In 1937, John Maynard Keynes gave a lecture on “Some Economic Consequences of a Declining Population”. Many at the time felt the world was overpopulated and fewer people could only be a good thing, a view that Keynes himself shared. But the purpose of his lecture was to issue a warning: declining populations come with nasty economic side effects.
Keynes, it turned out, was worrying a couple of generations too soon. Births jumped in the postwar baby boom. Today, though, his warning reads like a prophecy. Population is already falling in countries such as Japan and a future global decline is more plausible than ever before. As in the 1930s, many welcome the prospect – largely for environmental reasons – but the economic downside may be more severe than even Keynes anticipated.
Future populations will reflect a truly remarkable fall in global fertility. In rich countries, fertility rates have hovered below replacement levels of 2.1 children per woman for decades, but they are now below that threshold in middle-income countries across the world, from Iran to Thailand to Brazil. In South Korea, the fertility rate dipped to just 0.98 last year, and even in the US it hit an all time low of 1. 73 births per woman.
Given parental desire to invest in each child, a fertility surge in rich countries is improbable. According to the latest World Population Prospects from the UN, 27 countries have fewer people now than in 2010, and it expects 55 nations – including China – to experience declines between now and 2050. In the 21st century, falling populations will become normal.
Some of the economic consequences are obvious: fewer people make less stuff, so a declining population means slower economic growth or even falls in output. But fewer people also consume less stuff: what matters for living standards is output per person, and the crucial question is whether declining population can affect it. There are at least theoretical reasons to think the answer is yes.