behind this assumption are two further assumptions – that taxes are somehow bad and that a decline in GDP is bad.

It is true that many western nations will have a declining population by 2050. Many of these nations have old age pension systems funded by tax revenue, so the retired and aged people living in these countries will be supported by these taxes.

But of course the assumption is that increasing these taxes are bad. They’re not. And the reason is that when a population declines, a country is spending less money in the following areas:

  • Property: Less people means less demand for property.
  • Infrastructure: Less people means less need for new water, electricity and telecommunications infrastructure to be built.
  • Education: Less people at the younger age spectrum means smaller schools and colleges.

So for all the doctors and nurses and administration staff that is needed to support an ageing population, there will be a drop in demand for constructions workers and teachers to compensate for it. In other words, an increase in welfare spending on the aged is matched by spending decreases in other areas of the economy.

Ah, I hear you say, but constructions workers and teachers are essential for economic growth whereas nurses and doctors looking after retired people are a drain on the economy. Not necessarily – they are all producing goods and services. What you’re worried about is GDP.

An increase in GDP is not necessary for good economic conditions. Economist Robert Solow‘s exogenous growth model proves that the natural state of an economy without any growth inputs is one of stabilisation. In other words, it is quite possible to have a stable state economy that provides workers with full employment.

Of course, when a population declines the effect upon the economy is negative. Yet that is not necessarily a bad thing. If an economy is in decline as a result of a population decline, the trick is not to aim for growth, but to focus on GDP per capita. In other words, so long as GDP per capita increases, total GDP can continue to fall. Another way of looking at it is to ensure that GDP decline is slower than population decline: If GDP declines by 0.5% in a year while population declines by 1% over the same period, then you have a good thing happening.

There is one final problem with people worried about population decline – they do not seem to understand basic demographics. “Populate or Perish” is one catch cry that sums it up – we must increase our population or else our nations will die out.

That’s rubbish.

Take the USA. In 2009, the USA had just over 309 million people. If the population in the US begins to decline such that there would be 209 million people by 2109, is that such a bad thing? Population decline won’t wipe a country off the map – no one is going to “perish”. Unless, of course, people somehow think that Moslems will continue to have lots and lots of babies and take over the world – a common semi-racist belief amongst many. It is racist because it is based mainly upon ethnic assumptions and because it assumes that such ethnicity will not change. The reality is that many Moslem nations have exhibited a substantial drop in fertility rate over the last ten years.

Demographers have pointed out that when you take into account things like infant mortality rates, accidents and other conditions, the average woman must have 2.1 children in order for the population to remain stable (ie 10 women producing a total of 21 babies). If the average woman has less than 2.1 children there will be (eventual) population decline, while if they exceed 2.1 there will be (eventual) population growth. Of course, many western nations have fertility rates of 2 and below, which indicates population decline. But here is a list of nations with predominately Moslem people who are near or below 2.1:

  • Bahrain: 2.29
  • Lebanon: 2.21
  • Kuwait: 2.18
  • Indonesia: 2.18
  • Turkey: 2.14
  • Iran: 2.04
  • Tunisia: 1.93

And all of those nations have declined from higher fertility rates in the past. This proves that there are Moslem nations that are not breeding children to take over the world, which means that Moslem nations which are having lots of children can also drop down to low birth rates.

In summary, population decline is not an economic problem, it will not cause economic and social chaos and it will not allow a horde of Moslems to take over the world.

One Salient Oversight: Random thoughts on population decline, economics and the Islamic hordes.

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