The Demographic Ponzi scheme…and why you should care

The dirty little secret about the great economic growth we have had in the West, particularly after World War 2, is that they were largely possible due to unprecedented and unsustainable population growth. We have known the threat that this population growth represents for quite some time, as this 1994 cartoon shows.

Population_Growth_Cartoon

Let’s say you only care about yourself and your loved ones – why should you care about this issue? Because it will negatively impact you and your standard of living. As this 2015 Wall Street Journal piece showed, even just slower population growth will reduce economic growth by 40%, requiring productivity growth well above historical averages. Can we meet this challenge? Time will tell.

Furthermore, the entitlement systems (e.g. pensions, health care, education) of every “developed” country in the world assume continued and strong population growth. Governments say they assume continued  “economic growth”, but that is in turn based on population growth. Therefore, conditions that won’t allow this population growth present a threat to those very structures that many cherish and are relying on.

An article in today’s New York Times about the drought in California raised the question  “whether the aspiration of untrammeled growth that has for so long been the state’s engine has run against the limits of nature.” That question should be asked about the Earth itself…..and I am free-market enterprise fiscal conservative who favors the smallest possible government.

As you can see below (source), the world’s population started growing after the end of the last ice age. Agriculture made that possible. But the truly enormous growth began with the industrial revolution in the 18th century. Our high school math and geometry taught us that a geometric progression is a straight line on a linear-logarithmic scale. As the below graph shows, the line has been straight the last few hundred years. Straight up, that is, and the steep slope of the curve on a linear-log scale means a much higher rate of growth.World_population_growth_(lin-log_scale)There are different estimates for what the world’s population was at any given time, but there is no disagreement that the world’s population has grown at a much faster rate in the past 250 years than any other point in history. That would not be a problem if your starting point was 10 million people……but our starting point at the beginning of the industrial revolution was 1,000 million (= 1 billion) people. At the time I wrote this blog post, the US Census Bureau World Population clock  showed us at just over 7,235 million people.

Setting aside environmental issues for a moment, all of our modern-day FEW basic needs (where “FEW” stands for “Food, Energy & Water”) would be met if science can create a commercial fusion reactor. There are efforts underway to do just that, but many are skeptical that we can recreate how the Sun generates energy in a controlled process here on earth. However, I mention fusion power to give you hope before you read on. With fusion power, we would have affordable on-demand renewable energy, and we could use it desalinate water and thus grow crops. Solar energy is great, but it is not on-demand.

Even if the world’s population stopped growing today, we have a problem. As alluded to above, “the equations don’t compute” when there is no population growth. We would have to find another way to generate economic growth that doesn’t involve population growth.

flynn-cartoonIn my view, as the world’s population has grown and urbanized, it has become a less pleasant place to live. And it will get even more so, as the cartoon on the right suggests.

My congressman David Jolly (13th Congressional District of Florida) recently hosted a “New Ideas Conference”. One of the guests was Douglas Holtz-Eakin, the Office of Management and Budget director for three years under George W. Bush. During a break, I asked Mr. Holtz-Eakin why there is so little discussion about this issue. He knew exactly what I was talking about (thankfully!), and described the situation as a “demographic Ponzi scheme” that will continue until it can’t anymore.

Mr. Holtz-Eakin could not refer me to a scholarly article on this issue. Hence this blog post. There are scholarly articles on population growth and economic growth, but they tend to focus more on the effect of the aging of the world’s population.

We should also keep in mind that population growth in the US increasingly does not result in economic growth, as this study shows. You just don’t get productivity growth in those areas with high population growth.

So what is the solution – population control programs? Such programs have failed miserably in India and China, just to name a two countries. Colonize the moon? Kill 5 billion people? Of course not. We must start by recognizing the issue and not pretending it isn’t there. After that, each country (perhaps even region) must find their own way. In the US, I would love for some politician to commit political suicide by saying what needs to be said: we must reform Social Security and Medicare because the equations already don’t compute. If we must have less or zero population growth, then the equations really don’t compute.

pensionreform

Were you expecting me to offer a silver bullet solution after this last cartoon? Sorry, I don’t have any. I think it could get real ugly out there already in the next decade, but I hope I am wrong. After all, humankind is infinitely ingenious.

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