Population, income and resource constraints'

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Lecture 3

• Population, income and resource constraints.

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Resource constraints and long run growth

• The first lecture pointed out that population
  decline was associated with economic decline and
• that population increase after the 9th century
  triggered off division of labour and economic
  growth
• What happens in the very long run if land is in
  limited supply?

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Major issues confronted today

• What determines the long run demographic trends?
• Why has fertility declined in the modern world?
• Why do poor people have more kids than rich?
• Can economies grow for ever with limited
  resources such as a constant supply of land?

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Economists used to say No Way!

• For Malthus and Ricardo land was the limiting
  resource.
• For late 19th century economists coal was
  supposed to bring economic growth to a halt.
• Quite a few today argue that oil shortage will
  end prosperity and Malthus still has a big fan
  club.

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The Malthus-Ricardo view

• Growth is constrained by limited resources,
  primarily land
• Population growth positively related to income
  per capita
• Technological progress is insignificant.
• Population growth will depress real wages in the
  long run because of diminishing returns and lead
  to population stagnation.

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Malthus was wrong about the future

• Since Malthus died in 1836 world population has
  increased six-fold from about one billion to
  about six billion
• Food production has increased about ten times
• Per capita production of food has almost doubled
  in 200 years
• Lets see if Malthus was right about the past

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Some definitions

• cbr means crude birth rates and is usually
  measured as births per 1000
• cdr means crude death rates and is measured as
  deaths per 1000
• The rate of population growth cbr cdr
• cbr has an estimated maximum of 50 but it has
  rarely been observed historically

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Malthusian population theory
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Preventive and positive checks

• The upward sloping cbr curve can be explained by
  the fact that preventive checks increase with
  falling income and vice versa late
  marriagesless children.
• The downward slope of the cdr curve is due to
  that positive checks increasing mortality are
  triggered off by lower income poor nutrional
  statushigh risk for diseases.

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Population growth with constant land

• Initially land per farmer is high
• High income means high cbr and low cdr
• As population increases land/farmer ratio falls
• Income per head is falling (diminishing returns)
  causing cbr to fall and cdr to increase
• Finally the economy settles at an equilibrium
  with constant population

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Malthus or climate

• The decline in total fertility (TFR) is a
  response to economic hardship, fall in real wages
• TFR declines because marriage is postponed
• The fall in real wage around 1600-50 probably due
  to worsening climate rather than Malthusian
  overpopulation
• Post 1650 increase in real wages raises TFR

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Figure 33. Real farm wages in England and
deviations from Northern hemisphere
temperature, 1560-1880
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No historical support for a Malthusian equilibrium

• There is long term growth of world (and Europe's)
  population interrupted by sharp and sudden
  decline caused by exogenous forces, such as
• political disorder, harvest failures and/or
  epidemics.
• A slow down in growth in 17th century due to
  preventive checks.
• Population growth does not tend to decrease real
  wages.

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Gentle rise,severe shocks
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Malthus technological progress population
growth
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The meaning of land constraint

• There are about 13 billion of hectares of
  landmass
• With current technology about 7 billion hectares
  are unfit for agriculture
• The land constraint is then 6 billion hectares
• 5 to 5.5 billion hectares are currently used

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But, land is a constraint only at a given level
of technology

• The most advanced types of agriculture have up
  to two crops per unit and year, crop ratio 2.
• Primitive agriculture - slash and burn has a
  crop ratio of 0.05
• The difference between the two is a multiple of
  40
• Technological progress is land-augmenting

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Substitutes for land

• Scarcity of land triggers off other yield
  increasing inputs such as
• manure from man and animals, seaweed and in
  exceptional cases herring (!!!)
• water (irrigation schemes)
• capital, for example better ploughs and stronger
  draught animals, horses
• high yield crops

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Modern poulation dynamics

• cbr fall with increasing income contrary to
  Malthus prediction
• cdr have arrived at a low steady state level
• Population growth is low again
• Analyze that!

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Long run demographic transition
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Life and death in Tuscany
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From high pressure to low pressure demographic
regimes

• Pre-industrial economies have high fertility and
  high mortality. (High pressure)
• Look at the infant mortality!
• Life expectancy is low.
• The transition to the modern low pressure (low
  fertility and low mortality) comes late and is
  fast in this village.

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Difference between cbr and cdr over time
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The demographic transition
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Why fertility falls with increasing income

• Assume that parents get utility (pleasure) from
  the presence of kids, now and in the future
  sometimes hard to believe, but
• Malthus implicitly believed that utility derived
  from the number of kids since only income
  constraints stopped households from having the
  maximum number

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Quality vs. Quantity

• It seems more plausible that the utility is
  derived from the quality and quantity of kids
• There will be a trade off between quality and
  quantity of kids and between other goods
• Given the income constraint you cannot have
  better quality if you do not sacrifice quantity,
  or the other way around.

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Theory becomes ambiguous

• If quality and quantity are a normal goods
• then consumption of the both will increase with
  increasing income (income effect)
• but theory does not tell you about the income
  elasticity for quality and quantity being a
  matter of culture and taste, which can change
  over time
• Modern households prefer quality over quantity
  less but better

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Dont forget the substitution effect!!

• Raising kids is time intensive and if wages
  increase the opportunity costs of having and
  educating kids increase.
• The substitution effect, negative on demand for
  kids, in particular the numbers, might be
  stronger than the positive income effect.

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Why do well educated women have fewer kids?

• The opportunity cost having kids is higher
  because high education promotes high wages.
• Substitution effect (negative on demand for kids)
  stronger than postive income effect.

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Reflect on this graph! trend growth and growth
after a negative population shock. What do you
see?
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Summary

• Malthus predicted that population growth would
  depress real wages and population growth would
  eventually come to a halt
• However, technological progress seems to keep
  real wages at a constant or slowly increasing
  level despite continuing population growth in
  pre-industrial economies.
• It seems as if population growth can stimulate
  technological progress and division of labour.
  More about that next time.