Population Growth: The Key to Stabilising the Economy?

Steffen et al. (2015) debates whether the Great Acceleration can continue. They argue that the history of economic growth has consisted of periods of recession and boom; otherwise known as the business cycle trend. However, they then draw on Costanza et al.’s (2012) suggestion that the stabilisation of population may lead to a stabilisation of economic growth. I however, am not convinced in the slightest.

The first concept I learnt in economics was that of the basic economic problem: scarcity. The nature of being human is that we always want more. There is always something more we could have, and we strive to achieve this maximum level of happiness through the acquisition of goods. Resources are finite and are thus insufficient to satisfy all human desires. Due to this, the population may begin to stabilise, but human aggregate demand, may not fall. In fact, demand may increase, as there are fewer people to distribute GDP to. Therefore, GDP per capita would be higher (as I’ve stated in a previous post), encouraging people to spend more and fuelling economic growth.

Assets would continue to increase in value, as the economy booms, until such a time when the ‘asset bubble’ bursts, and prices fall dramatically. These exogenous variables have a detrimental effect on the economy, which often leads to a recession. The economy then recovers and the cycle continues. My view is therefore that, regardless of whether or not population is stable, declining, or increasing, the business cycle will continue. By collating UN data, I have created a graph showing population growth and GDP growth for Hungary between 1992 and 2014.

From this graph, it is clear that population growth has been negative since 1992, demonstrating Hungary’s population decline. However, in 1992, GDP growth is shown to be at -3.06%, and in 2004, it is shown to be at 4.79%. This demonstrates that though population is declining, the nation continues to undergo periods of boom and recession, i.e. the business cycle.

So, human population growth rates will not necessarily affect aggregate demand unless population declines significantly enough. The magnitude of effect that human activity is having on earth systems however, may lead to investment and indeed the development of different markets. Next post will discuss emerging markets of the Anthropocene with the focus of prioritising planetary boundaries.