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Population and the Steady State Economy

(Image credit: Sérgio Valle Duarte, Wikimedia Commons)

By Max Kummerow

Sir David Attenborough remarked in a 2011 presidential lecture to the Royal Society that “every environmental and social problem is made more difficult and ultimately impossible to solve with ever more people.” Wherever women’s status has improved and societies modernized, he said, birth rates have fallen. He begged his audience to “talk about population.”

We often hear politicians call for “more jobs.” Growing populations require a bigger economy to prevent unemployment. So if you assume population growth is good and/or unavoidable, you probably favor economic growth to prevent unemployment. And even if there was a steady-state population, the world desires (and some of it needs) higher incomes, more consumption, and more wealth.

Many regard growth as a moral imperative to alleviate extreme poverty. Two billion people still live on two dollars a day. How can their lives improve without economic growth? Attention is focused almost exclusively on economic growth as the path to supporting more people at higher living standards. But there is another path.

A conventional measure of economic well-being is Y/P, or output divided by population (that is, per capita income). Y in this equation represents GDP (gross domestic product). We can acknowledge that a growing GDP per capita may increase wellbeing, but only when GDP is not beyond the optimum level. A growing GDP causes environmental, economic, and social problems. Various measures of well-being (such as the Genuine Progress Indicator, the Happiness Index, and the Human Development Index) help us determine when GDP is beyond optimum. Indeed, numerous analysts inside and out of the CASSE network believe that is now the case – that GDP is beyond the optimum – and perhaps has been so since the mid-late 20th century.

(Graph created from UN World Population Prospects 2017 data.)

 

In a crowded world facing physical limits to growth, then, why not think more about reducing the denominator? If population falls, we can get by with fewer jobs. There will be more land per family for poor subsistence farmers. Wages will tend to rise and the prices of commodities—housing, fuel, food, etc.—will tend to fall.

To examine the problem if we do not reduce population, let us consider a simple equation comparing the Earth’s carrying capacity—or its ability to provide all that we need from it—with our use of the supply. When we exceed carrying capacity, we also reduce it. Carrying capacity is the Earth interest generated by Earth principal (natural capital, in other words). When we use more in a year than the Earth interest generated that year, we use up some Earth principal, so next year less interest can be generated. Many ecological economists and sustainability scholars have described in theoretical and empirical terms how we are currently over long-run carrying capacity, and we are using up Earth principal (biodiversity, for example). So every year there is less interest and less long-term capacity.

Before family planning, most women bore many children, and infant and maternal mortality rates were extremely high. In The Wealth of Nations Adam Smith wrote, “It is not uncommon… in the Highlands of Scotland, I have been frequently told, for a mother who has borne twenty children not to have two alive” (Book 1, Chapter 8).

In 1970, global fertility still averaged five children per woman. Now the global average fertility rate has fallen to 2.4 children per woman. In about 90 countries, women currently average less than 2.1 children each, which is the replacement fertility rate (two children reaching adulthood for every couple equals replacement). When fertility falls, it takes about 50 years for “demographic momentum” to play out so that growth stops. Young populations have to grow up, have children and age before death rates exceed birth rates. That has finally happened in a handful of countries. Germany and Japan, with declining populations, are doing much better than high fertility countries. Scarcity caused by growth is not alleviated by more growth. Growth is the problem, not the solution.

Country average fertility rates currently range from about 1.1 (Singapore, now one of the richest per capita) to 7 (Niger, one of the poorest). Europe’s fertility averages about 1.7. Sub-Saharan Africa’s fertility rate of 5 children/woman is falling slowly. But death rates by country are falling faster, so natural increase (births minus deaths) is higher now than in 1960 (the current rate is about 2.7% population growth per year).

Globally, annual population growth fell from 2% in 1970 to 1.1% in 2010. Meanwhile, world population doubled from 3.5 billion to 7 billion. World population is therefore growing as fast as ever (2% x 3.5 =1% x 7) and increasing by about one billion every 12 years, which means it is headed from 3 billion in 1960 to 10 billion by 2050.

(Graph created from UN 2017 population prospects data.)

Completing the fertility transition in places with corrupt governments and poor people will be difficult. Fundamentalists in all religions have more children. But modernization helps fertility rates fall, especially education and improving the status of women. Low fertility rates in Cuba, Iran, Brazil, Botswana, Thailand, and about 85 other countries shows that fertility transitions are possible anywhere. There are trade-offs, but countries with small families are usually better off economically and their children tend to be better educated.

Lower fertility rates have numerous benefits for individuals, families and societies. It is possible to stabilize world population and to reduce population back down toward global carrying capacity. Education can help change family size norms to reflect the reality that we live on a small planet that doesn’t get bigger when we add more people.

With declining population, the strongest arguments for economic growth disappear, and a steady state economy with universal prosperity becomes both physically and politically more feasible.

Max Kummerow is a retired Real Estate professor. He has presented a dozen papers at the Ecological Society and Population Association and other meetings advocating completing the global demographic transition.

 


 

From Scream to Dream: the Inspiring Influence of Herman Daly

Each fall at one of America’s oldest universities, a substantial portion of the freshman class enrolls in Economics 101 and then proceeds to participate in a bizarre ritual. The night before the first midterm exam, when students should be tucked away in the dusty corners of the library reviewing their supply and demand curves, or perhaps even lying in bed dreaming about their first exam, something quite curious happens.

Late in the evening, a few more students than usual can be seen lingering in the quad. As more and more anxious college kids make their way onto the grassy field and the balcony that overlooks it, electricity begins to build along with the crowd, and a nervous energy pulses through it as the hour approaches midnight. All the windows in the dorm rooms above the quad open as residents look over the gathering horde. An unsettling quiet befalls the students as they take a collective inward breath. A backwards countdown, just like New Year’s Eve in Times Square, organically originates from somewhere in the crowd. At precisely midnight, the Econ Scream erupts. Normally mild-mannered students hang out of windows screaming, “I HATE ECON!” Members of the crowd, some of them shirtless, scurry in all directions, spewing unintelligible grunts from the depths of their souls. The Econ Scream is a great welling up of emotion and a massive release of stress-laden energy. And just as quickly as it begins, it ends with an eerie silence.

What causes students to build up and then blow off steam over a simple test of economic knowledge? Aside from the novel pressures associated with freshman exam-taking, students often have trouble with the study of economics because of its lack of connection to what they see in the real world. This lack of connection certainly marked my own experience studying economics. I screamed as loud as any participant in the Econ Scream.

Despite my concerns, I decided to major in economics, although I took a second major in environmental science to counterbalance the more fanciful parts of the economics training (how in the world do we measure utility, anyway?). I came to appreciate the analytical methods of economics. Economists are adept at drawing simple line graphs to represent complex ideas and analyze behaviors exhibited by individuals and societies. I also liked the clean logic of some of the underlying principles, such as the law of diminishing returns. But something about my economics training left me with an uneasy sense of uncertainty.

That uncertainty stayed with me, even as I worked as an economic policy analyst. In fact the uncertainty grew so large that I abandoned the field to concentrate on environmental science and conservation biology. Years later, while participating in a conference, I met Herman Daly, heard him speak, and got a copy of the textbook on ecological economics that he wrote with Josh Farley. Since that day, my world has changed. I call it the Herman Daly epiphany, a surprisingly common occurrence for people who encounter Daly’s work after struggling with some of the more far-fetched fantasies of economics (especially when it comes to perpetual economic growth on a finite planet).

Daly’s explanations of how the economy works and the necessary transition from growth to sustainability tend to resonate with people who have studied natural sciences, as well as people who mindfully observe the world around them. He provides analyses and descriptions that are drawn from fundamental scientific principles, and he connects dots in an inspiring way. He certainly inspired me to get back into economics. His insights helped me understand that we can build a better economic framework. I came full circle from giving up on the madness of economics to embracing steady state economics as a calling.

My favorite book by Herman Daly, not surprisingly, is Steady-State Economics. I picked up a used copy somewhere along the line, and I’ve highlighted it and scribble comments in the margins. But there is something unusual about my copy – it’s printed backwards. The introduction is at the back of the book, and the conclusion is at the front. You literally have to read it right to left. When I first got it, I thought about returning it, but then I realized it was perfect – perhaps the book that turns mainstream economics on its head ought to run in a different direction.

I felt a tinge of sadness when I learned that Herman Daly was retiring from his post at the University of Maryland, but the sadness quickly evaporated. For starters, we are fortunate that he is posting witty and wise essays right here on The Daly News. But more importantly, I realized that he has finished planting the seeds of economic transition. It is now our job to tend the garden and produce the fruits of a sustainable and fair economy.