Population growth and the which way is up problem in economics
from Dean Baker
Paul Krugman’s column today commented on the recent data showing continuing low fertility rates, which is likely to mean a stagnant or declining working age population in future years. Krugman points out that this is no big deal; Japan and Europe have been living with declining working age populations and have managed just fine.
But he does point out that a declining working age population is likely to lead to lower rates of investment and therefore creates a risk of “secular stagnation,” a sustained period of inadequate demand in the economy. To counter this problem, Krugman recommends large-scale public investment programs along the lines proposed by President Biden but considerably larger.
All this seems very much on the mark, but it is worth contrasting this with the concerns raised by the deficit hawks for the last four decades. Their concern was always that when the baby boomers retired they would still be consuming things, but there would not be enough workers to produce the goods. This was a story of too much demand and too little supply. That is a story of inflation.
In other words, the concern that the deficit hawks have been raising forever is the complete opposite of the problem that the economy is likely to face as the economy ages. Instead of having too much demand, it looks like we will have too little demand. We will actually need the government to run large deficits to keep the economy close to full employment.
Not only were the deficit hawks wrong about the magnitude of the problem, but they were also wrong about the direction. As the old saying goes, “economists are not very good at economics.”
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Real-World Economics Review Blog 
Since economists perform so poorly as economists perhaps they will finally heed the calls to take up jobs for which they are better suited. Such as night clerk at a 7-11. This would give them the opportunity to learn how the economy really works. A tough but worthwhile learning experience.
I like it!
The effect of an ageing population is to reduce the numbers of people working relative to those retired but still consuming. That does not sound like a situation that will lead to lower aggregate demand, does it? Since the work force grows more slowly, at a given rate of productivity growth, output will grow more slowly. It would be normal therefore, as Krugman says, for investment to go more slowly. But the inference that that would lead to lower aggregate demand is not justified. The savings rate falls and investment falls so consumption fills the gap left by investment as the economy grows more slowly. In fact the balance could go either way, given that we can’t predict things like savings rates and rates of technical progress and productivity growth. But there is no a priori assumption of demand deficiency. Secular stagnation refers to the growth rate – a supply-side issue.
Economists may or may not be good at economics but Dean Baker certainly needs to raise his game.
Gerald Holtham also needs to raise his game! If one looks at the reality, those retired no longer need to consume what they needed for working (as in commuting), while the work force growing more slowly incentivises what is actually happening: investment in robotics and new products to sustain domestic demand, as well as construction and/or maintenance of communal workplaces and distribution infrastructure. The questions Baker does not consider are (1) whether we actually need the monetary (debt) growth rate which is the actual cause of our inflation and environmental jeopardy, and (2) whether retired people need to be kept in employment by government investment in new infrastructure, when so many prefer to work as volunteers, renewing crafts and infrastructure like railways they were once familar with.
While I think both Ken Zimmerman and Dave Taylor have raised a challenge to economists to relate to the real world before rabbiting on about economic theories , I do think some economists such as Tony Lawson whom I think had considerable experience in the real world before entering university. I think I was privileged to spend some personal time time with him at the Cambridge conference where he found papers for me showing that there were a number of Cambridge people working on one of my pet themes. Which is improvements to productivity requires cooperation between employer and employee. He was also one of the original supporters of the French students request for exposure to a range of economic models. My thoughts here are great to challenge economists in general , but we do have to be careful that we do not through the baby out with the bathwater. Because we do more economists to support the need to connect economic conversations to the real world. TED
Ted, I agree there are some economists who do not have their heads up their arses. But that is not my only objection. A bigger issue for me is beginning their work with theory rather than experience. Theory comes from experience, not the reverse
Ted, I am delighted to hear you too have had the pleasure of Tony Lawson’s company. What you and Bob Locke are saying about the need for cooperation between employer and employee is much what Tony was saying about French professors and students and Ken is now saying about theory coming before experience. I’m currently studying Margaret Archer, another of the key figures in the Critical Realist movement, whose book “Being Human” has a whole section arguing with Harre about what she calls “the primacy of practice”.
The problem I find is that I have had enough exposure to economist’s language to be able to understand her, but the same doesn’t appear to be true in reverse. When we start from the same point in her figure 3.4 she sees a square area, not a rotating clock timing information flows in a circular channel (and all that can be learned from that). Put another way, theory exists at two levels: what is built into the language and maths we use and take for granted, and the particular bits of it we have chosen when trying to share our conclusions. The net effect is that the specialisation of economists prevents them from learning from those who speak a different mathematical language.
When I set out to study the creating of a “modern” blast furance to mass produce rails in Alais France, I had the good fortune to find the correspondence among those who did it. All were men of experience and in their correspondence not one referred to the famouseconomists and their theories. Engineers, Emile Martin inventer of the Siemens-Martin Open-hearth furnance, Charles Manby, experienced Britishengineer who worked in France, Frederic Le Play, who ended studying worker communities, a famous man, an engineer. Engineers mostly, money men for finance, c, 1830s.
Robert R. Locke. Les fonderies et forges d’alais à l’époque des premiers chemins de fer: La création d’une entreprise moderne. Translated by Elisabeth-Anne Benoist-D’Azy. Paris: Editions Marcel Rivière. 1978. Pp. 298
Most of this correspondence is here.
I certainly support Ken Zimmerman’ demand for experience (and I add unbiased observation) before postulating on irrelevant theory and note Dave Taylor’s support.
Probably because of my practical experience I have long held the same view.
Back in 2004 I had the privilege of being invited to to do a poster presentation at the Cambridge Economic Conference.
Ted, the problem is precisely that observation cannot be unbiassed. Knowing next to nothing about how the brain works, David Hume persuaded scientists to become doubting Thomases: unwilling to accept that what one has been taught in words influences what one sees, and that the words we use, our choice of them and the history (including our own) we are inferring and describing with them, all involve interpretation to relate them to what we now see. Ken’s demand for experience is, as I see it, Humean: stuck in the present. The aim of science is not to deduce the truth of “If A then B” but to retroduce an interpretation (theory) A such that “if B then A” where B is the current problem and A is the best known (or a “good enough”) way of solving it.
Which way then is up? “If A then B” or “If B then A”? Do Humean individuals form groups because they communicate, or did Levi-Strauss’s family groups learn to communicate, the better to coordinate their developing roles? As Kant saw, by denying the reality of what we call “causality”, Hume didn’t even resolve the problem of how, “If A, then B”.
Dave, before all else humans are ‘in the world.’ They perform in that world by relating to the other things they encounter. To survive. They also interpret those things by conceptualizing them. Causality is one such conceptualizing. As social scientists we work to reveal and describe all these human activities. There is no right answer. We try to follow humans. “Which way then is up? “If A then B” or “If B then A”?” Both, neither, changing over time. Humans have built it man ways.
Someibody about Hume’s time concened with words.
Willhelm von Humboldt’s reforms of the Prussian school system were thorough-going and revolutionary. They produced the best-educated citizenry that any nation has ever known—a fact which is universally acknowledged.
What was the secret? His reforms were based on Humboldt’s understanding, as a student of philology, of the universal role of language in the development of the human mind. Philology, whose Greek root means “love of words,” pertains to the study of comparative language. In particular, Humboldt centered his reforms on mastering the language of the Golden Age of Greece, which Humboldt himself mastered by the age of eighteen.
In an age when not only are Greek and Latin no longer taught, but when a student is lucky to learn one foreign language, Humboldt’s proposals may sound utopian. But the study of classical languages goes to the heart of the problem we face today in answering the question: Why can’t Johnny read?
Humboldt wrote, in a letter to his wife Caroline, “It is only through the study of language that there comes into the soul, out of the source of all thoughts and feelings, the entire expanse of ideas, everything that concerns man, above all and beyond everything else, even beauty and art.”
He held that “Language is deeply entwined in the intellectual development of humanity itself, it accompanies the latter upon every step of its localized progression or regression; moreover, the pertinent cultural level in each case is recognizable in it. … Language is, as it were, the external manifestation of the minds of peoples. Their language is their soul, and their soul is their language. It is impossible to conceive them ever sufficiently identical… . The creation of language is an innate necessity of humanity. It is not a mere external vehicle, designed to sustain social intercourse, but an indispensable factor for the development of human intellectual powers, culminating in the formulation of philosophical doctrine.”
My students in Hawaii studying Japan and China say this.
Good contribution, Bob, though Humbold was later than Hume. I found https://plato.stanford.edu/entries/wilhelm-humboldt/ very interesting.
As I see it, Descartes got very near the truth with both body and spirit (meaning) but Locke (pursuing epistemology rather than ontological complexity) sought meaning only in sensory experience. Berkeley argued things exist only in God’s mind, Hume that they exist only in our own minds. Hence a complex question: Nature or Nurture? Or both? (Or neither: invention)?
The evidence now available supports Descartes’ ‘both’, with language nurturing our nature as an index does our reading of a book.
My own experience endorses what you say about the value of learning different languages, but not perhaps in learning to speak them as much as realising that different languages can have different grammars and orderings (much as books can have different types of index). I learned French at grammar school, by which time my mouth muscles had become so accustomed to speaking English that I still struggle to speak French, whereas Maltese children have to become fluent in speaking the four local languages from their infancy. Prior to the 1970s Catholic services were in Latin, which intrigued me because I didn’t understand it, but in the grammar school I was only taught it for a year, so I still see mainly the ghost of it in the Latin origins of many English words. I was, however, never taught even the Greek alphabet, which has been a continual problem for me as it is used so much in scientific mathematics. It is surprising how much one needs to be able to read alphabets and think of the meaning of word as sounds.
Humboldt was brought up and educated in Berlin by a private tutor. He attended Göttingen University, then the center of scientific learning in Prussia. His training in classical antiquity began at Göttingen under Christian Gottlob Heyne (1729-1812), the classical scholar and archeologist.
The two greatest and most formative influences on the young Humboldt were Friedrich August Wolf (1759-1824) and Friedrich Schiller (1759-1805). Wolf was the first German to call himself a student of philology. A professor at the University of Halle, he was considered the greatest classical scholar in Germany, and passed on to a generation of scholars and teachers the enthusiasm for ancient Greece that had conquered the German intellectual world in the late Eighteenth century. He became Humboldt’s trusted adviser and friend in implementing his reforms.
Friedrich Schiller, the great “Poet of Freedom,” had the most profound impact on Humboldt, who spent two years in his close company, during one of the most productive periods in Schiller’s life. Humboldt called Schiller “the greatest and finest person I have ever known.”
In mid-1794, Humboldt moved his family to Jena, where Schiller had taken up a position as professor of history at the university in spring of 1789. Humboldt recounts, “I had chosen Jena as my residence in order to be near Schiller. … We saw each other twice every day. Especially in the evenings we were likely to be alone, and we generally talked until far into the night.”
Dave,
What a centurry, and what circles of influence, for Hume and Wilmhelm von Humboldt to experience..
Again somehow i timed out and then my post was sent so i will answer davetaylor’s statement that observation cannot be unbiased . I Certainly acknowledge that an individual’s knowledge is bound to have a certain amount of bias. But in my opinion this is not sufficient reason to dismiss observation, rather it is a case of where an exchange of what individual people see and perceive of the same subject that improves the overall knowledge of the subject.
Back to the poster because it makes the point back in 2004 some people saw the need for economics to relate and yet 16 years later economics generally still remains locked into theopoetical postulating ignoring the real world.
In the poster i wrote Economists and Politicians are nearly all Self important , greedy , pompous Asses and idiots who have become the tools of extreme Capitalists , constructing theory on unsubstantiated false assumptions. Then they have the gall to claim esoterical privilege for their false assumptions.
Then i gave the good guys an exception. Therefore unless they relate Economic Theory to the needs of the unemployed ,part time and casual workers Then my accusation stands that Neoliberalism Laissez-Faire is the construct of extreme Capitalism and Political morons, When we had set up our posters I was a bit nervous thinking had i gone to far in challenging the establishment. However when the the display was opened , one woman with a large group behind her stooped at my poster and asked if I wrote it not knowing what sort of reaction I might get i acknowledge i was the culprit. after she red it she congratulated me for having the courage to write it and turned to all those following her and said this man stands out for saying something that others had not dared to say. She was none other than Deidre McClosky.
What concerns me at present is it now over 21 years since the French students request to be exposed to a variety of economic models and yet neoliberalism is under the control of extreme Capitalism.TED
Ken, I’m arguing against Hume rather than you, but tell me, do you understand the difference between “If A then B” being deductive logic (i.e. linguistic), and “If B, then A” being retroductive logic (interpreting the current reality in terms of a linguistic theory based on previous observations of reality)? Previously, you have (like Hume) sounded as if you believed reality only came into existence when there were humans able to see the evidence for it.
Ted, show me where you think I have “dismissed observation”. I intended to suggest one has to observe reality in order to be able to interpret it. In fact Robert Pirsig, in “Zen and the Art of Motorcycling Maintenance”, makes a very strong case (born out by the way the parts of the brain are related to the spinal column) that we must first be emotionally “switched on” by becoming aware of what he calls “Quality” – even before we have time to see what it is that is becoming significant.
Dave, in your scheme of things what is reality and what are its origins? I’ve made myself clear on this. How about you do the same.
You get the sequence wrong. Humans don’t observe reality. Humans encounter from which they make up reality. I’m only interested in what they make up. If you want to study something else, that’s your decision. If you can find something else.
Ken, I can hardly be clearer than I have been, saying that reality includes not only human thoughts but humanity and everything that already existed before us – including logically if speculatively, all that existed before the beginning of time. I can’t stop you redefining ‘reality’ in the illogical Humean way, but I can say that ‘tit for tat’ I’m not interested in what you have made up. If your axioms are imaginary then so are your conclusions.
Dave, the problem is your axioms are also made up. You just refuse to acknowledge it. Best, Ken.
Read section 6 of the paper linked to my response to Bob Locke: https://plato.stanford.edu/entries/wilhelm-humboldt/.
“The Anthropological Side of Language Production and the Humboldtian Model of Communication; Laying the Basis of Modern Structural Linguistics”.
Dave, another source in the creation of modern western cultures.
IN reply to Dave Taylor May 21, 2021 at 10:7 pm
I
Here i will try again to reply to Dave Taylor my apologies for not making it clear that I agree with the importance of observation and support the concept that it can be biased. But my next sentence was meant to read as a general personal statement and certainly not an accusation against you. So thank you all for putting up with me because i am trying to speak out on behalf of the disadvantaged an d get theory based on conditions people face in the real world TED
Thank you Ted, and re Pirsig may I say how much I appreciate your being switched on to the real world and its inhabitants having problems which need addressing. I’m all too familiar with someone whose very reasonable philosophy is not so much to ‘look the other way’ as to ‘look local’ in order to stay happy enough to do what needs doing locally. That is fine so long as it is not used to argue against those trying to take the longer view of systematic problems.
Robert, I want to approach this somewhat differently.
Linguistic anthropology studies the nature of human languages in the context of those cultures that developed them. We seek to understand the social and cultural foundations of language itself, while exploring how social and cultural formations are grounded in linguistic practices.
Linguistic anthropologists study the ways in which people negotiate, contest, and reproduce cultural forms and social relations using language. They examine the ways in which language provides insights into the nature and evolution of culture and human society. Never leaving out the time and physical location dimensions.
A Student of Chinese history in Hawaii told me thar the pictographis of chinese produced an entireky different imagination than alphabetic english. Not a bad reason to study chinese if you want to learn chinese history.