In the next few chapters of Five Short Blasts, Pete Murphy develops his theory of its the population stupid. While his general thesis has “blind trade” (free trade) and the deflating American living standard in mind, it certainly has applications for many if not all political issues of our time.
How can one take the environment, urban sprawl, global warming, deforestation, with any seriousness if population growth is left off the table. While the issue of population growth, is no doubt a serious issue, the solutions are a tough bite to swallow. I’ll leave that discussion for a latter post.
Murphy hypothesizes that when human population grows to its optimal level, it if forced to conserve space with the end result of lower personal capita consumption. In earlier chapter, he examined the relationship between population density, and personal capita consumption in various parts of the world. For example in localities where population density was high, less lawn equipment, golf equipment, and recreation boats were purchases on a per capita basis. As a consequence of increasing population and decreasing per capita consumption, unemployment begins to rise along with poverty. The diagram of this theory is below.
Within classical economic theory, not that I am any expert, this makes perfect sense. Its the basic law of supply and demand. Even if one does not totally accept the decrease in personal capita consumption part of the argument, flooding the market with workers will nevertheless increase unemployment and poverty.
Common sense does however make the per capita consumption part of the theory very plausible. Locally, Madison, WI, you do not need to look any further than downtown. Initially, urban sprawl, one ventures out, but as population growth exceeds its optimal level, one must conserve space by sharing walls (apartments) and then eventually ceilings and floors (high rises). I think in a general sense Murphy is correct, but that one realization of this may very well be greater disparity. While some Americans personal consumption may in fact increase, most will have to do more with less.
One graph that was rather shocking was population density per continent. It does not take long before Asia’s population density pops out at you. What is very revealing is the second most dense Asian country is the Palestinian Territory, 4th is Israel, and 7th is Lebanon. No matter where you stand on Mideast Peace, population growth is the answer blowing in the wind.
Murphy then begins to describe a hypothetical country to test his model. As a reader you become quite perplexed since this country sounds a lot like the United States, yet we roughly have a population density of 82 people per square mile. Why would a country like the united States act “economically” like a country with a much higher population density.
It was then I experienced my ‘ah ha” moment. Murphy asks the question what is a country anyway? We have a U.S. economy in contrast to 50 state economies because of our economic relations. This is why in many ways the European Union is functioning more and more like a country rather than a collection of distinct countries.
Well, it turns out just like the states or the EU when two countries engage in “blind trade” they begin economically behaving as one country. A country with a population density of 50 persons per square mile, and a country 150 persons per square mile, if they were of equal size geographically, would both begin acting like a country of 100 persons per square mile.
This of course gets out of balance if you have a large low density country trading with a small high density country. In that scenario the jobs in the low density country will migrate to the high density country. In addition since the higher density country will have a decreasing per capita consumption, the lower density country will have an ever growing deficit. This also benefits the higher density country in that their unemployment consequences are given to the lower density country.
In a real life example of trade between the U.S. (83 per square mile PSM) and Japan (878 PSM) they begin to both function as a country of 114 PSM . In dollar terms this one trade deal makes an American family $1,168 poorer, and Japanese family $2,750 richer. This is only one country, what would be the effect if we included all of our “blind trade’ partners.
Murphy looked at U.S. trading partners above and below the median population density (153 PSM). It is quite an accurate predictor of if and how much our trade deficit would be with specific countries.
If this theory holds water there are certain countries who will be better or worse trading partners. Most of our North and South American trading partners (less than 153 PSM) should have had minimal or no effect on American’s standard of living. Most of the Asian countries (more than 153 PSM)- China, Japan, Korea, Israel – should have had a detrimental effect.
While interesting, I am not sure the whole population density holds up. While many would see NAFTA as the beginning of our downward spiral they have a population density less than the median. Yet, on the other hand a PSM of 83 and one of 147 is a pretty big gap. And as it turns out Mexico is # 4 as countries with the biggest trade deficit. Overall, it seems a discrepency in population density may be a pretty accurate measure of how “fair” that trade relationship will turn out to be.