I see and hear the claim “more people = better economy” made quite often (Matt Yglesias, in this case)
But nowadays most of the production of value is done either by: a) machines, and b) a relatively small number of highly skilled people in research and development (who design and build the machines).
My intuition is that increasing the proportion of people capable of working in R&D (through education, lifting people out of poverty) would be a better way to increase an economy’s capacity to produce value than just dialing up the birth rate.
Is there a reason why people believe “more people = better economy”?
One reason people make this claim is that many models of economic growth depend on population growth. Like you noted, there are lots of other ways to grow the economy by making each individual more productive (lower poverty, more education, automating tasks, more focus on research, etc.).
But crucially, all of these measures have diminishing returns. Let’s say that in the future everyone on earth has a PhD, is highly productive, and works in an important research field. In this case the only way to continue growing economy is through population growth, since everything else has already been maxed out. This is why Chad Jones claims that the long run growth rate limits to the population growth rate:
At least that’s what the models say. Jones himself admits that AI might change these dynamics (I guess population growth of AI’s would become the thing that matters more if they replace human labor?).
Definitely agree with him that it can’t go on forever:
“Many of the sources of growth historically — including rising educational attainment, rising research intensity, and declining misallocation — are inherently limited and cannot go on forever.”
Also agree when he says:
“We are a long way from hitting any constraint that we have run out of people to hunt for new ideas”
We’re way off everyone having PhDs. I’ll hold off worrying about declining birth rates for a few decades.
He presented the first one in a lecture linked below at the Global Priorities Institute.
A few reasons we might at least want to consider believing more people = better economy
Large increase in GDP per capita in the last few centuries was associated with a large increase in the global population. Obviously some of that increase in population is due to the economic growth itself but the connection could run both ways
The per capita cost of R&D is smaller in a larger population, but the benefits are the same, since unlike in the production of goods, ideas can be shared by the whole population.
More speculatively and qualitatively, a society which is growing in population is younger and potentially more dynamic and future-oriented than a society which is declining and aging
A reason for skepticism is that while population size is plausibly a major factor in long-run growth, it doesn’t seem to have been the main factor in recent US growth. From paper 1 above,
Section 3 conducts a growth accounting exercise for the United States to make a key point: despite the fact that semi-endogenous growth theory implies that the entirety of long-run growth is ultimately due to population growth, this is far from true historically, say for the past 75 years. Instead, population growth contributes only around 20 percent of U.S. economic growth since 1950. Rising educational attainment, declining misallocation, and rising (global) research intensity account for more than 80 percent of growth.
I am open for correction here, but I believe it works like so:
Consider this argument from The New Geography of Jobs. Productivity is higher where jobs are of the smarter type. However in those places blue collar jobs are higher paid and in demand too. The high productivity job-holders have more income to dispose on a variety of service sectors. But if there is not enough saturation of the labor market there will not be the quantity and quality of service sector jobs will be lower and the cost will be higher. If the service sector labor market is significantly constricted, the productive, smart jobs will be less productive too.
I see and hear the claim “more people = better economy” made quite often (Matt Yglesias, in this case)
But nowadays most of the production of value is done either by: a) machines, and b) a relatively small number of highly skilled people in research and development (who design and build the machines).
My intuition is that increasing the proportion of people capable of working in R&D (through education, lifting people out of poverty) would be a better way to increase an economy’s capacity to produce value than just dialing up the birth rate.
Is there a reason why people believe “more people = better economy”?
One reason people make this claim is that many models of economic growth depend on population growth. Like you noted, there are lots of other ways to grow the economy by making each individual more productive (lower poverty, more education, automating tasks, more focus on research, etc.).
But crucially, all of these measures have diminishing returns. Let’s say that in the future everyone on earth has a PhD, is highly productive, and works in an important research field. In this case the only way to continue growing economy is through population growth, since everything else has already been maxed out. This is why Chad Jones claims that the long run growth rate limits to the population growth rate:
https://web.stanford.edu/~chadj/annualreview.pdf
At least that’s what the models say. Jones himself admits that AI might change these dynamics (I guess population growth of AI’s would become the thing that matters more if they replace human labor?).
Thanks for sharing this.
Definitely agree with him that it can’t go on forever:
“Many of the sources of growth historically — including rising educational attainment, rising research intensity, and declining misallocation — are inherently limited and cannot go on forever.”
Also agree when he says:
“We are a long way from hitting any constraint that we have run out of people to hunt for new ideas”
We’re way off everyone having PhDs. I’ll hold off worrying about declining birth rates for a few decades.
Two papers that come to mind, both by Charles Jones at Stanford
The Past and Future of Economic Growth: A Semi-Endogenous Perspective, about models that try to think about the impact of population and researcher proportion on growth.
The End of Economic Growth? Unintended Consequences of a Declining Population, about how these models suggest a declining population would lead to a stagnation in economic growth.
He presented the first one in a lecture linked below at the Global Priorities Institute.
A few reasons we might at least want to consider believing more people = better economy
Large increase in GDP per capita in the last few centuries was associated with a large increase in the global population. Obviously some of that increase in population is due to the economic growth itself but the connection could run both ways
The per capita cost of R&D is smaller in a larger population, but the benefits are the same, since unlike in the production of goods, ideas can be shared by the whole population.
More speculatively and qualitatively, a society which is growing in population is younger and potentially more dynamic and future-oriented than a society which is declining and aging
A reason for skepticism is that while population size is plausibly a major factor in long-run growth, it doesn’t seem to have been the main factor in recent US growth. From paper 1 above,
I am open for correction here, but I believe it works like so:
Consider this argument from The New Geography of Jobs. Productivity is higher where jobs are of the smarter type. However in those places blue collar jobs are higher paid and in demand too. The high productivity job-holders have more income to dispose on a variety of service sectors. But if there is not enough saturation of the labor market there will not be the quantity and quality of service sector jobs will be lower and the cost will be higher. If the service sector labor market is significantly constricted, the productive, smart jobs will be less productive too.