Malthusian Delusions in the XXI Century

Last week I attended another talk on demographic projections for 2050. A persuasive speaker (Mark Forman) impressed the audience with scary numbers about the probable increase in world population. So, let me clarify a few things.

The fear is that in the next 50 years the world population may rise to about 10 billion from the current 7 billion. This growth will be unequally spread around the globe, mostly adding to the 2.1 billion still living with less than $3.1 a day. Feeding all this people will deplete natural resources and seriously damage the environment. Equally scary, in rich countries, the rise in health care will increase life expectancy beyond 100 years, which, coupled with a drastic fall in birth rates and a rise in robotics, means that the ratio between retired people and employed workers will continue to increase. Meanwhile, lower qualified works may lose their jobs or will see them taken over by migrants.

These gloomy predictions may materialize or not, but even if they do happen they are not cause for panic. Let me explain why, one-by-one.

1) The danger of world famine. This is simply a repetition of Malthus erroneous conclusion in the XIX century and it is clearly misplaced since humanity has never lived in a world with so little hunger. Indeed, based on FAO estimates, if the increases in food production and productivity in the past 50 years (170%) are repeated in the next 50 years they will exceed by three times the forecasted rise in consumption. This is more than enough to feed the estimated two billion increase in population and still accumulate unnecessary stocks. Starting from a smaller base the growth in the recent past is more than enough to feed a much larger increase in population from two to seven billion inhabitants.

2) The depletion of nonrenewable resources, or its extensive use, like in the case of fossil fuels, will damage the environment to the point of making earth inhabitable. Again, history has shown that we can find new energy sources. For instance, just as humankind managed to replace coal by fossil fuels before we ran out of coal, we are also in the process of replacing these by electricity produced from solar and wind sources of energy before exhausting the fossil fuels.

3) Large scale migration will cause unemployment and bankrupt the welfare state. This is an old fear that history has repeatedly shown to be misplaced. Not only have mass migration flows been short lived, but they were also correlated with rising economic growth. Whether we consider ancient migrations during the Neolithic Revolution, the Indo-European expansion, and the Early Medieval Great Migrations or the recent flows to North and South America, or the contemporary flows within Europe the result has always been positive in economic terms. Of course these flows are not without turmoil, especially when they involve cultural shocks. Nevertheless, even at the cultural level, the rise of a global culture resulting from globalization at the level of the media and international travel will reduce cultural barriers.

4) Robots will replace humans causing mass unemployment. This is the same argument that led some workers to destroy machines at the start of the industrial revolution fearful of losing their jobs of 15 and 16 hours per day, including children. Many now work only 5 days a week and less than 8 hours per day and the feared massive unemployment did not materialize. It is foreseeable that robotics will facilitate longer education, longer holidays, and shorter weeks and days which will facilitate the employment of everybody for a long time. The possibility that robots might one day replace humans in most jobs is a welcoming evolution, since most humans can find better things to do than work. Still, such it is still too far away to be considered a threat.
5) An aging population is a time bomb since there are not enough babies being born and the ratio between pensioners and workers is increasing dangerously. In what concerns the risk of a pension time bomb I have written a post explaining why it is unfounded and easily overcome by past levels of productivity growth. The possibility of an inverted age pyramid is real but it is not a threat. Indeed, it will delay the replacement of humans by robots because the care for the elderly is more labor-intensive than other jobs performed by humans. All we will need is to adapt to a society with more elders than youngsters. But, humankind is eminently adaptable.

So, whatever way we look at the so-called demographic threat there is no reason to fear the future. With the right policies and transition periods all the frictions caused by demographic shifts can be solved, as long as people disregard the ignorance or malfeasance of the prophets of doom.

This is not to say that there no threats to humankind. There are certainly external threats, like the celestial bodies who destroyed the dinosaurs, as well as man-made dangers. The later may be accidental (e.g. result from scientific experiments) or may be caused by the evil use of weapons of mass destruction. Technical advances in space technology may help us avoid the fate of the dinosaurs while careful science monitoring may prevent scientific accidents.

Indeed, where humanity runs the risk of not progressing enough is in organizing society to stop evil or mad leaders from using arms of mass destruction.

All in all, as long as humans violent forms of conflict resolution, we have more reasons to be optimistic than pessimistic about the future of humankind. Such conflicts are the true threat to the humankind not demography.

Subsistence economies and self-sufficiency

Many of the protectionist arguments against capitalism rely on the idea of self-sufficiency and independence as a safeguard for unforeseen events. This idea wrongly stems from confusing prudence with self-sufficiency and risk mitigation with protectionism.

It is normal that after being fustigated by so many natural and human-made calamities people seek safety in self-reliance. In the absence of markets for risk protection, subsistence economies may be seen as providing such safety. Yet, such safety is achieved at an enormous cost in terms of living standards.

I shall illustrate this through the personal experience of my ancestors. Before the 1930s, most of my ancestors lived for centuries in a remote village by cultivating small plots of land. They consumed almost all they produced except for the occasional goat that they would sell to buy clothing. If the wolves decimated part of the herd or the weather ruined the harvest they would have a rough year surviving on potatoes and without replacing their rags.

It was a tough life but they were self-sufficient and independent without a need to rely on others. The same happened with the other villagers, with the exception of the only specialized inhabitant (a carpenter) who had to walk to the neighboring villages to offer his services.

My family fortune changed only when, at the age of fifteen, my father and a friend migrated to Lisbon. He survived doing multiple jobs and later returned home to work in a textile mill in a neighboring village, where he also found jobs for his sister and two of his bothers. As a result I and my five sisters had the opportunity to study and to escape the self-sufficiency trap.

The problem with small self-sufficient communities is not that they do not know about division of labor. Indeed, for those with a romanticized view of such communities, my village had a well-developed communal way of herding, a communal bakery and a kind of labor exchange.

However, isolation and small scale prevented them from participating in trade with outsiders and achieve the necessary scale and specialization needed for capital accumulation.

However, the subsequent construction of roads and communication services did break isolation but it did not stop the village decline, why?

Because the lack of transport infrastructures is not the only obstacle to the development of remote areas. Unless they are a tourist hive or their inhabitants are writers or similar professionals able to work from home for a greater market, they will not be able to combine the profit motive with the joint ownership and limited liability needed to undertake risky ventures which are indispensable for the success of capitalism.

So for many millions trapped in small communities, like my ancestors were, the simplest way out is migration.

Yet, there are many still arguing for self-sufficiency or independence in large communities. They typically invoke the lack of scale and the need to safeguard the supply of goods and services considered essential, with an elastic definition that ranges from food, social services, environment and energy. Such calls for self-sufficiency contradict Ricardo’s law on comparative advantage, probably the only consensual law in economics formulated in 1817.

And, this law is not being ignored in non-capitalist societies alone, but also in Western countries at the core of capitalism. For instance, until recently the USA had a law banning the export of crude introduced in 1975 as a retaliation against the Arab oil embargo of 1973. Yet the ban was never lifted due to opposition from oil refineries and environmental groups. Only now, after a sharp increase in oil supply brought about by the new fracking technology and geopolitical considerations, did the refiners opposition eased and there is some hope for lifting the ban.

Obviously, whether to export crude or refined products should be a business decision not a political one. However, once a country tolerates special interest groups based on protectionism it becomes almost impossible to eradicate them. Thus the importance of free trade to control rent-seeking behaviour that undermines capitalism.