David Miles of Imperial College and – horrors – the Office of Budget Responsibility, has found himself getting some attention for a rather dryly academic paper suggesting falling population numbers might bring us benefits. That is quite the opposite of more commonplace views either that we desperately need more people, or anyway, that we need the number of people always to grow.

That sort of case is often made in terms of the benefits of maximising the number of “ideas” – the more people there are, the more Einsteins. That, surely, must be a benefit, we are told. Well, a smattering of additional Mozarts would do no harm, but whether we really want too much brain power working on making AI even cleverer I am not so sure. A different problem is that these stories do not seem to give much weight to the obvious point that we would end up with more bad people too. One Caligula in the whole of human history is quite enough on my scoring, and do these people really want to maximise the number of Lucy Letbies? And what about the evil geniuses inventing ULEZ schemes, and whatever is coming next?

But the key parts of the Miles paper are about something different. They are about the effects of changing population. We are, in effect, constantly fed the dreadful story that we simply must keep the birth rate (or immigration rate) up, so that the future workforce’s taxes will be enough to pay the government debt we are running up. It is an odd sort of very-long-term short-termism. Sure enough, if we pack the country full of immigrants (who are very often hard working, and entrepreneurial) for the next few decades, we can keep the government afloat. But who is to pay the debt that will no doubt be accruing at just as fast a rate, or perhaps a faster one, in those years? We would need a yet higher population, and somewhere down that road the place is going to get a bit too crowded.

Miles’ idea is different from that as well, and has an interesting relationship to Alvin Hansen’s idea of ‘secular stagnation’ from the 1930s and 1940s. That was revived a few years ago, in a bastardised form by Larry Summers and others. In the original, Hansen’s view that population growth was going to slow was an essential. It meant that in future there would be fewer workers, and hence less need for capital equipment and the like. That was bad news because it was supposedly the need to replenish and enlarge the capital stock that provided a use for all the saving he expected American households to want to undertake. Without this investment, he thought, household consumption would be too low for all the willing workers to find jobs supplying it. In other words, we needed a growing population so that the future needs of the future workers would keep the current workers employed in making capital equipment for them. But declining population, along with the end of the great investment boom of slightly earlier times – the building of the railways, for example – and then the end of the War, was going to deprive workers of this opportunity, and a perpetual state of unemployment threatened.

Few such prognostications in economics work out really well for their prophets, but Hansen’s came a cropper worse than most. Population growth did not slow; there turned out to be plenty of investment opportunities to replace the railways, and of course American households’ appetite for consumption proved very strong. It was the age of Conspicuous Consumption, not of secular stagnation, that followed.

Miles raises no concern about the disappearance of investment opportunities, but otherwise follows much the same line. However, he reaches the opposite conclusion. For him, declining population has the same characteristic of meaning we need to undertake less investment. We can, if you like, maintain the current capital-to-labour ratio whilst reducing the overall stock of capital. That means some of the existing capital can be allowed to depreciate away without being replaced. Consequently, as Miles says, there is scope for extra consumption – and quite a lot of it too. His estimates suggest, depending on the exact assumptions, that we could all be better off by thousands of pounds a year, in terms of consumption, as a result.

It is an odd thing, one might think, that Hansen and Miles could start from apparently just the same position and end up with opposite conclusions. The difference is not in their understanding of population dynamics or the connections between current investment, the capital stock, employment, and output. Nor is the difference anything to do with the relationship of income, consumption, and investment. Rather, it is in their presumptions about the determination of employment. Hansen was arguing thoroughly in the mode of Keynes, and supposing that one could understand employment only by understanding demand. He looked to the determinants of consumption and investment as fixing employment. Miles, about eighty years, and at least one anti-Keynesian counter-revolution later sees it differently. Employment is determined by labour supply. Those who wish to work at the going wage will find a job. Just what the ‘going wage’ means, is the wage that lets the people who want to work for it find a job. So, Hansen’s concern that there might be ‘not enough jobs’ does not arise. Surely, but for the more severe, yet still temporary, kind of business cycle, Miles is about right. Then, the question of whether we, and the next several generations might be better off if population were to fall is a real one, and Miles’ analysis is one to ponder carefully.

 

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Recommended reading:

David Miles, “Macroeconomic impacts of changes in life expectancy and fertility”, The Journal of the Economics of Aging, vol 24.