Policy Monographs
Hands, Mouths and Minds: Three Perspectives on Population Growth and Living Standards
The long-run relationship between population growth and living standards has been a source of controversy among Australian economists, no less than for the general public. There is little argument that population growth and immigration have contributed to ‘extensive’ economic growth, that is, growth in the size of the Australian economy. There is much less agreement on the crucial question of whether population growth and immigration have also made a positive contribution to ‘intensive’ growth, that is, growth in real national income per capita, a widely used proxy for living standards. Historically, the ‘populate or perish’ imperative was the main source of popular and political support for population growth and immigration. Population growth was supported for reasons that were as much strategic as economic. The focus of policy was on economic development and extensive growth rather than intensive growth, although improving average living standards has always been a concern for public policy.
The main theme of this monograph is that Australian economists have for the most part relied on the Hands and Mouths perspectives in arguing either for or against population growth and immigration. However, neither of these perspectives offers clear or compelling conclusions about the implications of population growth for long-run living standards. Even those who favour population growth and immigration have not been able to make a compelling case based on these two perspectives. The monograph argues that economists and policymakers need to change the way they think and talk about the role of population growth in driving economic growth by adopting the Minds perspective. This perspective can be augmented by a more conventional ‘gains from trade’ argument for immigration that has also been neglected in contemporary debates. Having reviewed each of these perspectives in an Australian context, the monograph considers the implications for public policy. It argues that the permanent migration program should be allocated via competitive auction to minimise inefficient non-price competition for permanent migration rights and to enable government to better capture and redistribute the economic rents attached to these rights.
Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies and a Senior Lecturer in economics at the University of Technology Sydney Business School.
