Fortune issue: September 7, 1998

First Principles

ECONOMICS

Be Fruitful and Multiply

By N. Gregory Mankiw

I confess: My wife and I are about to commit what some people consider a socially irresponsible act. Toward the end of the summer, we will bring our third child into the world.

A third child means, of course, that my wife and I are contributing to the world's population explosion, and to some people this makes our decision more than personal. To see how guilty I should feel, I just read the recent book by nature writer Bill McKibben, Maybe One: A Personal and Environmental Argument for Single-Child Families. McKibben tries to accomplish through persuasion what China has done through government fiat--make one child per couple the norm. The book wasn't published in time to change my family size, but even if it had been, it wouldn't have persuaded me to abstain from reproduction.

As McKibben is well aware, fear of overpopulation has a long and embarrassing history. Two centuries ago, Thomas Malthus argued that an ever-increasing population would continually strain society's ability to produce goods and services. As a result, mankind was doomed to forever live in poverty--a prediction that led Thomas Carlyle to label economics "the dismal science."

Fortunately, Malthus was far off the mark. Although the world population has increased about sixfold over the past two centuries, living standards are much higher. The reason is that growth in mankind's ingenuity has far exceeded growth in population. New ideas about how to produce and even about the kinds of goods to produce have led to greater prosperity than Malthus--or anyone else of his era--could have ever imagined.

The failure of Malthus' prediction, however, has not stopped others from repeating it. The most famous modern Malthusian is biologist Paul Ehrlich, whose 1968 book, The Population Bomb, warned of impending worldwide shortages in food and natural resources. Thirty years later, however, most natural resources are in abundant supply and are available at low prices. Even the famines that sometimes ravage less-developed countries are rarely due to overpopulation--civil war is a more common cause. Nonetheless, the fear of worldwide shortages because of overpopulation remains widespread.

Among the wealthy, reducing population growth is a popular cause. When David Packard, co-founder of Hewlett-Packard and father of four, died leaving $9 billion to his foundation, he specified that the foundation's highest priority should be lowering global birth rates. Packard's efforts may someday be dwarfed by those of investor Warren Buffett, father of three. Buffett claims he will give away most of his vast wealth, and according to some reports, the problem that most moves Buffett is the population explosion..

Those who fear overpopulation share a simple insight: People use resources. They eat food, drive cars, and take up space. Because resources are scarce, the only way to improve living standards, Malthusians argue, is to limit the number of people with whom we have to share these resources.

The rebuttal to this argument is equally simple: People create resources. They bring into the world their time, effort, and ingenuity. Before deciding whether world population growth is a curse or a blessing, we have to ask ourselves whether an extra person added to the planet uses more or less resources than he or she creates.

Environmentalists such as McKibben view humans as rapacious consumers who devour as much as they can get their hands on. About this, the environmentalists are largely right. But there is no problem as long as people pay for what they consume. In a market economy, the price system ensures that no one can consume resources without first creating some of equal or greater value.

Problems do arise when important resources fail to have prices attached to them. For instance, consider the issue that most concerns McKibben--global warming caused by the use of fossil fuels. Because people burning gasoline in their cars or oil in their furnaces do not pay for their impact on climate, they burn too much. The solution, according to McKibben, is fewer people. A more direct solution is a tax on fossil fuels.

Perhaps the most important resource without a price is society's pool of ideas. Every time a baby is born, there is some chance that he or she will be the next Newton, Darwin, or Einstein. And when that happens, everyone benefits. Although the government can easily protect the environment with a well-designed tax system, spurring the production of great ideas is much harder. The best way to get more geniuses is to have more people.

As a serial procreator, therefore, I make no apologies. When I welcome Peter Mankiw onto our planet, I will do so without a shred of guilt. I don't guarantee that he will find a cure for cancer or a solution to global warming, but there is always a chance. And in that chance lies the hope for our species.

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N. GREGORY MANKIW is a Harvard economics professor and author of Principles of Economics.