The Human Bubble, pt. 3

Mr. Bishop: I seem to have lost my train of thought. Could you please repeat the question?

The Rookie: I was asking what this newly discovered bubble of yours is.

Mr. Bishop: Oh, yes. Children.

The Rookie: Children?

Mr. Bishop: Yes, children.

The Rookie: That's it? Children?

Mr. Bishop: Well, more like the birthrate.

The Rookie: Oh, no! Don't tell me you're about to ramble on about some Malthusian viewpoint about the unsustainability of population growth. Hasn't that been known for a long time?

Mr. Bishop: Don't worry, I'm not referring to population growth. Population growth may be a bubble—must be a bubble, for eventually in the best of cases we'll run out of atoms in the universe to sustain it—but even the current population size is an obvious candidate for being a bubble. After all, either we develop the technology to sustain the current population without depleting non-renewable resources, or we die off to a sustainable population level. That's tautological, and proof by definition.

The Rookie: So if you're not referring to population growth as a bubble then to what are you referring?

Mr. Bishop: I'm referring to population shrinkage, the trend within industrialized societies of parents having ever fewer children. It has the tell-tale sign of being a bubble.

The Rookie: Yes, it's well known that birthrates are declining within industrialized societies, but by many this is viewed as a solution towards the problems caused by overpopulation. What is this tell-tale sign of declining birthrates being a bubble?

Mr. Bishop: The tell-tale sign is similar to a contradiction in market fundamentals. If you remember earlier in our conversation, what felt like a week ago, we discussed how the Palm stock IPO was clearly a bubble because the stock's soaring price signified that the market valued 3Com, excluding its subsidiary stake in Palm, to have negative worth.

The Rookie: Yes, I remember that. It had to do with the market valuing Palm stock so highly that 3Com's partial ownership of Palm came to be worth more than all of the rest of 3Com, thus making that rest of 3Com have, as you say, a negative net worth, which it obviously didn't. But what does this have to do with birthrates? It's not as if children have price-earning ratios or that they pay out lucrative quarterly dividends.

Mr. Bishop: I bring up the point about Palm to remind us that some bubbles are not merely subjective valuations that succumb to the psychological whims of investors. Rather, some bubbles are based on fundamental mess-ups in valuations.

The Rookie: What's the fundamental contradiction in a declining birthrate?

Mr. Bishop: This, that a population of any species cannot sustain itself unless each mature adult averages at least one successful offspring.

The Rookie: That's your fundamental contradiction?

Mr. Bishop: Yes. You seem surprised.

The Rookie: But it's so obvious as to be ridiculous.

Mr. Bishop: How so?

The Rookie: Of course industrial societies' declining birthrates will lead to population shrinkage. That's the whole point! Eventually populations will decrease, hopefully to sustainable levels, at which point the birthrate can again increase to establish equilibrium. There's nothing contradictory about it.

Mr. Bishop: Oh, really?

The Rookie: Yes.

Mr. Bishop: Then let me ask you this: are birthrates declining because of some centralized plan to decrease the population?

The Rookie: No.

Mr. Bishop: So then what is causing birthrates to decline?

The Rookie: Money. In industrialized societies it's becoming increasingly cost prohibitive to have more than one or two children per couple. Educated people recognize this fact and, with the aid of a multitude of family-planning options, are electing to have fewer children.

Mr. Bishop: And they are doing so to the point where birthrates in some countries are now lower than two children per female.

The Rookie: Food, clothes, daycare, college tuition... It all adds up!

Mr. Bishop: Yes it does. Are we in agreement that, in general, the cost prohibitive nature of raising children is owing to an increase in the expense of raising children and not owing to a decrease in the income of the parents?

The Rookie: Assuming that you agree with the statement, then yes, we are.

Mr. Bishop: And are we in agreement that a birthrate of less than two children per female is insufficient to sustain population levels?

The Rookie: Yes, we are in agreement.

Mr. Bishop: Well then, we are also in agreement that the social and economic forces that are causing the increase in the expense of raising children are themselves unsustainable.

The Rookie: I suppose so. But I think that's the whole point. A low birthrate will cause the population to shrink, and it will continue to shrink until it reaches a sustainable level, at which point the birthrate will increase and the population will establish a new equilibrium. That new equilibrium will entail a less costly socioeconomic environment for raising children. You see, the free market will correct the overpopulation problem, even if it takes a few centuries to do so. This is a soft correction; no bubble here.

Mr. Bishop: I think we are in agreement with each other more than you wish. Assuming incomes hold constant over that time—for are we in agreement that any increase in average income will merely offset the equilibrium to be that of a larger population?—

The Rookie: —Yes.—

Mr. Bishop: —Then you are arguing for a deflationary scenario in which prices decrease over time (and in neat correlation with the decreasing population). But deflation of the scope and magnitude you are talking about—multiple generations—will collapse interest-bearing markets, which require an increase in the monetary supply to continue functioning. So you see then that, financially as we understand things now, overpopulation cannot be fixed with a “soft correction”?

The Rookie: Though you spin a good argument and twist my words around well, I'm unconvinced. Perhaps future parents will appropriate more of their income towards luxuries and less towards their children. That could be one way in which the cost of raising children decreases without the money supply shrinking.

Mr. Bishop: But the crux of your point is that the declining birthrate is due to the cost of raising children. Presumably an increase in luxury-based spending will correspond with an increase in available income for raising children, which is denying the low birthrate.

The Rookie: Maybe people feel less of a biological imperative for having children than you think.

Mr. Bishop: Well, if that's the case then surely our species is in trouble.

The Rookie: I suppose you're right about that. To go back to your point about money, it sounds to me like you're saying that either the cost of raising children will remain high, in which case the population will shrink indefinitely, or else the cost of raising children will decrease, in which case the money supply will shrink indefinitely. In either case we're screwed.

Mr. Bishop: An apt adjective to use, given the subject matter.

The Rookie: You've given me something new to think about, but somehow I cannot say I'm convinced that we're as doomed as you think. Surely there's a way to shrink the population safely.