In Defense of Speculation

Max Kummerow, Ph.D.

[Reprinted from a World Bank internet discussion, 11 December 1998]

Real estate can be thought of as a part of applied economics. Economics can be thought of as a subset of biology (in that it studies living creatures, namely us). A risk of specialisation that we all face is that we get trapped in our narrow disciplinary perspectives and thus miss important aspects of a broader picture. I've recently read Joel Cohen's excellent book "How many people can the earth support." A discussion of poverty and land should not omit at least a mention of the denominator of the per capita income equation, GDP/population. Since the earth has a finite land area, we should also consider the same denominator in the land/population ratio, whether the numerator is arable land, housing units, or natural resources in general. The most easily controllable variable in the long run is the denominator.

Population dynamics are clearly one of the most powerful economic forces, and reducing population growth is the sine qua non or necessary condition of economic development in poor countries. Most of the land, land institutions, and land services problems are simpler if there are fewer people. So by the indirect approach of controlling population, a country can dissolve the problems of housing, pollution, political repression, urban sprawl, and poverty that seem so difficult to solve by other means.

Reproductive behaviour is also a key change agent in rich countries to a far greater extent than usually discussed. Anecdote: Two people in America. 1) Myself--middle class, PhD, employed, one kid, born when I was in my late 30s. 2) Rosa Lee (subject of a Pulitzer prizewinning documentary by Leon Dash)--poor, uneducated, on welfare most of her life, 8 kids by age 21, deceased (AIDS) in 1998. This is social change. Rosa has about 50 living descendents, I have one. Run those numbers forward a couple of generations and America will be a poor country. The rich get richer and the poor have children. Different population growth rates are causing dramatic changes in the compositon of the human family and these are closely linked to economic outcomes and all sorts of other issues.

Classical economic theory makes growth a direct function of labour force. In simple form this leaves out the big investment in human capital needed in a modern workforce. But countries with fewer children per family can invest more in capital goods (including human and physical capital), less in child maintenance. Moreover, slower demographic growth takes pressure off land use and construction, freeing resources for other uses. Slower growth makes it much easier to manage city planning and infrastructure. Resources are freed from building more houses and so can create other capital projects, giving productivity increases that will increase per capita income.

The history of land use regulation provides an important analogy. When the U.S. Supreme Court ruled (in the 1920s) that zoning is constitutional, Justice Sutherland referred to changing conditions making new institutions necessary. As density of land uses increased, land uses began to impinge more on each other. As externalities became too large to ignore, land use regulations were enacted. In the same way, as human populations have grown, your decisions to have children come to have more effect on the life outcomes of my child. The fact, for example, that 1.3 billion Chinese provide a labour force that works for a few dollars a day, has an effect on prices and wages in the rest of the world. There are many other congestion, crowding, and resource competition externalities whereby your children affect prices paid, opportunities encountered, pollution, congestion, and other aspects of my child's life. Think of this every time your child stands in a queue or competes for a position. It makes a difference whether there are 200 million Americans or 300 million. It takes longer to drive to work, at a minimum. Domestic oil supplies last 20 years instead of 30. And so on.

As environmental limits are reached or surpassed, economics' tendency to abstract from the real underlying physical processes becomes less viable. E.F. Schumacher remarked that in ignoring environmental limits "the economic problem regarded as solved is not." Everywhere I've travelled around the world, I have observed environmental damage that may reduce long run carrying capacity of the earth for humans. Certainly the damage reduces the diversity, stability, and beauty of our experience. Example: A debate in the journal Science a couple of years ago about whether 5% or 15% of the earth's agricultural soils had already been lost through erosion. A very long list of similar losses, some irrevocable such as species extinctions or depletion of ore bodies, could follow. Humanity can be thought of, at the moment, as performing a set of experiments along the lines of "How much can we change the world and still have it habitable? How much pollution before we get sick? How many threads pulled out before an ecosystem unravels?" The pace of change is too fast, risks are too great and too poorly understood.

Cohen's admirably cautious book refuses to take any dogmatic positions on Malthusian predictions. He argues that both future technology changes and population changes are uncertain so there is little ability to predict future per capita food production or living standards. No simple function fits past population growth, why should the future be any more simple or predictable? However, in searching for some things we know for certain, it is clear from the mathematics of compound growth that at current rates of increase, a limit to human population would (all forecasts have to be conditional and reflect uncertainty) probably be reached within 50 years and almost certainly within 100 years. Perhaps much sooner--it all depends, as Cohen points out, on how we want to live and in what sort of world, as well as on uncertain future technology change and how well we manage and share resources. Once population stabilises--most probably within the lifespan of our children, then it is certain that societies face "Methusalah's choice" that is low birthrates and long lifespans or high birthrates and short lifespans. It is impossible at ZPG to have both high birthrates and long lives. That is about all demographers know for sure.

The good news is that it does not seem to be nearly as difficult to reduce population growth as previously thought. As economies modernise, it seems, traditional attitudes change and limiting numbers of children becomes more attractive. Most educated women who are free to choose have few children. This implies that "interferring with individual's rights to choose numbers of children" is a bit of a red herring. What we really need to do, it seems, is get rid of the barriers to people having as few children as the small number freely chosen by the prosperous and educated. More good news is that limiting fertility is technologically feasible and cheap. I think it is the only anti-poverty program cheap enough to have a chance of success in the poorest countries. Unless you can think of a way to keep GDP increasing forever, limiting population growth is the only feasible long run solution to the economic problem. Moreover, I think limiting population has positive effects on political freedoms and increasing the value of each individual. My kid will have more human capital, because I invested more in him, than Rosa's 8 kids. So perhaps "limit population growth" should be thought of as an essential box to tick on the list of things to do in a development effort.

The missing bit is for economists to design and endorse institutions to speed up reduction in population growth. There are examples: negative externalities of excess population were reduced by policies like China's one child policy or Singapore's two child policy. I think Japan should relax about being in negative growth--they are still rich--and simply institute long run policies to get population and consumption down to where they do not have to import (and therefore export) so much. In the long run, increasing GDP is a dead end--we run out of stuff on this small planet. But decreasing population is quite feasible and cheap.

Decreasing population in the face of limited resources used to be accomplished by quite inhuman and horrible means--wars, famine, and plague. But now it is possible to control fertility using technology and economic incentives. Rather than continuing to solve an increasingly impossible and difficult problem--how to increase growth rates in the face of limited resources, it is much more sensible to try to simplify the problem by choosing to have fewer people to feed and house.

A long run no growth target requires a major change in mind-set for economics. The logistic curve, the normal population growth pattern observed in biology, is not much used in economics. Classical economics began with the assumption of scarcity (but unlimited natural resources) and trys to work out the problems of dealing with scarcity by efficient management of capital and labour. The scarcity assumption is no longer inevitable in a world with birth control pills. Societies can collectively choose abundance by limiting population. Feminist economists have proposed assumptions of abundance and caring for others to replace the conventional individualistic Hobbsian view. If we choose a vision for the future to pursue, the limited population, no growth in production, abundant GDP/capita vision is more appealing than attempting to dig deeper, cut down more trees, take more risks, strive harder to maintain growth in a world of depleted moral and physical resources caused by growing population and consumption. By accepting global resource limits and therefore the necessity for population and consumption limits, we can address the poverty problem in a way offering reasonable hope for good outcomes. If limits are not accepted, the poverty problem will soon return (as it is in the U.S.), even in the unlikely event that the present trend towards increasing world poverty could be somehow reversed for a time by economic growth. Keynes said economics is a "moral science." This means choices are necessary--how to produce, how to distribute, and, we should add, how many to distribute to.

The above is, admittedly, a sermon that may offends some peoples' faith. One of the jobs confronting social sciences is how to bridge the huge gap between the "objective" stance of science and the necessity for moral content in social science without returning to wars about religion. The objective pose (however illusory) helps direct attention to empirical evidence and keeps the tone of discussion cool. The cost of the objective pose is that it creates detachment regarding issues--like starving children--where detachment is a form of insanity. The moral choice element is essential, because we are really making choices about our own lives How do we get moral content back into economics without merely generating endless controversy? How can we combine emotion and reason while maintaining civility in discourse leading to better understanding and action?