Three Perspectives on Population Growth and Living Standard

December 29, 2011

The long-run relationship between population growth and living standards has been a source of controversy among economists.  Disagreement stems from the crucial question of whether population growth and immigration have 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 advocacy of high rates of population growth in order to increase the total size of the economy has overshadowed concern about living standards.  However, recent discourse over the impact of migration and internal population growth has given rise to three separate schools of thought in this regard, says Stephen Kirchner, a research fellow at the Centre for Independent Studies in Australia.

  • The "Hands" school believes that the impact of a growing population on living standards is largely neutral and that the marginal cost of an additional citizen is in parity with the marginal benefit.
  • Advocates of the "Mouths" theory believe that a growing population, confined by limited national resources, will suffer from a strained scarcity of goods, and that this strain will lead to rising real prices and negative effects on the population.
  • The "Minds" school argues that increased population growth not only increases the size of the economy but also raises standards of living because of the additional human capital that is capable of creating new ideas and innovations.

This final school has several lessons that policymakers should take into account when defining population growth incentives and migration policies.  Theorists have offered numerous studies that point to increased investment in research and development, along with the invention of brand new ideas, as two of the greatest drivers of aggregate economic growth.  They have also shown in several cases that an increased population, with more minds and more thinkers generating ideas, brings about these effects more quickly than a smaller population.

Addressing claims made by advocates of the "Mouths" theory, those who support the "Minds" point of view accept that a higher rate of population growth and augmented population density often increase real prices of goods and resources.  They counter, however, that the increased innovation and ideas that are generated by a growing population resolve this problem and numerous others more quickly than a smaller population that does not innovate as quickly.  In short, the marginal economic strain of additional citizens is outweighed by the positive social spillover effects of those individuals.

Source: Stephen Kirchner, "Hands, Mouths and Minds: Three Perspectives on Population Growth and Living Standard," Centre for Independent Studies, 2011.

For text:

http://www.cis.org.au/images/stories/policy-monographs/pm-123.pdf

 

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