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Demography and the Bicycle Effect

May 22, 2014 • Daily Email Recap

Demography and the Bicycle Effect

When Alvin Hansen first proposed the concept of secular stagnation, he emphasized the role of slowing population growth in depressing investment demand (and his warnings were made moot by the postwar baby boom.)  Modern discussions return to that emphasis: Japan’s shrinking working-age population looks like an important source of its problems, and slowing population growth in Europe and America are important reasons to believe that we may be entering a similar regime.

But whenever I raise these points, I get questions from people who ask why I don’t regard slowing population growth as a good thing. After all, it means less pressure on resources, less environmental damage, and so on.

What’s important to realize, then, is that slower population growth indeed could and should be a good thing – but that what passes for sound economic policy is all too likely to turn this potentially good development into a major problem. Why? Because under the current rules of the game, there’s a strong bicycle aspect to our economies: unless they’re moving forward sufficiently rapidly, they tend to fall over.


Current World Population


Net Growth During Your Visit