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More People, Less Unemployment?

by Max Kumerow

Bill Clinton took a welcome step toward reality. In his Democratic Convention speech, he pointed out that cutting taxes on rich people and fighting endless wars increased federal debt, and more of the same would make things even worse. Tax cuts and deregulation during the Bush administration failed to bring prosperity and helped cause the global financial collapse and widespread joblessness.

The Chicago School of economics has been preaching for decades, with lots of money from rich people adding to the volume of their message, that low taxes, small government, and deregulation are the road to nirvana. But the last time we had low taxes on the rich and little regulation was called the Great Depression. Clinton, at least, has come to understand that America made a mistake in believing the fairy tale that “government is the problem, so let’s cut rich people’s taxes.”

Clinton still remains bamboozled, however, by the neoclassical nonsense that sees economic growth as the solution to unemployment. On the Daily Show Clinton offered a demographic path to prosperity. He opined that because most of America’s competitors — Russia, Japan, China, and Europe — have low birth rates and aging populations, we will have a younger workforce with a lower old-age dependency ratio, so growth will solve our unemployment and debt problems.

But the notion that population growth cures unemployment is false, just like the idea that cutting taxes on the rich raises revenue and cuts the deficit. The immigration and higher birth rates that keep the population younger also guarantee a higher young-age dependency ratio and a growing population. In a world constrained by high commodity prices and other symptoms of reaching the limits to growth, a growing population leads to high unemployment, rising cost of living, and falling wages. If a young population leads to prosperity, why aren’t places like Nigeria, Rwanda, and Uganda thriving? Why has China gotten so much richer since starting its “one-child” policy?

The fertility rates in all the Asian tiger economies dropped below the replacement level during the decades when their economic output increased dramatically. Hong Kong and Singapore, places with no natural resources and aging populations, have a higher per capita income than the United States. Hong Kong’s 0.97 children per woman and Singapore’s 1.26 are two of the lowest fertility rates in the world.

Birth rates that low mean each generation inherits twice as much as the one before, and a future economy can have full employment with half as many jobs. Scarcer labor means higher wages. New technology and rising productivity can be used to raise incomes instead of what happens with a growing population (i.e., society treads water as the benefits of increasing productivity are canceled out by more people consuming more resources). Low fertility is the path to high incomes and abundance. High fertility is the path to poverty and scarcity.

America’s ongoing population growth has played a role in causing higher unemployment rates, more difficulty funding education, falling real wages for workers, and the incarceration of two and a half million people. You would think that in a country where oil production has fallen by 40% since 1972, a country responsible for so much of the global climate change problem, where forests have been burning, cities have been wrecked by hurricanes, and crops have been withered by drought, we would have learned that more growth is not the answer to unemployment and budget deficits.

Bill Clinton should read ecological economists like Herman Daly. He should pay attention to systems thinkers such as Donella Meadows and Bill McKibben, and consult Al Gore about our ethical responsibilities to future generations. Growth cannot be the solution to unemployment. If all countries decide to grow their populations and their economies, ice will melt, putting cities under sea level, oil will run out, food prices will rise, wages will fall, and human welfare will be reduced, not increased. We will be poorer and fewer people will be able to find jobs.

Common sense says that continuously increasing population makes it harder to keep everyone employed, not easier. The problem is not too few jobs; it’s too many people. There are already too many people consuming too much and diminishing the earth’s long-run carrying capacity.  Economic growth is running into the wall of limited resources on a finite planet. The trends created by economic growth and population growth include higher carbon emissions and climate change, loss of forests, depleted fisheries, soil erosion, species extinctions, toxic contamination, and the possible negative effects of technologies like fracking and genetically modified foods. The path the world is on — economic and population growth — is just as unsustainable as the subprime mortgage market and trillion-dollar federal deficits and will lead to collapse.

Long-run prosperity on a planet with limited land and water and air requires a transition to a steady state economy — a transition which in turn requires a transition to a smaller global population. The higher fertility rates, immigration, and economic growth that Clinton described as the path to prosperity turn out to be the path to collapse.

Do the arithmetic, starting with this year’s federal deficit, the short crop in the Corn Belt, the number of Americans in jail, and cuts to education budgets. Growth has not been the path to full employment or deficit reduction. If Romney was right about tax cuts, we wouldn’t have a federal debt crisis. If Clinton was right about population growth, we wouldn’t have unemployment. It’s time to try something beyond politics as usual.

Max Kummerow has a Ph.D. in urban and real-estate economics. This semester he is a visiting lecturer at Lincoln University in Canterbury, New Zealand.

A Shift in the Burden of Proof

by Herman Daly

Preface for Sustainable Welfare In The Asia-Pacific: Studies Using the Genuine Progress Indicator, by Philip Lawn and Matthew Clarke, 2008

It is no small thing to shift the burden of proof. Yet that is what Lawn and Clarke, and their colleagues, have done in this remarkable study. The presumption in the “empty world” has been that growth in GDP is “economic” in the sense that it increases benefits faster than costs, as well as in the sense that this thing we call the economy is getting physically bigger. It was not previously considered necessary to distinguish the two meanings of “economic” growth. Lawn and Clarke have shown that in a large part of today’s “full world” growth in GDP often costs more than it is worth at the margin, and thus should be called “uneconomic” growth. (In this book’s language uneconomic growth occurs after a threshold at which the Genuine Progress Indicator (GPI) levels off or declines while GDP keeps on increasing). Advocates of GDP growth, who generally point to Asia as their best success story, heretofore were never asked to prove that such growth was in truth economic. Now, after the theoretical demonstration that uneconomic growth in the macroeconomy is quite possible, followed by the empirical demonstration that it is in fact often the case, the burden of proof in policy arguments must shift from the shoulders of growth critics to the shoulders of growth advocates. This is quite an accomplishment and needs to be strongly claimed and emphasized.

For many years I have worked with ideas that are used in this book — steady state economy, Index of Sustainable Economic Welfare, contradictions between comparative advantage and international capital mobility, and others. It is a pleasure to see these ideas not only applied, but sharpened and polished as well. Although I have very little knowledge of Asia, I cannot resist recounting one relevant episode out of my limited experience. Around 1992 I was part of a World Bank mission to Thailand. This was at the end of a decade in which Thailand’s GDP had doubled. Now doubling is a big change, and ten years was within the easy memory of most adult Thais. In conversations I began to ask people how much their lives had been improved over that decade. Many said that life had been better ten years ago. I suggested that maybe life always feels better when you are ten years younger. They assured me that they had corrected for that! Some thought things were a little better, but the suggestion that life might be twice as good was considered laughable by all. This experience led me to suggest to my bosses at the World Bank that we finance a study — a scientific survey asking people how much life had improved over the decade in which GDP doubled, and to give the main reasons for their answer. History had given us a unique experiment, and we should take advantage of it and learn something. My proposal was turned down, I think because the World Bank, the prime pusher of growth, was worried that it might learn an “inconvenient truth.” In 1992 the burden of proof was on me. Now, with Lawn and Clarke to appeal to I think the burden of proof will be on the World Bank.

The study I had proposed to the World Bank was to look at what is now called “self-evaluated happiness,” whereas Lawn and Clarke look at a more objective index of welfare, the GPI. Studies of self-evaluated happiness have now come into fashion, and generally support the same conclusions that Lawn and Clarke reach on the basis of more objective data. The finding is that self-evaluated happiness rises with absolute income up to a threshold beyond which increases in absolute income do not increase happiness. The emphasis in these studies is on psychological phenomena of satiation and relative position with its self-canceling effects, rather than biophysical phenomena of rising external costs imposed by a full world. The two approaches are not in conflict but in fact are quite complementary. The fact that they yield broadly similar conclusions regarding the futility of growth to increase welfare beyond a threshold is a devastatingly important point worthy of intense study and reflection. But beware; we may have to conclude that growth is becoming uneconomic and that we need a new principle and new policies by which to organize our separate national commonwealths and their international federation. That is a very big problem. Thanks to Lawn and Clarke for suggesting many specific policies rooted in a clear analysis of that very big problem.