The Economic Case for Higher Birth Rates Is Bigger than You Think

The fiscal challenges of an aging population matter, but the innovation and progress that could be lost in a shrinking world matter even more

Economists and columnists have written about why low birth rates in the United States and elsewhere are a matter of concern. The standard, well-worn case is that a shrinking population with fewer workers and more retirees per capita is an economic problem because it will strain pension systems, government budgets, and the labor market.

The issue has been getting attention because fertility rates have been falling fast around the world. Among the 115 richest countries, the average birth rate is 1.5—far below the 2 children per 2 adults threshold needed to maintain population sizes over time, absent net migration. Japan has been shrinking for over a decade. China has been shrinking since 2022. Europe has been shrinking since 2021 and is projected to continue to decline. Absent migration, the United States would be shrinking within a few years, too. Derek Thompson has recently observed that because net migration will be lower this year than in recent years and could possibly turn negative, the U.S. population could shrink as early as 2025.

Our social safety net systems were designed under very different demographic circumstances. The median age in the United States in 1965, when Medicare was established, was 27. Today, it is 39. The old-age dependency ratio, which is the number of people aged 65 and older for every 100 people aged 25 to 64, is rising. It approximately doubled between 1950 and today. It is projected to double again by 2100. So the standard case for paying attention to low birth rates is timely. And it is an important change from the overpopulation doom-mongering of the past half century, which, despite the repeated failures of its predictions, remains a cultural force.

But the standard case also misses something big.

Bigger than Social Security

What could be bigger than the 3.2-trillion-dollar challenge of funding the U.S. public pension and healthcare system each year? A slowdown in progress.

A future with fewer people will be a future with slower improvements in some areas and stalled progress in others. Over the long run, larger populations—not only national populations, but the global population—make each of us better off. That’s one argument (though not the only one) that we make in detail in our book After the Spike: Population, Progress, and the Case for People.

There are two important ways that population size matters for living standards that have nothing to do with age structures and public finances. The first comes down to fixed costs. Fixed costs are the costs incurred to make something rather than nothing—for example, the monthly rent to have a storefront open, regardless of how many customers come through the doors. Some activities can only happen if there is sufficient scale, because it makes sense to undertake them only if there are enough consumers demanding them. That’s true for posts by substackers who need to spend the same time writing and researching a 1,500-word post, whether they have 10 paid subscribers or 10,000. It’s true for blockbuster video games and movies, outstanding museums, and any other investment that needs to recoup its costs over many users.

And it’s true for deadly serious matters: Daron Acemoglu and Joshua Linn, for example, show how market size substantially influences where R&D investment goes. They tracked what happened to drug development as the large baby boomer generation entered middle age, which meant there were more consumers who needed the sorts of drugs that middle-aged people need. Acemoglu and Linn found that a 1 percent increase in market size generated a 4 percent increase in the entry of new drugs tailored to that market.

A lesson from the economics of market size is that progress happens when people demand it—whether as consumers waiting to pay for a new innovation, or as voluntary contributors to institutions like NPR that benefit from scale, or as citizens supporting a government that prioritizes public investment in knowledge creation through institutions like the National Science Foundation or the National Institutes of Health.

That means living in a big world with many other people makes each of us better off. As we wrote recently in the New York Times: “Whenever people need and want things, they make it more likely that you will get what you need and want. That’s true if what you want is good public transportation (because a network of trains and buses can’t operate without enough riders), or green energy infrastructure built on the work of scientists and engineers across generations and borders, or a vaccine for a novel virus, or a cure for a rare disease that only the niche medical specialization of a big world could produce.”

There’s a second economic reason that other people matter for the wellbeing of each of us, and it isn’t about the age pyramid, either. It is that knowledge turns out to be an endlessly renewable resource—a nonrival good in the language of economics. If one person trades an apple to another person, who in return gives an orange, then each is left with one piece of fruit. If two people trade one idea each, then each ends up with two ideas. And so the total stock of available knowledge is also the per-capita stock of available knowledge. As simple as that insight is, it lies at the core of models that explain long-run macroeconomic growth. Growth in material conditions over time—improvement in average living standards—is driven by improvements in productivity. Productivity improvements come from the discovery and sharing of ideas. Ideas come from people.

Bigger than National Interest

Discussions of population decline, by politicians and commentators on both the right and left, tend to get framed in terms of national interest. Here’s the problem for those who view the problems of demographic change primarily through the lens of national interest: The biggest benefits of larger populations—overcoming fixed costs and generating endlessly reusable new ideas—do not stop at national borders. When a team of researchers in Japan discovered how to improve LEDs to create bright, efficient white light—an achievement that earned them a Nobel Prize in physics—people everywhere in the world benefited. Invented just once, that idea is used over and over again without ever being used up. You are using it right now to read this sentence.

A move to liberalize and formalize immigration into the United States may mean more workers and higher tax receipts per capita, and that might help shore up the balance sheet of Social Security. (That’s a fine reason, among others, to endorse it.) But it would do little to address the fact that when the world population begins to decline, it will mean smaller global markets thirsty for innovation and progress, or that fewer people in Japan (and Brazil, China, India, and elsewhere) will be contributing to the advancement of knowledge.

Of course, halting the global population decline is not all that matters for progress. In fact, raising birth rates is an especially ineffective approach to promoting progress in the short run, with benefits not materializing for at least a generation. Liberalized immigration and job automation are near-term solutions to the problem of too few workers. Restructuring public benefit programs and retirement ages is a near-term solution to balancing the government’s books in an aging population. Increased funding for scientific research is a near-term solution to boosting innovation. Indeed, in the short term and within the United States, perhaps the highest-return activity is merely holding the line against backsliding in scientific progress. At Health and Human Services, RFK Jr. is cancelling $500 million in contracts for mRNA vaccine research; a fast way to protect progress would be not to do that. Raising birth rates is a slow alternative in comparison.

But the long run matters too, just as reducing carbon emissions today matters, even though it offers no help to any victim of a natural disaster exacerbated by climate change this year. In the long run and globally, a future that avoids depopulation is a future worth investing in. If 50 percent of a 1-billion-person global population were engaged in some kind of innovation, pushing forward the frontier and contributing to progress and improvements in material conditions around the world, they’d produce fewer innovations than 10 percent of a 10-billion-person population set to the same task.

Bigger than a Legislative Agenda

Most policy discussions around fertility come down to offering people money: sometimes by tweaking incomes, sometimes by tweaking prices of important inputs to building a family, like housing and childcare. So should we expect programs like an expanded child tax credit, a universal basic income program, or New Mexico’s newly announced universal free childcare program to steer the future away from depopulation?

Such policy changes, organized around income and prices, will make things easier for parents and lift many families out of poverty. They are unlikely, however, to lift birth rates up to replacement levels. The evidence from studies evaluating pronatal policy is that such policies have never led to a sustained increase in birth rates to above-replacement levels. (Nor has anything else that has been tried, as we discuss in After the Spike.) Families randomly assigned to treatment in universal basic income experiments do not change their fertility. Even women who win lottery jackpots don’t go on to have substantially larger families than women who play the lottery and lose, as researchers have discovered looking in administrative tax data from the United States and Sweden. And the evidence from looking across U.S. states over time shows that even though the financial burdens of parenting matter to parents, lowering them to the tune of a few thousand dollars a year won’t swing many people’s big life decisions. The evidence from comparing countries that differ in how much they subsidize childcare, college, and other inputs to building a family corroborates these findings.

Low fertility will not turn around in one presidential term, or because of one set of legislated parental leave rules, tax credits, or childcare subsidies. So, what is the way forward? It begins with recognizing that declining birth rates are a widespread phenomenon—in richer and poorer countries, in secular and religious countries, in countries with bigger and smaller social safety nets—and are not likely to be turned around only by tweaking the affordability of parenting in the United States or anywhere.

Indeed, asking about policy responses at this point, when this phenomenon is still so new at the scale of human history, is almost certainly the wrong next step. For now, the place to begin is correcting decades of misunderstandings and misinformation about what other people are good for—or if people are good at all. A place to start is with a wider consensus—among both policy wonks and the general public—that avoiding depopulation should be a goal for anyone who cares about long-run progress and human welfare.