Population: Why Growth is a Good Thing

This is a busy time of year in our house with Father’s Day, two of our kids’ birthdays, and our wedding anniversary. Our daughter Taylor Grace just turned 4, and our younger son David just turned 2 (Jacob, our oldest, will be 6 at the end of July). Is it good to have more people? Under what conditions? How might financial instruments and financial markets play a role?

A few years ago, I was listening to a sermon on the radio in which the pastor mentioned a part of the local school district’s Earth Day curriculum in which students were told that "overpopulation" is the major environmental problem. A quick Google search confirms that this is the case according to a lot of people. We cannot, it is maintained, feed a growing population, to say nothing of maintaining that population at a comfortable standard of living.

It seems reasonable as the Earth is comprised of a finite number of atoms. When we look more carefully, though, the argument that the world has too many people breaks down. So too does the argument that there are limits to economic growth. The cold and callous Ebenezer Scrooge suggested that those among the poor and destitute who would rather die than go to workhouses "had better do it, and decrease the surplus population." Scrooge is mistaken. When we have sound institutions—when we are not subject to extensive state suppression—a larger population is a blessing rather than a curse.

When my kids were born, they brought a few things into the world. They brought mouths to feed and hands with which to work, poorly at first but later we hope with greater dexterity, but those weren't the most important things they brought with them. They also brought what the economist Julian Simon called The Ultimate Resource: their minds. Rising populations do not fill me with the unfortunate, common, and mistaken fear that we will run out of natural resources or that we are doomed to lives of stagnation and bare subsistence. My kids' minds--and the minds of the billions of other people in the world--give me hope for a better tomorrow.

Minds are terrible things to waste. Many of the things around you, like the computer or mobile device on which you’re reading this article, represent concatenations of ideas emerging from multi-millennia conversations about how we can solve the problems that confront us. These conversations can be technological ("can I make a doodad that will make it easier for me to do this thing?"), scientific ("what is the nature of this stuff before me? What are the principles of reality that make the doodad work?"), commercial ("can I find a way to produce and sell the doodad? Would people actually pay enough to make production worthwhile?"), political ("how do we encourage cooperation and discourage predation?"), and financial ("where can I get the resources needed to produce these doodads? What collateral can I offer for loans? How can I insure against the possibility that things don’t work out the way I want?"). The more voices we have in these conversations, the more possible answers we can try. The more answers we can try, the more solutions we can find.

How can a rising population per se lead to higher standards of living? Or at least, why isn’t it inevitable that higher populations lead to falling standards of living as we start running out of resources to go around? First, as the economic historian Joel Mokyr notes in his book The Lever of Riches, citing research by Esther Boserup, Julian Simon, and Douglass North, a larger population means a finer division of labor and, therefore, higher productivity. It also allows us to deploy goods and services for which "there are fixed costs and indivisibilities, such as roads, schools, property-rights enforcement agencies, and so on, that can be deployed effectively only for relatively large populations" (Mokyr, p. 6). Second, more people means more brains, which means more ideas and more technological progress. Mokyr defines "technological progress" as "any change in the application of information to the production process in such a way as to increase efficiency, resulting either in the production of a given output with fewer resources (i.e., lower costs), or the production of better or new products."

More people means more ways to deploy existing knowledge and more ways to "change…the application of information to the production process." In a TED Talk titled "Abundance is our Future" (and related to his book with Steven Kotler simply titled Abundance), Peter Diamandis discusses trends in technology and argues that between 2010 and 2020, more than three billion people will become new internet users. This means a massive increase in the size of the social conversation, a big increase in the number of opportunities to invest our savings in a global market, and a big increase in the number of people with access to the technology and educational tools they need to develop new ways for us to harness information through prices and new ways for us to price and trade risk in financial markets. The new people coming online might not themselves be the ones who invent the new financial instruments, but as they learn basic math, statistics, and finance they can free up the time and energy of financial professionals in the western world to focus on developing new financial instruments and better ways of assessing investments. At the very least, larger, better-developed global markets for goods, services, and financial instruments provides investors with opportunities to carry ever-more-diversified asset portfolios.

As measured by the Fraser Institute’s Economic Freedom of the World Report, global economic freedom has increased substantially in the last 30-odd years. Economists who have studied the relationship between economic freedom and economic growth have found that economic freedom increases economic growth. As people around the world are taxed and regulated more lightly, as they have access to a better legal system and more secure private property rights, as they have access to sound money, and as they are freed to trade and invest internationally, a larger global population becomes a blessing rather than a curse. When we don’t have robust economic institutions and the freedom to experiment and innovate, the "new mouth to feed" effect can dominate the "new hands with which to work and new minds with which to think" effect. The opposite happens when we have these robust institutions and freedom to experiment and innovate: the "new mouth to feed" effect shrinks in importance relative to the effect of having more hands with which to work and more minds with which to think. When we have good economic, political, and social institutions, the negative effects of diminishing returns and population pressure yield to the power of The Ultimate Resource.