SCOTT SUMNER quotes Stefan Karlsson:

I have frequently discussed how growth in the Australian economy is driven by rising commodity prices. There is however another factor driving growth, namely high population growth. Australia's population grew by 2.1% in the year ending September 2009, a lot higher than in most other advanced economies (typically population growth is less than 1%, and even negative in for example Germany and Japan). This has a particularly positive effect on the housing sector, which continues its long boom, despite high prices and interest rates that are higher than in most other countries. As this article points out, the rapid population growth has contributed to a housing shortage, something which implies that both construction activity and house prices will continue to increase.

A long time ago, I mused on the possibility of a migratory stimulus, in which workers leaving bubble markets for places with better prospects caused housing and labour markets in the destination cities to tighten, supporting new investment and touching off recovery. Of course, you could also take things in a different direction. Ed Glaeser has written that because housing is durable, its supply does not adjust with broader economic decline and out-migration. And so in cities like Detroit, you have a constant housing supply with a falling population, which leads to steady declines in home prices. These declines lead, in turn, to underinvestment, which continues the cycle of decline. One way to avoid this problem, then, might be to destroy surplus housing, in order to artificially tighten housing markets (and reduce the fiscal burden on local governments of maintaining underused infrastructure).

Mr Sumner takes yet a different direction, connecting the decline in asset prices in 2007 with reduced expectations for housing demand growth, associated with tighter restrictions on immigration. And obviously some pundits have argued that America should grant a visa to any would-be immigrant willing to purchase a home in the inland empire.

A broader point would be that population growth seems to be an advantage in getting through and out of deep recessions, particularly where liquidity traps are concerned. One has only to think of the Japanese example, relative to the experience in Australia (or America) to see this in action.