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BOHANON & CUROTT: Population slowdown problematic for economy

April 12, 2019

Economic Analysis by Cecil Bohanon & Nick CurottU.S. population growth is slowing down, and it’s a problem for the economy. At the local and state levels, the benefits of a growing population are obvious. Growing counties in Indiana are flourishing. Counties losing people are in decline and desperate to prevent it.

At the national level, population growth is just as desirable. GDP growth is the sum of the growth rate of the labor force plus the growth rate in labor productivity. Unfortunately, the size of the working age population has been growing slowly and even shrank slightly last year.

This poses a real problem for our nation’s finances. National debt has rapidly increased relative to the national income and is projected to continue rising due to changing demographics. Without population growth, higher-than-usual rates of productivity growth will be necessary to service and pay off this debt and meet future entitlement obligations for Medicare and Social Security. In the absence of such a productivity miracle, our transfer programs for the elderly will become pyramid schemes without enough people at the bottom.

Our predicament is instructive because people typically fear too much population growth, not too little.

Economics got its moniker of “the dismal science” from Thomas Malthus’ 1798 “Essay on The Principle of Population,” which argued unchecked population growth would cause famines, pestilence and wars. Since Malthus’ day, world population has increased six times, while income per person has increased 16 times. Yet somehow this hasn’t prevented fear mongers from continually warning that a population bomb is about to explode.

The fear of population growth is fundamentally misguided. Our standard of living depends upon other people. Just imagine, if there were only a hundred people in the world, they’d all be incredibly poor. Same thing if there were only a thousand or a hundred thousand. Empirically, throughout all of history, higher rates of population growth are associated with higher per-capita economic growth rates. Sure, having more people around creates more problems. But it also means there are more people to find solutions to these problems.

The only viable solution to getting more people in the USA is a more open immigration policy. Legal, to be sure. But just as it would be folly for Indiana counties suffering population declines to post a sign saying “new folks not welcome here,” it is foolish to have a national policy limiting immigration. As Bluto said in Animal House: We need the dudes.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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