Having More Children is Good for the Economy

Mark Thoma and Paul Krugman take off after newly announced Presidential Candidate Rick Perry this morning, claiming that the relative economic stability and job growth in Texas is suigeneris and do not indicate that conservative economic policies create jobs. Krugman almost mocks Perry saying that his economic policies are predicated on miracles, clearly a reference to Perry’s Evangelical faith that the liberal Krugman clearly finds disturbing. Says Krugman:

“The Texas Unmiracle, by Paul Krugman, Commentary, NY Times: …Rick Perry,… governor of Texas, has announced that he is running for president. And we already know what his campaign will be about: faith in miracles.
Some of these miracles will involve things that you’re liable to read in the Bible. But … his campaign will probably center on a more secular theme: the alleged economic miracle in Texas, which, it’s often asserted, sailed through the Great Recession almost unscathed thanks to conservative economic policies. And Mr. Perry will claim that he can restore prosperity to America by applying the same policies at a national level.”

A different part of Krugman’s post caught my eye because I think it is similar to the economic story in Israel and why Israel has also been a relatively stable ship in an otherwise stormy economic sea. Says Krugman again:

So where does the notion of a Texas miracle come from? Mainly from … faster population growth than the rest of America — about twice as fast since 1990. Several factors underlie this rapid population growth: a high birth rate, immigration from Mexico, and inward migration of Americans from other states…

In my opinion, there is a strong correlation between population growth/birth rates and economic growth in mature economies (even though much research (here, Here)debates this). The research in my opinion, takes too short a view of the phenomenon. Slowing birth rates help per capita income and disposable income for a time which leads to “economic growth” but it sets in motion the dynamics for slowing economic growth when the population peaks and begins to gray. It is not an accident that Europe is slowing to an economic crawl because you can find nary a child in a park in any European city. The US is slowing down because birth rates in the US have come down over the last 40 years but they are still in much better shape than Europe and Japan (two very stagnant/declining economies). It is not an accident that Baby Boomers coincided with economic growth.

Harry Dent points this trend out well in his demographic-biased economic analysis of boom and busts. Says Dent:

“Economic boom times are associated with increasing size of the mid-forties population and bust times are associated with a decreasing size of this population.”

You have to keep having kids to have more and more 40 year olds. If you have less children in the next generation, you will have a contraction!

The same is true in Israel where the birth rate stands at 2.96 children per family, well above the replacement rate, and the economy has come through the global economic crisis better than most just like Texas. The obvious economic reasons are that there are more consumers buying and more available labor that keeps labor costs under control. The less obvious reasons in my opinion are that those having more children are fundamentally more optimistic about the future, less prone to Malthusian depression or self pity. You are also forced to work harder and be more productive to feed all those mouths.

Call it faith in the future, the miracle of birth or whatever you want Mr. Krugman but it could be that the long term future belongs to those countries and even states that are most fruitful and multiply both their brood and economies.

*If anyone has research showing positive long term correlation and causality between higher birth rates and economic growth, please post in comments.

[Originally published on 15th August 2011 by MIchael Eisenberg]