Opinion & Commentary
Population growth makes us smarter, richer
What are the long-term implications of population growth and immigration for living standards?
Economists have typically given ambiguous answers to this question, because they have struggled to find an economically meaningful role for population in their models of economic growth.
Traditionally, they have reduced people to little more than labour inputs into the production process. The accumulation of capital and productivity improvements raise living standards, not labour.
Indeed, too many people can dilute the stock of capital, leading to a decline in productivity and living standards. More people can increase the demands made on current and future resources.
Economists typically think of population growth as leading to a trade-off between the gains from the division of labour, increased specialisation and economies of scale on the one hand, and diminishing returns on the other.
In the long run, diminishing returns dominate and population growth has no long-term benefits to living standards.
However, another perspective, associated with the late economist and professor of business administration Julian Simon argues that the economic significance of more people is not in the contribution made by their hands or their mouths, but their minds.
New ideas and innovations come from the minds of people. The more people, the more new knowledge gets created. It’s the growth in knowledge that drives the improvement of living standards.
The increased pressure on resources and resource prices is a good thing in the long run. The greater these pressures, the greater the incentive to solve problems and acquire new knowledge.
This results in an apparent paradox. Short-term scarcities lead to long-term abundance. Rising commodity and other prices leave us better off in the long term, even though worse off in the short term.
Similarly, increased population and economic growth are more likely to lead to solutions to climate change than policies that retard growth. The costs associated with emissions abatement, climate change adaptation and related innovations become easier to bear the richer we become.
Increased population density is also an essential part of the process by which population growth leads to rising living standards.
Proximity to other people confers benefits on the inhabitants of big cities, which is why they are willing to incur significant costs in the form of increased congestion and higher land and house prices.
This is not necessarily an argument for a bigger population or higher immigration, but it is an argument for being much more relaxed about short-run costs and for a greater policy focus on the long-run benefits of population growth and immigration.
Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies.
