More failed arguments for population growth

By Leith van Onselen

Yesterday, WAM Capital’s Matthew Kidman wrote a article in Business Day arguing that Australia must increase population growth, in particular immigration, or it risks destroying the economy. Let’s take a look.

THE first policy a new federal government should dust off when elected next year is ”Big Australia”…

The reality is though that without population expansion Australian economic growth will stall, placing pressure on company valuations and the performance of the sharemarket. Live examples of this already exist in Japan, Italy and Greece. Australia needs a demographic policy that involves targeted population growth.

According to the Australian Bureau of Statistics, the economy grew at an annual pace of 3.2 per cent in the 1990s of which 1.5 per cent was contributed by population growth. In the first decade of the new century, the local economy ratcheted up its growth to just under 4 per cent per year of which population growth can be credited with 1.8 per cent.

As is well documented, the Australian population, like many other Western nations, is getting older.

In the latest census released last month, it stated that the median age of Australia was 37 years old, up five years in two decades. This is not in itself a concern given that the working population, defined as those people aged between 15 and 65 years, actually increased as a percentage of all people during the same period. The working population is the productive component of society.

This, though, is about to change. It is estimated that by 2015 the median age of Australians will jump to 39 years and the working age will start to shrink from about 67 per cent of the population to 66 per cent. While it does not sound significant, it effectively means demographics will go from being supportive of economic growth to a handbrake.

The Reserve Bank of Australia released a report in 2010 analysing the impact of demographic change on economic growth in a number of countries. It concluded that from 2011 to 2020 demographic changes relating to population growth and the size of the working-age population would reduce economic growth by a full 1 per cent per year in Japan. In the prior decade it had contributed a positive 1.1 per cent.

That is enormous burden to carry for a country that is struggling to grow because of the Japanese penchant for saving instead of spending…

A study by the Federal Reserve Bank of San Francisco in 2011 said the ageing population was already having a significant impact on the sharemarket, with the price-to-earnings multiple investors are willing to pay for equities already falling as the median age increases.

Correct me if I am wrong, but isn’t the key purpose of economic policy to increase the welfare of all Australians, not to boost company valuations and asset prices?

From a narrow economic perspective, population growth (immigration) is good only if it raises the real average incomes of the pre-existing population (e.g. GDP per capita). While it is true that Australia’s high population growth over the second half of the 2000s boosted Australia’s real GDP (more labour inputs, other things equal, means more outputs), there is little empirical evidence to show that GDP per capita increased due to population growth. In fact, as the below chart shows, real GDP per capita has flat lined since 2007. So while the economic pie has increased in size since 2007, because of high population growth, everyone’s share of that pie has remained relatively stagnant!

Back to the article.

Australia’s population has grown approximately 1.4 per cent a year over the past 20 years. If this rate continued to 2050, then Australia’s population would hit 38 million, some 3 million more than what Rudd’s Big Australia would contain. So fears of the population growing out of control are ill-founded.

Clearly the author does not understand the nature of compound growth. Although a population growth rate of 1.4% sounds benign, it can have devastating consequences over a long time frame as the laws of exponential growth kick in (see below chart).

While you might think that the above chart is facetious, as population growth could easily be curtailed at some point in the future, the fact remains that there will always be vested interests pressuring governments to expand population growth in the face of an ever-ageing population.

The issue of an ageing population will need to be addressed at some point irrespective of the level of immigration. Simply importing more workers to cover the retirement of the baby boomers only delays the ageing problem, pushing the problem onto future generations. What will be the population boosters’ solution in 30 years time when current migrants grow old, retire and need taxpayer support? More immigration and an even larger Australia? In this regard, a “Big Australia” brought about by high immigration is just another ponzi scheme.

Back to the article.

The case for an orchestrated increase in the population gains currency when one considers the decline in the other two major contributors to economic growth – terms of trade and labour productivity.

The terms of trade have been a major driver of economic expansion in recent years, but it may have peaked recently with the crest of the mining boom. Meanwhile, labour productivity has been declining in relative terms for a decade with no signs of reversing.

Again, the author fails to differentiate between the overall growth in Australia’s GDP and growth in GDP per capita. The latter is most important as it affects living standards. And in the long-run, growth in per capita GDP is achieved through improvements in productivity, not through simply increasing the population.

Back to the article.

There are strong arguments against population growth, mostly concerning social change, environmental pressures and a lack of infrastructure. Policy must accommodate all of these concerns but none should be insurmountable if a detailed plan is constructed. In fact, if Australia managed to come to terms with its poor infrastructure, dearth of water and lack of geographical planning, the country would be significantly improved from a lifestyle and productivity perspective.

The problem with the above argument is that population growth, in itself, requires costly investments in new infrastructure (e.g. desalination plants) that would not be required absent population growth. And let’s not forget the other direct costs of population growth, including:  environmental degradation, water scarcity, increased pollution and congestion, and lower housing affordability.

I do not hold much hope that these issues can be successfully managed given that Australia’s governments have failed so dismally in providing for the existing population, let alone millions of extra citizens. Further, it will be near impossible for Australia to reduce its carbon footprint and meet international pollution reduction targets with a substantially larger population.

Back to the article:

Finally, the world is forecast to grow from today’s 7 billion people to about 9 billion by 2060. After this it is expected to stall and then eventually shrink. With less than 23 million people, Australia, as a developed nation, should be expected to contribute to accommodating more people in a crowded world.

Sure, there are legitimate reasons for Australia to increase its humanitarian intake of refugees. But the author’s argument seems to directly contradict his earlier claim that Australia should aim for “targeted population growth”, presumably skilled migrants (thus depriving developing countries of these valuable workers):

Australia needs a demographic policy that involves targeted population growth… If a targeted population growth policy was implemented, it would require a careful selection process that kept the nation’s median age down and, more importantly, retained a similar-sized working population.

Let’s also not forget that Australia earns its way in the world mainly by selling its fixed mineral resources. More people means less resources per capita. A growing population also means that we must deplete our mineral resources faster, just to maintain a constant standard of living. This is hardly smart policy from an inter-generational welfare perspective.

Ultimately, it is living standards that matter most. And on this count, rapid population growth is a negative for Australia. That’s why views like Mr Kidman’s should be taken with a tablespoon of salt.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

Comments

    • Leith – Kidman’s article is quite reasonable – you are being a tad harsh (financial instos obviously want the good times to keep rolling on … but we both know they won’t), especially given the next 10 to 12 years of inevitable contraction in the economy if immigration is not increased to fill in the hole X Gen is about to leave/create.

      X Gen is just reaching peak spending, of course they were born in the early 60’s when the PILL was introduced (1962), which sent births back at the rate they increased into 1962 … for 10 to 12 years to 1975 – the perfect dumbbell pattern for those wondering.

      Peak spending occurs at 46-50 years on average, so the 10 to 12 year downturn has started 46 plus 1962 = 2008, we have another 8-10 years to go before total GDP picks up as Y Gen start hitting their peak spending years 1975 +46 = 2021. Albeit at a slower rate to what we have experienced in the last 30 years due to an ageing population and the inevitable over shooting in the other direction (people putting their wallets away – heaven help businesses in the discretionary space).

      I’m not surprised average wages have come off – that is a natural outcome of the workforce in a period of unavoidale contraction. Plus people hit their peak income in their late 40’s/early 50’s (add that to 1962 when we hit peak births = an inevitable pivot point in or around 2010-2012 so average earnings are going to weaken for some time to come if you want to focus on that statistic) … it is of course all downhill as workers are spat out and have to get work at a significantly lesser rate of pay to survive … let alone maintain their standard of living (“under employed” for the rest of their working lives) or become self employed if times are really tough ie: bugger all jobs for people over 50 (of which they are facing right now).

      Throw in a credit crisis in 2007 – meaning people not spending as much – ie: saving and paying debt down and you have a perfect storm for a long hard 10 years in front of us. Our hard landing is just around the corner and nothing can stop this … except … to speed up immigration for the next 10 years (specifically families going into peak spending, ie: early 40’s with 3 kids) and slow it down when the demographics work in favour of sustainable GDP growth some 10 years on.

      I’m not advocating a big Australia policy long term – just pointing out the under lying demographical drivers behind consumption (people going through their predictable spending life cycles).

      An ageing population will really hurt us as these people (the baby boomers)save and do not spend and will look for health care and welfare as they head for their 90’s. This will of course create a drag on spending recovery as the Government will increase taxes to accommodate the baby boomers final binge out of the public purse.

      The reality is that we have 10 years of contraction, politicians should be looking at pro active policy to soften the blow – immigration is indeed part of the solution.

      What happens when GDP resumes growth in the early 2020’s … well, that would require the reversal of such immigration stimulus and allow the country to grow under its own steam again.

      Bottom line, this decade is going to be a real wake up call as we adjust and plateau our life styles/standard of living, just as the Japanese had to for the past 20 years (they have more ahead of them, as in contraction, having the most chronic ageing group of people on the planet), ironically for the exact same reasons as outlined in my reply … but not because of the pill being introduced, it was because they chose not to populate a few years after their men returned from WW2 – now that graph really is worth a look! Especially the lead into WW2 and there on … it is frightening.

      Phil

  1. Maybe if they had plans for huge amounts of infrastructure and to put more white collar work without the pay cut in regional cities it might be vaguely palatable.

    But it’s as plain as day that these are people who want a return to the Dickensian times, or in the case of lefties they find it appealing to live in grey dogboxes like they did in communist countries?

    The only way to end this sickness is to vote for the Stable Population Party.

  2. Pretty much how I see it Leith, your statements below pretty much sum it up for me,

    “But isn’t the key purpose of economic policy to increase the welfare of all Australians, not to boost company valuations and asset prices?”

    “Let’s also not forget that Australia earns its way in the world mainly by selling its fixed mineral resources. More people means less resources per capita.”

    • I’ve mentioned it before and I think its great that you mentioned it.

      “From a narrow economic perspective, population growth (immigration) is good only if it raises the real average incomes of the PRE-EXISTING population (e.g. GDP per capita)”

      Most economists seem to ignore the PRE_EXISTING bit and focus on the total GDP increase. Most of the benefit of migration economically goes to the actual migrants rather than the country as a whole. If existing people are also incurring a massive cost of this it is up to governments who should be serving the current shareholders of the country to set policy that maximises the welfare of its citizens. Maybe I’m being too idealistic here though thinking government should be for the people rather than vested interests who would love population growth.

      • Most of the benefit of migration economically goes to the actual migrants rather than the country as a whole.

        Can anyone explain to me why this is true?

        Not contesting that this is false, but given that (1) the migrants are able to find themselves a job without driving up the unemployment for the rest of the population, and (2) they are paying their due taxes, I am having a hard time wrapping my head around it.

      • drsmithyMEMBER

        Can anyone explain to me why this is true?

        I’d hazard a guess it’s because there are going to be roughly two types of economic migrants:

        a) those who are substantially worse off in their country of origin than the average in Australia. So the bulk of their “economic benefit” goes into bringing them up to (roughly) the average in Australia.

        b) those who have immigrated because they have specific in-demand skills. So the bulk of their “economic benefit” goes to them because they are the owner of a scarce resource.

      • There was statistics I saw some time back that bascially summed this up.

        The argument is that while the GDP that the migrant gets to enjoy rises the marginal cost vs benefit of bringing them in may be greater for the existing population (which have to bear it).

        It’s the reason why I don’t agree with the premise “this country was built on migrants”. Back then the cost vs benefit of a migrant was in favour of that. We had the infrastructure that was otherwise being underutilized so there wasn’t as much cost in adding an extra body. Now that we’ve hit natural and infrastructure barriers (transport, medical care, water, land in capital cities, and more) it’s safe to say with the preferences of most migrants (either Sydney or Melbourne) the benefit they bring on average isn’t probably worth the cost of overcoming these constraints.

    • Yes, but GDP per capita doesn’t say anything about living standard, because of the growing inequality. If the wealth of Gina R. etc. grows 2-3 times for a given period, then the GDP/capita will grow too, but maybe the standard of living of 90% of the population will be stale or even worse. It is really time to change the measures of society’s well being.

      Re this statement: “But isn’t the key purpose of economic policy to increase the welfare of all Australians, not to boost company valuations and asset prices?”

      I am surprise you are surprised and asking this question about something only theoretically supported in the previous century. If it was about society’s well-being and not keeping up assets’ valuation and share market growth, there wouldn’t have been twice useless from society’s well-being point of view, quantitative easing. The governments are only concerned about the big sharks, not about the krill. The same amount of money spent on the 99% of the population, not for the top 1%, would have already solved the debt crisis.

      What about Bernanke giving a report on the economy??!!?? Isn’t he only a banker of the banks, not a treasurer or a policy maker? This is ridiculous and everything on the Western global stage is ridiculous and sad. We have to wake up for this stupidity and market ideology, which is destroying our freedom and democracy. We don’t live for the share market or to grow asset valuation of the corporate world. We have lost the meaning of life.

      • Jumping jack flash

        You are correct.

        The statistics are basically useless because they are being used to average out huge and growing disparities between the top 10% and the bottom 90%. The methods they’re using do not lend themselves to doing this well.

        It is little wonder why there is so much volatility – a small change in the growth of the 10% is amplified by the stagnation and falls of the 90%. The statistics need to be completely overhauled to paint a proper view of what is happening, but this will never happen because it would reveal exactly how bad things are for the everyday person.

        At the moment, their average of the average of an average shows that things are still limping along ok, so it’s best not to look at it too hard.

  3. This should be published in newspapers. The constant obsession with GDP instead of GDP per capita is very dangerous as this article points out.

    • MsSolarFelineAU

      Yes, Rich, that probably would have been moi. Glad the message is spreading around! (I’m known to post these links quite a bit, and probably annoy peoples…. 😉 )

  4. russellsmith55

    I saw that article, got annoyed, quickly moved on. Glad you put the time in to tear it apart 🙂 The ageing population problem isn’t fixed by hiding it in the short-term and greatly exacerbating it in the long-term.

    The most fitting analogy I can think of is trying to solve a forest fire by hiding it under an even bigger, drier forest.

  5. These pro population guys are usually mentally bankrupt on how to increase revenue or productivity, so they see the cheap and easy way of having the government importing more consumption to cover their backside.

    The bonus for them? They’re so far removed from actual society that they’ll never have to experience the downside of the dystopia they create.

  6. Thanks for this very interesting analysis yet again. The problem with stuffing more and more people into our country is that most of them want to live in Sydney or Melbourne and there’s already huge problems in our major cities with unrestricted population growth.

    I worked casually in a social housing service earlier this year and that was a real eye-opener; every day you’d have Kiwis who’ve landed in the country with no accommodation or jobs but a whole lot of expectation; ditto with refugees or recent migrants. There was always this expectation that we had a bank of empty three bedroom houses in Kew or Fitzroy for them to move into; people think you are lying when you tell them they will have to settle for shared or boarding houses in Clayton or Dandenong – they really thought they should be entitled to their own housing commission place just because that’s what the Australian government does for people.

    If policy people really want to crank up the population handle then we need to do something about housing policy so that there’s a variety of options for new migrants including cheaper subsidised or housing commission (perhaps on a five year lease) so they can get established… at the moment there’s nothing like that happening and we aren’t really housing the people we’ve got.

    • I thought the Kiwis needed to cover themselves (money, accommodation, healthcare etc) for two years before they could access welfare. Has this changed or are these guys blatantly ignoring the laws and lobbing onto welfare doorsteps?

      • Jimbo you are right on the money but it still doesn’t stop them… I had Kiwis going ballistic at me because they didn’t have Health Care Cards and the only solution for them is to either get a job or contact the New Zealand consulate and tell them you’re broke and need to go home. One woman I met had been living and working here for eight years but never got around to getting citizenship; I had to give her the bad news – not a citizen? Time to go back to Kiwi-Land.

        Melbourne is a stupidly expensive city anyway – if you don’t have a job then you’ve got big problems and you might need to consider leaving. The old days of the Housing Commission giving you a flat in Carlton straight away went out with flares and Toranas.

      • as a kiwi there is a lot we dont get on the special category kiwi visa. Basically anything out of centre link is off limits unless you arrived here before the cut off date in the 90s. This puts Aus in a pretty good position, during a skills shortage you get workers pre trained courtesy of the NZ tax payer, and if the economy goes sour the kiwis have to go back to NZ to get the dole. we do get other benefits however eg child care rebates, medicare (but we all pay for that as taxpayers), free / subsidised education. And its no easier for kiwis to get residency / passport than other immigrants (not saying that it should be).

  7. He’s one of many who fail on this topic. In Melbourne this week there is a conference of soil security, and it’s a big issue globally. No thought of this issue by these guys. In fact not thought of sustainably totally.

    In my part of Melbourne it’s gone from a nice place to live to crowded and lacking in infrastructure; more is not better, but that’s all we get thrown at us.

      • Better than that. The average back yard is the same as any of the new estates you find around Oz for a fraction of the price.

      • But the wonder is that the Netherlands does not have even higher property prices than it does, given its GENIUNE lack of space, and the wonder is that Australia with all its millions of square kms, has managed to engineer itself housing price median multiples of 6 to 10 in all its cities.

        Notice that Aussie section sizes in new developments shrink in size at the same time as increasing tenfold or more in price; thanks to urban growth constraint mania. This is indeed what happens; it is a lie (from the “smart growthers”) that reduced consumption of land will more than compensate for inflated land prices. It NEVER does.

      • They have something called infrastructure. Freeways, and multiple CBD’s. If you change jobs you sell your old house and buy another closer to your new work.

      • PopulationParty

        The Netherlands has to import around 80% of its resources. If you put a bubble over it, there would be chaos.

        Their sustainable population (at present lifestyle) is around 4m.

      • Ironically, the need to import most resources, seems to correlate with some of the world’s wealthiest nations. “Value added” seems to be where it is all at, provided you don’t end up cut off from suppliers by U-boats or something.

        It is ironic that there is so much hysteria in the West about land and resources, yet so little sympathy with, say, Japanese Imperial ambitions in 1941. What were they supposed to do, with 100 million people with less space than NZ; if our own hysteria is at all justified?

      • It’s not irony, it’s a paradox: http://en.wikipedia.org/wiki/Leontief_paradox

        Added value of mining (prime Aus industry) is close to nothing. While it’s labour-intensive is’t not efficient. The country doesn’t have a know-how to compete among its global counterparts.
        Contrary, Taiwan has electronics production as its primary industry, so a significant value is added to raw materials to become, say, a laptop. Electronics production is R&D-intensive and much more efficient.

        Developed countries are happy to outsource their labour-intensive and value-adding-inefficient industries to a third world.

  8. Thanks once again for tearing this argument to shreds. It will keep coming back, unfortunately, but will hopefully get less traction the more people read this blog.

    Keep fighting the good fight Leith!

  9. Outstanding work Leith. I’ve always thought that the Big Population folks are fools, corrupt, or both.

    Analysis of this nature is what keeps me coming back to this site.

  10. GunnamattaMEMBER

    I think many of the people on this thread are being unAustralian.

    1. We are a land of migrants etc etc etc
    2. increased migration will help keep labour costs down (or so the Gottleibsen crowd would have us believe)
    3. increased migration will help spur demand for real estate (so the baby booming fraternity believe – and they wont have a conceptual problem with people of the type they are still fighting to prevent coming in coming in when realise those trying to get in are their payoff and someone explains to them they wont actually have to live with the increased migrants, but that their sons daughters and grandchildren will).

    Its that simple – the neocons and property development types are out there shilling away already about it……

    • I love the smell of shilling in the morning.

      How else is HRH going to sell his apartments?

      • He doesn’t ‘need’ to sell them. He holds them forever empty! There’s a winning long term strategy.

  11. ceteris paribus

    Great critque UE.

    The things that annoy me about these pro-population articles are the barely-hidden assumptions, like
    1. We live first and foremost in an economy, not in a society or a wonderful environment.
    2. Australians are much too dumb to grow througth smart, sustainable development- just go the lazy route of endless expansion.
    3. For heavens sake, don’t invest in education, training and skills,just ship in the fodder required now, today.

    The pro-population group are pessimist, untrusting and profit-driven rather than optimistic, visionary and deep value-creating.

    • Hang on, isn’t it smarter to have the critical mass to have economies of scale in local “value added” industry rather than shipping the raw resources overseas?

      Australia could have dozens more cities without anyone being aware they were even there unless they flew over them. The Netherlands with its 20 million people would fit into the space between Melbourne and Geelong.

      Ross Elliott has some interesting exercises of this nature on his blog.

      http://thefingeronthepulse.blogspot.com.au/

      • Yes but does the Netherlands produce enough food to feed itself and do they have many national parks with lots of larger wildlife. I would think not and the only reason that they live in comfort is that they can import food from nations that have it in excess. Not all nations can be net food importers and I would be quite happy for Australia to stay as a net food exporter. It will give us something to export after all the mines run out, that is provided all the farms haven’t been sold off by then.

      • It is still far more sensible to use your food production and your resources, if you have them in abundance,in your OWN value added sectors, not export them for others to add the value. it is perfectly rational to let your population level find a sensible balance along these lines. It is irrational to get all hysterical long before that point, and carry on as if you ARE the Netherlands or Japan.

  12. Yes, from almost every perspective greater population is not a positive. Particularly from Environmental perspectives too.

    Strange how the places which rate highest in the living there standards are low population. I can’t recall reading about any part of India or Pakistan being high in that…

    I had thought it was just based on blinkered and shallow interpretations of national defence and production:

    http://mylittlecolony.blogspot.com.au/2011/07/populate-or-perish.html

    but the ponzi realestate aspect rings true too

  13. Mmmm..
    1. Our death rates double in the next 25 years as the boomers start to leave the home planet. This will result in our natural growth dropping to zero or even perhaps negative.
    2. 4.1 million boomers born here and now we have to support 80% of the 5.2 million here now with pensions and free health due to immigration.
    3. We have peaking emigration at the moment. 75% who leave are managers or professionals and the ABS is wrong about most returning within a year. Tha data does not support the claim.
    4. I think we can have a stable or a reducing population and still have economic growth.
    5. 1/3 of our population growth in real numbers is our demographic momentum, or more people living longer. Same for the developed world.
    6. Most bots do not even know that many countries now are in population decline.
    7. Have a look at the Spending Indicators on http://www.health.gov.au/internet/main/publishing.nsf/Content/concisefactbook-march2012-introduction
    Simple… Bring more in, they get old and cost more than the initial economic benefits they bring as taxpayers.

  14. It’s great to see the counter case put out there UE.

    The best comment i have seen above is that the biggest populations never ever ever coincide with the most liveable places.

    The party system in Australia wants population growth because their corporate masters want it.

    • JacksonMEMBER

      The party system in Australia wants population growth because their corporate masters want it

      provided they don’t get here by boat.

      • Not really a material number, and more useful for politics I guess. But the the xenophobia and fear around boats debate probably does have its roots in the punter’s loss of control over over the population debate.

  15. Jumping jack flash

    If people are caught up in the multi-cultural ideology then that’s great, we all love Thai and Indian food, and Asian chicks are hot, but the reality is that we have kids that need jobs and training that simply won’t be provided if we import trained and experienced professionals to take their places for the same cost.

    I suppose the kids can all head over to Thailand and India to work in call centres, at least then you’d be speaking to an Australian…

    Oh, I may be onto something there!

  16. I always reckon the best argument agaisnt a big australia is Switzerland. Population in 1968 was 1/2 that of Australia, now it is about 1/3 of Australia, has no natural resources, the highest wealth per head of population, and they are the 6th largest landowner in NSW. It just shows that brains, and efficency is the best way to grow GDP.

    • Switzerland is more of a good example of a “value-added” economy, than a lightly-populated economy. No nation in the world is wealthy just because of being lightly populated and a major resource exporter. But there are plenty of resource-poor, people-rich nations that ARE wealthy.

  17. anonysubscribe

    and we invest with such soothsayers soothing us with their false shallow arguments.

    and pay them big bucks to invest our money!
    WAM
    BAM
    no thank you…

  18. George Locust

    No doubt Mr Kidman lives in a comfartable, leafy gentrified suburb somewhere with good schools, public transport and other amenities.
    I suspect the closest view he has had of our big city outer urban sprawl is from his first class cabin window as he flies off to yet another foreign vacation with the family.

    • Urban growth containment CAUSES inequalities. Patrick Troy, Australian National University, published the definitive book on this back in 1996, it should be compulsory reading for any Australian who wants to call themselves an expert.
      Classic quote from Troy: “Growth containment is just code for reduced standards for everyone who can’t buy their way out”.

      • It’s naive to think this wouldn’t just be owned by the same capital. And god we’d have to travel a long way to find some space that wasn’t part of the polluted hive.

      • Your assumption is completely and utterly wrong. The rate at which an urban fringe grows per year, represents literally only a few seconds driving distance. As long as developers can “leapfrog”, nobody BOTHERS to try and “corner” the supply of land – how else do you think the affordable cities in heartland and Southern USA have stayed affordable and stable in price for all of living memory?

        It is only when there is a boundary or a regulatory quota scheme, that “capital” gets to corner the developable land supply; and even this is an unfair assessment. The truth is that developers are FORCED to engage in “life-raft ethics” fighting for a share of the supply of land, just to stay in business. The real beneficiaries are the incumbent rural land owners, and/or any wiseguy who managed to buy the land not TOO long ago from a genuine rural owner, at a genuine rural price.

        It is one of the typical despicable reversals of morality from the Left/Greens that this issue always gets framed as “greedy developers” versus humanity. What about the “greedy incumbent property owners” who actually do NOTHING WHATSOEVER to reap thousands of percent capital gain? And it gets worse. Because land rent curves slope up from fringe to centre, and maintain their shape from fringe to centre when the prices are inflated, it is perfectly rational for one single significant CBD property owner to throw millions at “conservation” activist organisations; all rationalised and bowdlerised as those property owners legitimate “social concern” and genuine care for the environment……!

        “Baptists and Bootleggers”, look it up if you don’t get it.

      • Simple theory but just doesn’t play out that way partic on sought after coastal land. Two words – Gold Coast.

      • Actually PB this mindset doesn’t address the problem at all – which is the financialisation of social assets due to poor financial rules.

        The solution proposed is a kind of dodgy (and in my view mostly unsuccessful except in the centre of nowhere) way of avoiding facing up to another issue.

      • There was actually an intelligent political debate around the year 1900, concerning whether Karl Marx’s “solution” of nationalisation of land was the correct one, or increased “mobility” and bringing rural-rent land into the urban economy. The latter won the debate, and all those rail lines and dormitory suburbs were as much part of averting communism as they were in the interests of public health. Read Peter Hall’s book “Cities of Tomorrow”, for a history of this.

        Automobility actually finally won the battle conclusively, rail based development could too easily be captured by the rentier classes. By giving up on automobility, we are actually reverting to the very same conditions Marx criticised, whereby rising incomes always fed into rising land rents, leaving no-one any further ahead except the rentier class. It does not surprise me now that our civilisation is so “post-enlightenment”, to hear leftists calling for the Marx solution this time, to the problem they have successfully re-imposed via their “Green” Trojan Horse.

      • PB your dogmatism would be better directed at the monetary and financial policy and rules issue. You are railing against a symptom not the disease – to open up land boundaries without fixing this would likely be catastrophic for the urban amenity.

        And really the only examples you bring to the table are a few inland cities that are competing on land prices because they have nothing else to bring to the table.

  19. Brilliant article Leith thank you for posting it. The pro population sprukiers had been annoying me more than usual over the last week or so and it was a breath of fresh air to read this.

  20. A couple of great studies on the effects of population growth and shrinkage are those by the Russian evolutionary biologist and mathemetician Peter Turchin and the American sociologist and historian David Montejano:

    http://www.amazon.com/Anglos-Mexicans-Making-Texas-1836-1986/dp/0292775962

    http://www.amazon.com/War-Peace-Rise-Fall-Empires/dp/0452288193

    Turchin explores population increases and decreases going back thousands of years and how fluctuations in population influence the relative wellbeing of elites vs. commoners.

    Monetjano explores the history of the web of immigration and labor controls for Mexican immigrants into Texas, and how these were sytematically controlled for the benefit of Texas business interests to the detriment of Texas labor.

    A general rule of thumb that can be taken away from these studies is that population increases enhance the bargaining power of the ownership class and decrease the bargaining power of the working class. A surfeit of workers means a bigger share of the production pie for ownership and a smaller share for labor, and vice versa.

    • This is the opposite of the great econometrist Colin Clark’s reading of population increase/decrease.

      Firstly, the benefit of rising productivity has always been captured more by labour than by capital. The share is typically around 70/30.

      And the rate of utilisation of capital is always better and investments more worthwhile, when population is rising rather than declining. Population decline actually has a compounding effect. I will post further below.

  21. Colin Clark’s magisterial 1967 book, “Population Growth and Land Use”, analyses numerous positive feedback loops in economies as populations are rising, that go into reverse when the population growth levels out or falls. This is even more significant in its economic effects, than resources like oil becoming scarcer and more expensive.
    I am only saying what I do here, not necessarily to argue for “more growth”, but to try and alert people to the kind of tough political options we are going to have to confront, that will go way beyond superannuation liabilities. The end of growth, either planned or unplanned, means serious recession and falling income, not equilibrium at the “status quo”.
    The development of free markets and the creation of wealth requires, along with
    a culture that encourages trust and co-operation; “connections” via transport
    and communication, between potential participants in exchange and trade. These
    connections can be the result of proximity (through density), as well as by roads and other transport infrastructure.
    There is a limit to how much density is achievable as a substitute for transport
    infrastructure, because the production of low-density rural areas, especially
    food, has to be transported to the workers in urban industry. There is actually a correlation between the “density achieved” in urban areas throughout history, and the provision of roads in those urban areas.
    Population growth is one way in which densities are increased, and “demand
    pressures” result in rural land being used more intensively and efficiently.
    Population growth disturbs a certain “status quo” that might have existed previously, where rural production levels were regarded as “satisfactory” to both the producers and the consumers of the produce.
    As population densities increase, and rural production increases, a number of
    efficiencies are realised.
    There is increased competition, and reduced oligopoly, monopoly, and monopsony exploitation.
    Increased specialisation becomes possible, because of a viable number of
    customers for the products of the specialist. “External efficiencies” are
    realised by increasingly networked producers.
    Economies are realised in infrastructure, social institutions, and government. Roads, bridges, harbours, etc, can be utilised by increasing numbers of people without capacity increases being immediately necessary. The same goes for churches and clergy, courts and lawyers, hospitals and doctors, other professionals, government bureaucracies, public buildings, educational and other institutions. This also allows for important advances in sanitation and health.
    Labour productivity growth occurs, and less additional “capital” is required for
    each additional unit of output. The utilisation of land and resources previously underutilised, is a “substitute for capital”.
    Nevertheless, return on capital increases, AND capital formation is also
    increased. A rising population results in increasing returns to existing
    investment, encouraging more investment. Less investments “go bad”, because
    there is a rising number of customers for whatever products or services the
    investor and his competitors provide. More production capital is utilised (and
    even worn out) before it becomes obsolete.
    The products that result from new investments, inventions, and efficiencies, are easily absorbed in a rising population; as are the redundancies and relocations that might be necessary. Younger people, of which there are more, are more mobile and receptive to change. The increases in wealth creation and demand, make society more amenable to changes in employment patterns as the result of advancing technology and methods. There are more valuable “positions” to go around, so that change is less regarded as a threat by those occupying positions of advantage.
    Younger people tend to accumulate capital, while older people tend to “draw down on it”. Larger families result in pressure on the parents to save more, and on the children to provide for themselves because their inheritance will be split more ways.
    (Note: Julian Simon added a further thesis to Colin Clark’s: that a higher
    population includes both more inventive geniuses, and more people to purchase
    and enjoy the fruit of those creative geniuses).
    A high proportion of government spending is inflexible to rises and falls in
    population. This spending is more efficient if population is higher. Much
    government spending is extremely difficult to reduce even when falling
    population justifies it.
    If population is falling, there is much greater pressure on politicians to cheat
    by inflating the money supply, as the fewer numbers of young simply cannot
    sustain the taxation levels necessary to keep the government running, apart from
    the burdens of caring for larger numbers of elderly.
    Younger people are rendered less able to save, capital is “drawn down on”,
    returns on investment decline, more investments fail, investment declines.
    Population increases demonstrated beneficial effects in Holland in the 1500′s, Britain in the late 1700′s, and Japan in the late 1800′s. Holland and Japan were economic successes while importing most of their food. A LOWER percentage of the workforce in agriculture, correlates to wealth increases. These increases in population and in wealth, result in a freer, more mobile society.
    Ancient Rome in its decadent phase, illustrates the effects of falling
    birthrates, including increased taxation burdens and monetary debasement.
    Declining populations, in ancient Rome and in Europe in the 1400′s, brought
    about a simultaneous shortage of workers, and yet lack of demand. Many people clung to their source of diminishing income, becoming protective and demanding restraint of competition; others had serfdom imposed upon them by the government, their freedom to relocate and change their livelihoods being removed. These seemingly contradictory effects are the result of a reversal of the “virtuous cycle” described earlier, that occurs when population is increasing.
    France, in the period from from the revolution onwards, also illustrates economic decline consequent on falling birthrates.
    In underpopulated lands, and where population is falling, the people themselves become more “protectionist” in sentiment, and more vulnerable to illusions regarding “planning” and regulation of production and prices. This only worsens the vicious circle of decline.

  22. Colin Clark: “Exploding Population Myths”

    The Annual Monash Memorial Lecture, 1977

    “The simple method of judging the trend of population by comparing current births with current deaths is open to an objection so obvious that many people fail to see it, namely, that while current births relate to the present generation of parental age, current deaths relate on the average to the much smaller generation born some seventy years ago. If current deaths are equal to current births, therefore, this must mean that population in the future is certain to decline. Now we are facing depopulation.

    World power depends, even more than it did in the past, on having a large population, not primarily in having large numbers of recruits to the armed forces; but principally in having sufficient taxpayers to pay for the enormously costly equipment which modern armed forces require.

    The cause of our infertility must be sought, it seems, in our social psychology, in a profound disillusion with the civilisation in which we live. People will undertake the undoubted hardships and difficulties of bringing up children if they have firmly fixed in the backs of their minds the belief that there is something good in the civilisation in which they live, that they live in a world worth bringing children into.

    All previous civilisations have had a faith by which they lived. We have almost entirely lost ours, and are becoming totally disillusioned with our civilisation.

    When I said at a public session of the ANZAAS 1976 Conference in Hobart that these declines in reproductivity, if not checked, would bring our civilisation to an end, a substantial part of the audience indicated by their applause that they thought that this was a desirable objective.

    Another observation to be made of civilisations in decline is that they are becoming increasingly bureaucratic and overtaxed. Governments, even more than businesses, tend to have high overhead costs, i.e., those which show little or no alteration with the size of the population which they have to serve. A stationary or declining population thus increases the comparative burden of government expenditure. It also increases the temptation on governments, faced with difficulties in raising money by taxation or borrowing, to try to get out of them by inflation.

    It is significant that France, which for a long period has had an almost stationary population, since the nineteenth century should have suffered more persistent devaluations than most Western countries.

    It can only be some irrational force of social psychology at work which led such large numbers of supposedly rational people to accept with enthusiasm the obvious nonsense about the prospect of the immediate extinction of our industrial civilisation through the exhaustion of mineral and agricultural resources; while at the same time being overwhelmed by pollution. If such people really believed what they were saying, they would have bought agricultural land and mining shares, both of which would obviously be rising rapidly in value if the world really were on the point of exhausting its resources……”

    http://www.cooperativeindividualism.org/clark_colin_population.html