Sunday, February 13, 2011

A Modest Proposal: The Non-Sanguinary Version

Prior to the industrial revolution, productivity growth was always exceeded by population growth in the long term. It doesn't matter if your economy gets two percent more productive this year if your population grows by four percent. Even the brief spurts of innovation were quickly overwhelmed by the perpetually high birth rate.

Consequently, it is argued that the black death was key to the industrial revolution, as productivity gains finally exceeded population growth, due to a reduced population to capital ratio.

In the last fifty years, we've discovered that this "demographic dividend" doesn't require massive depopulation. If birth rates fall and remain suppressed, the population will age so that there are more productive workers for every dependent (either old or young). Of course, as the aging process continues, the demographic dividend will be reversed, but we'll cross that bridge when we come to it.

Anyway, this was just a long way of getting around to my point. The Communist regimes of Eastern Europe were even less productive then we imagined. During the Cold War, Eastern Europe made the transition to low birthrates, yet they have nothing to show for it. Communism ate the demographic dividend.

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