Population Pessimism Redux

Population Aging and Economic Growth

David E. Bloom, David Canning, 2008

For most of the twentieth century the dominant issue in the field of demography was the explosion in population numbers caused by the lowering of mortalityrates coupled with continuing high fertilityrates. The predicted negative consequences of high population densities, and a high population growth rate, seem not to have been borne out. Many of the predictions made about the effects of population growth seem in retrospect to have been unduly alarmist. For example, between 1960 and 1999, global population doubled, rising from 3 to 6 billion, but income per capita tripled, decisively refuting the predictions of population pessimists from Malthus to Ehrlich.*

Following the 1986 National Academy of Sciences’ report on population growth, the nonalarmist position came to dominate economists’ thinking on population. While rapid population growth posed problems, the report argued that market mechanisms and non-market institutions were usually sufficiently flexible to ameliorate those problems. Changing incentives through price changes, and changing non-market institutional arrangements to promote new behaviors, could have large effects and produce responses that would alleviate the problems associated with population growth.

The population debate focused on population numbers and missed to a large extent the issue of age structure changes. Population growth caused by rising fertility and population growth caused by falling mortality are likely to have quite different economic consequences because they have different age structure effects. However, it is important to remember the lessons of the earlier debate. Analysis based on “accounting effects,” in particular on the assumption that age-specific behavior remains unchanged, may be misleading. When this type of analysis predicts large reductions in welfare we should be particularly suspicious since these are exactly the conditions that will produce incentives for behavioral change.

This reasoning also applies to an assessment of the economic growth implications of continued improvements in health and reductions in mortality into old age, coupled with the aging of the baby boom generation. How well countries cope with the challenge of population aging will likely depend to a large extent on the flexibility of their markets and the appropriateness of their institutions and policies.

An Uncertain Future

Of course, humility is required when making decisions based on future demographicprojections. The sources of uncertainty remain considerable. Population projections, for example, are not cast in stone.

The possibility of changes in fertility behavior or health shocks could tiltthebalance between young and old in unforeseen ways. Projections of population size and structure can change quite significantly even over short periods. Longevity projections are also precarious and hotly debated. Trends in diet and lifestyle as well as medical and public health advances could combine to raise or lower lifeexpectancy in future. Technology has a crucial role to play. The compression of morbidity** occurring today is partly driven by new health technology, but it is uncertain whether technological advance will continue, diminish, or accelerate in future, and what cost implications it will have. Trends such as the obesity “epidemic” could dampen the positive effects of technology. The WHO projects that by 2025 300 million people will be obese; the WHO also notes that the health impacts of rising obesity prevalence could reverse life expectancy gains in some countries. Non-health related events such as climate change or war could also have an unpredictable effect on longevity. Nor is it clear whether the economic impacts of aging will be uniform across societies. In the developed world, longer lifespan has been accompanied by a shift in support for older generations from families to the state. In many developing countries, families remain pivotal to elder care and as lifespan becomes longer there may be disruption to family structures, leading to a similar move towards public transfer systems and savings as that experienced in wealthier parts of the world.

Although drawing lessons from the past may not be possible for an aging future, we do know that some societies in the past century have coped well with the major demographicshift represented by population growth. The world economy has had the flexibility to absorb and in general benefit from dramatic increases in population numbers. If today’s policy makers take prompt action to prepare for the effects of aging, the next major shift is likely to cause much less hardship than many fear. One view is that population aging in the developed countries is likely to have a large effect, reducing income per capita, mainly through the fall in labor supply per capita that will accompany the reduction in the share of working-age population. However, even if this occurs, it may not be as harmful as it at first appears.

Notes:

*According to Malthus, who wrote around 1800, when world population first crossed the 1 billion mark, “…[population growth] appears … to be decisive against the possible existence of a society, all the members of which should live in ease, happiness, and comparative leisure; and feel no anxiety about providing the means of subsistence for themselves and families” (Malthus 1798). In a similar vein, Paul Ehrlich asserted in the late 1960s, that “The battle is over. In the 1970s hundreds of millions of people are going to starve to death” (Ehrlich 1968).

** the compression of morbidity - is a term used to describe one of the goals of healthy aging and longevity – the goal of minimizing the number of years that a person spends suffering from age-related disease while maximizing the total number of years.