POPULATION: THE GREAT TABOO

Economic Concerns

One further reason that people avoid discussing population is a kind of nagging fear that their personal economic well-being is dependent on continuing population growth. But on the contrary, there are substantial reasons to believe that falling population would economically benefit most people:

Benefits of a Falling Population Rate

In times of falling population there are three fundamental economic forces that would benefit most people.

- Fewer people would compete for jobs. The infrastructure for manufacturing and service sector for a large population is in place and corporations will not easily abandon their investments. Therefore jobs will continue to be available and their availability will contract more slowly than the population. Thus, it would become easier to find good jobs at every level. As a result, pay scales across the board will rise.

- Fewer people would be vying to purchase products and services - food, health insurance, electronics, and luxury items alike. Therefore, prices would drop and previously unaffordable goods would fall within the budget of a wider range of people. This is again true because of existing investment in plant and capacity

The per capita availability of virtually every "natural" or non-renewable resource would rise, from grazing land to minerals and energy sources. This increased abundance would result in a cost drop, in effect a dividend, for consumers and end users.

Economists can't usually test the effects of these forces by scientific experiment, but here are three suggestive historical examples of falling population leading to greater prosperity for the general population.

- In the mid-14th century, population dropped as the result of several waves of Plague deaths. For decades thereafter the workers of the day enjoyed higher wages, greater freedom of movement, more freedom from forced labor, and even something approaching a political voice (as in the revolt of 1381).

- More recently, in the 1970's the Chinese government initiated a strong birth control policy which has dramatically slowed population growth. It is striking that within one generation, China has moved from a third world peasant economy to become a powerful economic force in the industrialized world. It seems highly unlikely that such a transition could have happened so quickly (if at all) had the birthrate continued to hover around 3.3 instead of the current 1.7.

- Currently, most European countries have falling populations. While it is too early to see the long-term economic consequences of this, it is encouraging that in the past five years, employment levels and payscale are both rising in most countries with falling population.

Individual Prosperity and Economic Growth: Are they the same?

If it is such a distinct possibility that we would be economically better off with a lower or falling population, how is it that conventional economic thinking so often links individual prosperity to growth? One of the most frequent and important words in business and investing is "growth." And practically every politician running for office promises to bring us "economic growth" and by implication, individual prosperity. But most people don't really understand whether "growth" is good for most of us, or whether it is instead is bringing us closer to a future few of us would really choose if we understood the consequences.

Measuring Economic Growth

One problem we face in disentangling this is the measure that is usually used in this country as a stand-in for economic well-being, the Gross Domestic Product (GDP). GDP measures the total value of goods and services produced during a given time period. Thus, goods such as pharmaceuticals, software, and houses and the services provided by physicians, architects, and police all comprise the GDP.

However, the GDP does not measure most individuals' financial well-being. There are several reasons for this.

- Negative Aspects of the GDP

An increase in the GDP is usually viewed positively, for a growing economy is widely believed to be a healthy economy. But this is a misunderstanding of the GDP. In fact, the GDP measures how bad, as well as how good, things are. During an epidemic, for instance, the GDP would rise because expenditures for medication, medical care, and hospitalization would increase dramatically. Or after a natural disaster, the GDP might rise due to the cost of disaster-relief goods and services, and then reconstruction. But under such circumstances, rising GDP is clearly not an indicator of rising individual prosperity for most people.

Likewise, on an everyday level, it is difficult to imagine how individual prosperity rises when more Internet pornography is sold, more bombs and warplanes are built, gas prices soar, and new prisons are built. Yet each of these events contributes to the GDP.

- Numeric Problems with GDP

Two straightforward matters of computing GDP make it unsuited to measuring most people's economic well-being.

The first is that when population is rising as it is at present, a rising GDP may simply reflect the larger economy to service more people. It doesn't make much sense to celebrate a GDP rising at 2% if population is rising at a similar rate.

The second is the "Bill Gates in the stadium" phenomenon. If Bill Gates walks into a football stadium with 46,500 fans in it, the average net worth of everyone in the stadium rises by $1,000,000. Those 46,500 people aren't any better off even though their average net worth has risen so much. Likewise if a hundred people in the country get $10 billion each and the other 280 million people lose $3,500 each, the total assets of the country rises, but 280 million people are actually worse off than they were before. Something like this appears to be happening in the "economic recovery" of the past four years when GDP has been rising at a respectable 4.2 percent rate, but real median household income has been falling.

- What's Missing from GDP

Likewise, GDP fails to take into account at least four categories of items which have significant value, but are external to the ordinary ways of economic analysis.

1) One of these is the value of unexploited resources. For instance, during the gold rush era, the gold was already in the ground. It had a potential value like the potential energy an object. People choose to mine it and convert that potential into a current economic transaction. But we no longer have that potential. Most of us value the future and, given the choice, would wish to leave a good world to our children and great-great grandchildren. It would be hard to consider ourselves economically prosperous if we knew that by our actions, we had doomed future generations to a life of bare subsistence food and water, crammed in high rise dwellings, facing endless congestion, with limited access to recreation, beaches and mountains.

When an individual spends the capital he or she has, it shows up as an increase in GDP, but that may or may not indicate an improvement in that person's economic well-being.

2) The next externalities are nature's services. Forests purify our air and replenish our oxygen, the sea replenishes our fisheries, rivers and the earth have traditionally recycled our waste products, the earth provides the topsoil in which we grow our crops. The GDP does not include these "free" services which nature provides, and so does not register a decline when our activities interfere with them. Our population has risen to the point where the earth's resources, like the seemingly infinite availability of water and the ability to process our waste products, are strained and must be included in our economic calculations.

3) The third of these is the loss of many features of our lives which the rising population is taking away. When a factory or a mall is built in an open field next to your house, you lose the view, the sunlight and air circulation, and you lose the access to open space. Each of these things has value to people. In my town, a view might add $100,000 to $200,000 (or much more) to the value of a house. This economic value of open space has been in the news recently in New Hampshire as more and more people buy second homes in formerly rural regions to escape the congestion of the cities and suburbs. As a result, tax assessments have been rising dramatically, adding in one case $140,000 to a property's underlying value of $22,900. A large warehouse built next door would of course increase the GDP but would take that value straight off all the nearby properties. That loss of value would not be measured in GDP.

Other features like traffic congestion, living close to work, living close to recreational areas like parks, lakes and the ocean, also have an economic value, as seen in the value of housing with these features. Yet, as population increases, malls, factories, warehouses, housing developments are built which subtract these values from the existing houses in the region. These economic losses are not computed in GDP, although they are very real losses to the individuals who are affected by so-called "growth."

4) The final element excluded from the GDP is the value of unpaid labor. The classic example of this is childcare. If the provider of childcare in a two-parent household returns to work, someone must be hired to provide childcare. The cost of this then shows up as an increase in GDP. However, some two-parent families are financially worse off, or only marginally better off, when both are working. GDP rises by the value of the second salary, the clothing and transportation required for work and the childcare, and yet the family economic unit is worse off, or perhaps only slightly better off. Unpaid labor is not a small effect. Some estimates are about one third of the GDP, or about $4 trillion US (2004).

Better Measures of Individual Prosperity

The GDP is to some extent the lowest common denominator of the economy, the dollar value of all transactions. But when GDP does not bear a direct relationship to the economic well being of most people, we can see that the bar has been set too low. Because of these limitations, many groups around the world have proposed alternative measures. The General Progress Index (GPI) and the Index of Sustainable Economic Welfare (ISEW) are two of the better known ones. They both include indicators of environmental and social well being, as well as traditional economic measures like GDP. The United Nations uses the Human Development Index, and recently the nation of Bhutan was in the news for adopting an index of Gross National Happiness. Even Real Median Household Income is more indicative of general well being than the GDP, and it is noteworthy that there has been a significant divergence between these measures in the past five years. (Read more about alternatives to the GDP in our Resources section.)

Building Consensus

Each of these alternative measures makes useful contributions by including various features that people value, but which are not measured by the GDP. However, none of these measures has caught on as replacement measure for the overall health of our economy. To some extent, the reasons for this are "political:" Each measure includes factors that represent the values of the group which is proposing it, and inevitably some of these values are not easily acceptable to other stakeholders in the economic process. So if we are going to build momentum to replace GDP with something more representative of most individuals' economic prosperity, we will have to find ways of building consensus among these diverse stakeholders.

One way to do this is to convene a forum to debate and define the meaning of individual prosperity, and to rally political support for computing and reporting this index. Features such as financial security, excellent schools, accessible green space, good housing, access to healthcare, our expected well-being 40 years from now, and the well being of our great-grandchildren, would be combined into a metric of economic prosperity, which we might call the Prosperity Index (PI). Our goal is that the federal government would calculate and release the PI every month and that news reports would focus on this number as more germane than the GDP.

Presumably thinking about the economy in terms of increasing the individual prosperity of most people will have many benefits. First among them of course will be nudging public policy makers towards increasing the general prosperity of the people of our country. But from the perspective of our focus on population, we expect that this measure will make it clear that rising population is having negative effects on most people in the country.

In Conclusion

We find there is little reason for most people to fear the economic effects of falling population. On the contrary, there are substantial reasons to believe that falling population would be economically beneficial throughout most of the world, from relieving the starvation-level shortages of food, water and health care in the highly overpopulated regions of the world, to halting the gradual loss of amenities in the more prosperous regions of the developed world. One step in making this process clear to people is to build consensus for focusing on an economic measure which is indicative of individual prosperity.