A great source of personal growth is a challenge to long-held ideas-especially when it moves you out of your comfort zone. In a number of blog posts in recent years, I fretted over low birth rates which are likely to eventually result in declining population in most countries.
Two extreme examples are China and South Korea which are forecasted to experience population decreases of 34% and 38%, respectively, over the next fifty years. I joined most economists in believing the inevitable result will be stagnation in economic growth which unfortunately also means a flat to declining standard of living for most of us.
Well, a challenge to the conventional wisdom comes in the form of a new working paper published by the National Bureau of Economic Research titled Baby Busts and Growth Booms: Demographic Change and The Macro Economy. This topic is certainly wonky, and the paper is tough sledding even for those comfortable with heavy duty mathematics. However, it is a critical issue that has major implications for our collective future.
The authors examined growth in GDP experienced by 120 countries over a fifty-year period compared to their initial birth rates. Strikingly, they found that lower birthrates and declining population did not lead to lower GDP growth, and in fact, there was some evidence of actual increases. This outcome directly contradicts the expectations of most members of the economics profession!
Their explanation for this surprising outcome is that decreased availability of labor associated with a shrinking population results in the adoption of labor-saving technology and a shift in economic activity toward high-tech sectors. Why is this so important? Perhaps AI, robots, and other technologies will offset declining populations allowing a continuation of reasonable economic growth and preservation or even enhancement of our standard of living.
The authors are careful to point out that this analysis is based on historical data, and the future could well be different. In particular, population declines are accelerating in many countries which may overwhelm the positive impacts of technology. As they are wont to do, other academics will undoubtedly pick holes in the analysis. Nevertheless, this work gives us some hope that the “baby bust” will not be cataclysmic. In spite of all of the current angst regarding AI, it and other technologies may turn out to be our savior. In any case, perhaps those of us engaged in the “Dismal Science” should stop fretting!