Until now most economic study has been preoccupied with the reasons one country’s economy is healthier than another’s. The comparisons help us discover the best practices. Over the years, we’ve improved economies by learning from each other and adopting the models that are most successful. On the whole, the evidence has demonstrated that nations with market-directed economies are more successful than those with centrally planned economies. The big centrally planned economies of China and the former Soviet Republics have, over the last few decades, converted to more market-driven systems. And they have found new prosperity.
Economists have paid a lot more attention to the relative success or failure of national economies than to the larger dynamics of the world’s economy. Students of economics understand the reasons why one nation outperforms another better than they understand the fundamental forces that direct the human economy as a single entity or the symbiotic relationships that support groups of national economies. Likewise we find it hard to track economics across long periods of time. What events occurred in the 19th century that made some nations prosperous in the 20th century? Are events occurring today that might undermine our economic health 30 years from now? We’re pretty comfortable looking at one national economy and its condition today. When we aggregate more than one national economy and then try to track economic trends over time, the equation’s complexity increases by orders of magnitude. It’s difficult for the economist to get his or her arms around the global economy as it evolves across the decades.
Economists are aware of this gap in understanding. They recognize the complexity of their subject matter. They make allowances for what they call “externality.” In economics, “externality” refers to the effects of an economic event on parties not directly involved – people in faraway places, in the past or in the future. The most vivid illustrations of externality, these days, come from the environmental realm. The carbon we’ve added to the atmosphere by burning fossil fuels has had relatively little effect on the people who pumped the oil, sold the oil or burned the oil. Most economic studies quantify our reliance on fossil fuels as a logical reliance on a relatively abundant natural resource. Viewed in this way, fossil fuels have been a precious resource fueling prosperity and innovation for more than 100 years with almost no bad effects. If negative environmental consequences are not felt within the economy where the petroleum is produced or where it is burned, then those consequences are “externalities.” It is increasingly evident, however, that burning fossil fuels has a generalized effect on the health of the planet overall and that it will have an effect on the health and welfare of future generations.
Those effects are external to most economic models, and it’s hard to quantify them.
Economists are attempting to measure the effects of externalities like long-term environmental consequences. Economies that accurately evaluate the costs of their products are more efficient. If oil were taxed to pay reparations for the long-term environmental consequences of its extraction and consumption, then governments could use the additional revenues to mitigate the damage. Consumers might use less oil because it would be more expensive. Either way, the “externality” of environmental damage would be a measured factor in the economic equation. We would at least be aware of the true economic effects of our behavior.
Nigeria’s birthrate would be external to most equations measuring economic growth in the United States even though Nigerian labor provides a lot of affordable oil to Western industrialized nations, and lots of Nigerians emigrate to wealthy countries where they provide high-quality, low-cost labor. Africa’s population increase is not routinely measured as a factor in the economics of England, France or the United States. But effects are felt nonetheless in both negative and positive ways.
Some economists conclude that stable populations are good for national economies because the most prosperous nations record the lowest birth rates – the demographic-economic paradox again. Though we can speculate on the effects of stable population on economies, the fact is we don’t have any real-world knowledge to draw on. A few nations have stabilized their populations, but they depend on population growth in other parts of the world to supply cheap labor and new consumers.
Every nation in Western Europe is supplementing its population with immigrants. In 2005, the most recent year for which I could find a firm number, 1.8 million new people moved to Europe from elsewhere. Somewhere between 45 million and 60 million people living in the United States today are in first-generation immigrant households. About 17 percent of people living in the United States are immigrants.
Bluntly, we have no examples of economic growth occurring in the absence of human population growth. The expansion of our species has always supported the expansion of our economies for as long as we’ve been keeping track, yet wealthy nations generally ignore the growth in foreign populations when they measure their own prosperity. It appears that the United States is an economic success story standing on its own two feet, but to what extent does our prosperity depend on a steady stream of ambitious immigrants? On the other hand, how prosperous will we be when North America’s population reaches a billion people?
Population growth is a Ponzi scheme and we’re setting up future generations as its victims. We are paying into the base of the pyramid with our natural resources.