January 24, 2020

Seven Billion

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Thomas Malthus

Malthus' predictions earned Economics the nickname "dismal science" (Image via Wikipedia)

The UN is predicting that the world’s population will hit 7 billion this week. For many the logical consequence of an ever-increasing population seems to be mass-starvation and environmental disaster. These fears are not new. More than 200 years ago the economist Robert Malthus predicted continuous growth in population outstripping growth of available resources resulting in ever increasing scarcity and continuously rising prices.

The Malthusian view of the world can be quite persuasive. We know the world’s resources are finite; there is a finite amount of land, a finite amount of coal, copper, iron ore and oil. The forthcoming UN Report on population brings into sharp focus the fact that the world’s population is growing and will continue to grow.  Yet while prices of many commodities have increased in money terms, in real terms their prices are similar or even lower than 30 years ago. So is there something wrong with the Malthusian model?

Well the market system is a wonderful tool for allocating scarce resources.  The interaction between buyers and sellers in markets sets prices for goods and services. Prices are very powerful. They reflect information – a high price for a good suggests that the resources required to produce it are relatively scarce while a low price implies abundance.

The other thing that prices do is provide consumers and firms with incentives to act. For example high oil prices encourage consumers to economise on consumption in the short run and look for alternatives in the long run. They also encourage firms to invest further in research into new technology and alternative sources of energy (as discussed in Neil’s Oil Price Watch Overview). Finite resources only become an issue when the stocks available are not enough to satisfy current and expected demand. Even with something as controversial as oil this is not the case and will not be so for a long time to come.

A growing population implies increased demand for goods and services, but there is nothing to stop supply increasing at the same or even at a faster rate. We can take this scarcity – price – innovation cycle and apply it to all goods and services. The resources (both renewable and non-renewable) available for consumption on the planet are vast and many are yet to be utilised.

The human race has not really started to exploit the economic potential of the oceans which cover about 70% of the world’s surface. What about the sun and the wind? These represent substantial sources of energy in the future and to date the surface has barely been scratched. There is also a lot of empty uncultivated land in the world with the potential to produce food for millions of individuals. There’s certainly not enough people in the world to consume all the goods and services the world is capable of producing now or in the near future and so the Malthusian view (which incidentally earned economics the dubious nickname of “the dismal science”) may not be as robust as it first appears.

But we also know that around 10% of the world’s population is starving. Why? It’s certainly not because we lack the technology and resources to feed the world’s population many times over. It is because, while the market system is efficient, it does not allocate resources in an equitable manner. Bringing about a more equitable distribution of resources requires some kind of collective action at a global level. The problem then is that at present we are not able (or willing?) to arrange the world so that suppliers have sufficient incentives to get food to those who have none.

For those who are interested, here is a discussion from last night’s Channel 4 News on this very topic.