People power economic growth, but declining global birth rates are a bullish phenomenon. Yes, both statements are true.
If declining birth rates foretold economic decline as Washington Post columnist Megan McArdle believes, stock markets in countries like South Korea would be experiencing sickening collapses. That’s because South Korea has the world’s lowest birth rate in concert with the highest suicide rate. Except that the forward looking KOSPI Index surged 75% over the past year, while narrower AI and semiconductor sectors are up 200%.
The reality is that poor countries generally have higher birthrates, while rich countries have declining or flattening rates of birth. Goodness, 85% of the world’s population can be found in developing countries.
None of this is to say that people are a cost or an economic burden, but it is to say that falling birthrates have always taken place alongside rising wealth. One evident factor in this is that in poor, agrarian parts of the world, more children are needed to help families merely sustain an impoverished existence. This isn’t true as parents escape the farm for better work.
McArdle writes that falling birthrates will result in closed schools, reduced growth, plus “budget pressures and a politics that is increasingly locked into zero-sum intergenerational battles.” The prediction won’t age well. While McArdle can have her prediction about schools, by focusing on birth rates as the predictor of growth, she’s revealing a static vision of human progress.
The fewer babies being born today will produce on a level that was formerly achieved by thousands. This is already happening in Silicon Valley as you read this. A few prompts punched into Claude, Gemini and other AIs results in work completed in one night that used to take big teams of coders months to accomplish. It would be naïve to presume that these advances will stop at coding.
McArdle’s analysis is rooted in the Keynesian view that consumption powers growth, and there won’t be enough consumers in the future. Her mistake is in focusing on consumption as Keynes did, and as most economists unfortunately still do. Better for McArdle to concentrate on the production that always and everywhere results in a commensurate amount of consumption, at which point she’ll see that fewer people will produce exponentially more in the future.
“Zero-sum intergenerational battles”? See above. The problem in the future will be too much tax revenue as the $39 trillion worth of federal debt indicates. Does McArdle seriously think Treasury could borrow so much if the markets shared her dim view of the U.S.'s future?
While McArdle acknowledges suspicion about “monocausal explanations” for falling birth rates, she finds compelling the argument that smartphones, among other things, are “substituting for the social activity that leads to babies.” Naaah. No doubt it’s popular to suggest that young people have retreated into their smartphones and away from human connection (including the sexual kind), but the more realistic truth is that smartphones personify the intense human desire for connection. In other words, smartphones are a way station to sex, not a replacement.
While McArdle is thankfully clear that she doesn’t want to ban smartphones, she yearns for “you and me” to “collectively decide to give kids dumb phones rather than smartphones,” and to “treat the infinite scroll as something like smoking.” Why? The people are the market.
The people enjoy smartphones, they’re having fewer babies as rich people have always done, falling global birth rates signal an increasingly rich world, and forward-looking markets aren’t selling off to reflect McArdle’s pessimism. Rather than questioning the market, McArdle would be wise to heed its message.
