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Birthrates best economic indicator?

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Alan Aversa posted on Sun, Dec 25 2011 6:55 PM

The documentary Demographic Winter features the Nobel Prize-winning Chicago economist Gary Becker, inter alii. It shows how economists and demographers are predicting a peak in world population by circa 2050. Gary Becker et al. argue that birthrates are the best economic indicator. Is this true? What would Austrian economists say?

E.g., do they see a negative effect on an economy due to birthrate limiting behaviours like contraception, abortion, sodomy, cohabitation, divorce, etc., which were, for the most part, completely illegal in the United States until recently? This would seem to be right up Mises's "human action" alley. Does he discuss, without necessarily passing a moral judgment, the effects of these human actions on an economy in his Human Action?

Thanks & merry Christmas

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birthrates are the best economic indicator

What does that mean? O.o

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By "economic indicator" I mean "a number that can predict the health/growth of an economy."

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Neodoxy replied on Sun, Dec 25 2011 11:16 PM

It's a difficult question. Mises discusses population growth briefly in stating that so long as population was above the "optimum point of population", that any further increases in the number of human beings alive increased everyone's living standards in the same way that an increase in capital would, because of the fact that individuals are only hired because they produce a surplus of that which they actually produce. 

However, population growth cannot be seen as a population indicator as such. Population growth will increase the actual size of an economy and GDP, as well as the number of people who are livin above a certain point. Let's arbitrarily say that the population increases drastically and that the vast majority of people will find themselves at another arbitrary point labeled "the lower class". Now the number of people in both the "middle" and "upper" class would increase, but the overall median income could actually drop as a result of people being added to "lower" classes (remember these are not real classifications, they are arbitrary), but at the same time the increase in overall productivity will most likely increase the standard of living for everyone in the "lower" class because of the general productivity increases. 

So it depends upon what you mean by "economic indicator". Yes, the economy will almost certainly grow, but who knows what per capita income will do. The number of people living well will increase, but the number of people living "poorly" could also increase, but they will be no worse off than they were before.

Does that answer your question?

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What if by "economic indicator" I mean "a measure of the efficiency of an economy"? How would birthrates affect that?

Or how about "economic indicator" meaning "a measure of the overall standard of living"? How would birthrates affect that?

Thanks for the insight

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Neodoxy replied on Mon, Dec 26 2011 12:53 AM

"a measure of the efficiency of an economy"

This cannot be determined a priori, however an increase in the population would almost certainly lead to an increase in entrepreneurship. Assuming that shrewd lending standards were maintained this would inrease overall efficiency would increase as factors were more wisely employed. If the population also included a proportionatly increased in especially talented people then efficiency would also be increased. These are the ways that an increase in population can increase efficiency, however none of these things are certain as such. 

"a measure of the overall standard of living"

I think I summed that up in my previous post, but a quick rehash.

There are three posibilities (we're talking about in real terms)

1. The median standard of living can increase from what it would have been

This will occur if there is a relatively high value for new laborers in the economy and so the gains from their presence are very large. 

2. The median standard of living can remain constant

This will occur if there is a somewhat high value for new laborers and the new areas taken in pay scales counteract one another 

3. The median standard of living can decrease

This will occur if new laborers find themselves in low paying jobs, or if the way people move up the ladder is insignificant. For instance more people become laborers and this opens up small managerial positions that are still not very well paying.

All of these things rely HEAVILY upon the skills of the population, and very importantly the education within the society. The better the education available then the higher the output there is likely to be.

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Mises defined "economic prosperity" as "productivity rising faster than population". There are two ways in which this can occur: productivity growth can accelerate, or population growth can decelerate. If both happen at the same time, then the gains from the accelerating productivity growth is just icing on the cake.

So population growth declining - or even stopping altogether - while productivity growth remains constant will, ceteris paribus, lead to more wealth for everyone.

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It could be, but then again, it might not be.

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I'd've thought Mises's humanistic economics would've been concerned about the replacement of human capital. Is not praxeology only applicable to humans?

As I wrote in another thread here concerning the role of human creativity in an economy:

So, I read the "Creative Genius" section [of Human Action], and it seems that Mises does not recognize intellectual property. I would've thought he would recognize it yet discourage government regulation of it.

Mises writes (p. 139):

The activities of the prodigious men cannot be fully subsumed under the praxeological concept of labor. They are not labor because they are for the genius not means, but ends in themselves. [...] The achievements of the creative inventor [...] cannot be classified praxeologically as the products of labor. They are not the outcome of the employment of labor which could have been devoted to the production of other ammentities for the 'production' of a masterpiece of philosophy, art, or leturature.

I would've thought the process of seeking truths would be the means and the truths sought the end product. Why does Mises contrast the "production of other [non-intellectual] ammentities" with the "achievements of the creative inventor"?

Also, in the "Production" section following the "Creative Genius" one, he defines prouction as (p. 140)

not an act of creation [...]. The producer is not a creator. Man is creative only in thinking and in the realm of imagination. In the world of external phenomena he is only a transformer.

Yet, he seems to contradict this, saying that production "is a spiritual and intellectual phenomenon" (p. 141), as though production were creative in addition to being transformative.

He concludes this section with (p. 142):

[W]e do not know what mind is, just as we do not know what life, motion, and electricity are. Mind is simply the word to signify the unknown factor that has enabled men to achieve all that they have accopmlished.

If Mises does "not know what mind is," other than it being an "unknown factor," then how does he know "mind" is not matter and that, against the Marxist materalists, "the 'productive forces' are not material" (p. 141)?

Thanks

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A few years ago, I read Dan Arnold's "book" - The Great Bust Ahead. The book was written in 2002. He predicted a huge economic depression to occur around this time based solely on demographics.

Back then he predicted the Dow to top at 40,000 in 2009. Well, he was a little off in the magnitude but just a year or two off in timing. Then a crash in the years afterward.

"So, also starkly revealed in the chart is the unavoidable coming economic abyss that we are now headed for, and most of the world along with us. It’s nobody’s fault. It’s simply the inevitable result of our demographics. It cannot be fixed or wished away. The federal and state governments cannot solve it any more than they could in the 1930s and the 1970s. Demographics are, and always will be, just as unstoppable as a tidal wave." - Dan Arnold

The red line is the quantity of 45-54 year older's in the US. The age group is very important, because they are the biggest spenders.

http://www.businessknowhow.com/money/greatcrisis.htm

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Yes, I am still surprised I cannot find a work by an Austrian economist-demographer. There has to be something similar to "Dan Arnold's thesis" in the Austrian realm.

The distribution of age groups (related to birthrates) is certainly an important economic factor, no?

Thanks

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Answered (Not Verified) Merlin replied on Mon, Jul 30 2012 3:17 AM
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The theory seems to be clear: the more capital a society has, the higher its optimal population. That is, the higher the birthrate, the richer people are getting.

The problem is that this presupposes that the population is always tending towards optimal levels. I do not know whether this is always the case. In any large area of free movement of people it probably is. So the EU birth rates would seem to suggest a destruction of their capital stock.

The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms.
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What do you that it "presupposes that the population is always tending towards optimal levels"? Thanks

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Merlin replied on Tue, Jul 31 2012 1:39 AM

Well, if the population was managed as an intelligent entrepreneur would manage labor in his firm, that is, in relation to capital, than the analysis would hold. But if actual population figures are settled not just by economic factors but by cultural factors as well, or if population adjusts after some lag to changes in the capital stock, or really if population doesn’t behave as a perfect model would predict, than the analysis is still useful tool but not the final word.

But to repeat myself, I think that within large areas of free movement such as the US and the EU, population does reflect the real state of the underlying capital stock.

The Regression theorem is a memetic equivalent of the Theory of Evolution. To say that the former precludes the free emergence of fiat currencies makes no more sense that to hold that the latter precludes the natural emergence of multicellular organisms.
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