This chapter examines the concept of scarcity. Scarcity is fundamental to understanding large parts ofeconomics. If there was no scarcity, there would be no prices, incentives would have no power, there would beno reason to weigh and choose between alternatives, and the conservative economic principle of “there’s no freelunch” would be meaningless. It is perhaps no exaggeration that without scarcity the whole field ofmicroeconomics would fall apart. However, scarcity does not mean shortages, or absolute scarcity; it can berelative as well. Land and Labor can both be plentiful, but Labor can be relatively scarce. This chapter, afterdefining the concept of scarcity, will illustrate the concept by looking closely at two cases of scarcity: foodscarcity and gender scarcity (the sex ratio). Through these cases, we will look at how individuals make marriageand childbearing decisions. In addition, we will examine the work of economists Thomas Malthus and AmartyaSen and the concepts of opportunity costs, the production possibilities frontier and moral hazard.

1.0 SCARCITY1.0 SCARCITY

The “economic problem” is that wants are greater thanthe resources available to satisfy them. Alternatively,demand is always greater than supply. However,supply is the limiting condition because resources arefinite and the scarcest resource of all is time. As aresult, economics is sometimes called “the dismalscience” because its main message is that you cannotdo what you wanted.

The concept of scarcity also allows us to parse marketprices from intrinsic value. For example, consider themarket price and intrinsic value of diamonds andwater. Diamonds command a high market price; wateris often provided without charge in restaurants andfreely available via water fountains and publicfacilities. However, few would argue that diamonds areintrinsically more valuable than water. So, why is themarket price of diamonds so high relative to water? Under the original “adding-up” theories of value proposedby some Classical economists, the value of an item was the sum of its inputs or characteristics, mostly notably,labor time. However, if we were to look at the human body, its component elements would only fetch $4.50:carbon, nitrogen and oxygen are not particularly scarce. However, the estimated value of different organs isfairly high -- Bone Marrow, $23 million; Antibodies, $7.3 million, Kidney, $91,400 -- and the human body asparts could raise almost $47 million (Note: the value of a statistical life: c. $7 million). There is a cleardifference between the “use value” and the “exchange value” and scarcity is the key to understanding why.

The puzzle of economic rents sheds light on the importance of scarcity. Rents, by definition, do not entail anylabor input, so where does the market value come from? Rents derive from the ownership of scarce resourcesand the ability to withhold them -- making them artificially scarce -- from production. The extra revenuemonopolists receive is not because of the characteristics of what they sell; it is from their ability to make goodsand services artificially scarce. Patents, copyrights, and professional licenses also serve to raise the value ofservices by controlling access to the legal use of products. The broader point is made by the example ofdiamonds illustrates this point. Diamonds are not naturally scarce; mining companies (DeBeers) hold manydiamonds off the market. Scarcity also lies at the root of most global environmental problems and the scarcityof clean air, fresh water, and arable land will no doubt weight heavily in the mid 21st century. The 20th century-- especially if you lived in the USA -- was a century of abundance, the next may be the century of scarcity.

SCARCITYSCARCITY

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2.0 MALTHUS & THE DISCOVERY OF SCARCITY2.0 MALTHUS & THE DISCOVERY OF SCARCITY

Thomas Malthus was an early economist famous for his theories ofpopulation, rent, and economic “gluts.” While a contemporary -- andmember -- of Classical economists such as Adam Smith, David Ricardo, Jean-Baptiste Say and James Mill, he differed from them in significant ways andforeshadowed later developments in modern economics. He is most famousfor his thoughts on population growth and sustainability and his writingsinfluenced evolutionary and population biologists including Darwin. Inmany ways, Malthus is the first environmentalist as the one of the firstthinkers to stress the reality and influence of limits to growth anddevelopment. To this day, the term “Malthusian” connotes a person withpenchant for pessimism, particularly about environmental concerns, and whoadvocates strong policies to address environmental threats. He was involvedin many of the public policy debates of early 19th England and through histeaching position was influential on many of the administrators who wouldsupervise England’s colonization of India.

By the late 18th and early 19th century, the impact of England’s Industrial Revolution was widely evident. Ina short period of time, England had come from an afterthought on Europe’s periphery to the wealthiest andmost powerful nation of its time. However, Malthus -- among others -- noticed a seeming paradox in England’seconomic development. Despite England’s obvious wealth, there was a marked increase in pauperism (poverty)compared to previous experience. How could the nation become richer, while its inhabitants became poorer?Even if the wealth was unequally distributed, everyone should be better off than when the nation, as a whole,was poorer. A second level of this puzzle was that many of the new poor and hungry were farmers, theindividuals who should be the most economically self-sufficient. At the time, the Poor Laws guaranteed themeans of subsistence at local parishes for those unable to support themselves. As a clergyman, Malthus had adirect view on the operation of the system and believed it to be a part of the larger problem.

Malthus proposed an explanation based on the “natural” laws of populationgrowth and food supply. Under the contemporary understanding, populationand food supply should be in balance. One farmer (+ one acre of land)produced one bushel of food; two farmers (+ two acres of land) produced twobushels of food. In other words, food increased at an arithmetic (linear) rate.However, population increased at a geometric (exponential) rate. Eventually,population would outstrip food supply with the result of widespread povertyand famine. The food supply acted as a “check,” or limit, to populationgrowth. Food would be too scarce to support the population. As food becamemore scarce, its price would rise, driving more and more people into poverty.Returning to the English case, Malthus argued that as England became richer through manufacture, peoplelived longer and had more children, increasing the total population. In addition, as individuals shifted fromagriculture to manufacturing (in part from the population growth in the countryside), fewer individuals stayedon the farms to produce food, yielding less food than before. The key fact for Malthus was that while England’spopulation grew as result of its wealth, the land to support the growing population did not. As a result, foodwould be become more scarce relative to population as it grew, driving up its price and consuming greatershares of income.

The problem of high agricultural prices was a problem that engaged all early economists. Most, like DavidRicardo, thought it supported the argument for free trade and the repeal of the Corn Laws that prohibited theimport of cheaper foreign grain. However, Malthus dissented and argued to keep protectionist barriers for

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agricultural products. He believed that this would raise agricultural wages and draw more workers into foodproduction.

2.1 WAS MALTHUS WRONG? PART I2.1 WAS MALTHUS WRONG? PART I

Over 200 years have passed since Malthusmade his original predication of apopulation-driven famine catastrophe andarguably it has not happened. In fact, asthe chart to your right attests, worldpopulation has increased seven-fold (atleast) since Malthus first issued his direwarnings. Does the absence of worldwidefamine disprove Malthus’ theory ofpopulation and scarcity? The chart at thefar right, showing the relationshipsbetween population and wages in Englandthrough the 18th century suggestotherwise. There is a clear inverse relationship between wages and population: the larger the population, thelower the wage; the smaller the population, the higher the wage.

This illustrates the “Iron Law of Wages,” the notion that wages will tend toward subsistence level. Imagine abuying a pizza for a party, expecting only four people to show. Each would receive 1/4 of the pizza. Then, fourneighbors, smelling the pizza, show up and the individual shares are now 1/8 apiece. Then, more friends,seeing the rocking party, join and the shares shrink even more. Eventually, the shares become so small thatpeople starve and disappear. This was Malthus’ point. The agriculture production is fixed (or limited), andtherefore, increasing the population just means smaller shares of the produce for everyone. This is akin to thepredator-prey model in ecology.

If we look at this relationships from a longer historical perspective,we see that income levels for most of human history we struck at alow and constant level, known as the “Malthusian Trap.” The chartto your left suggests that the economic welfare of the average humandid not increase from the Agricultural revolution to the IndustrialRevolution. At the time of Malthus’ writing, most of the evidenceclearly supported his interpretation. Clearly, there is the “hockeystick” of income growth during the past 200 years, but Malthuscould not have known this (and this is a story for another chapter)writing at the beginning of England’s Industrial Revolution. Still,Malthus may have overestimated the growth of agricultural

production by assuming it would growth arithmetically. As hislater writings on rent suggest, agriculture probably facesdiminishing (less than linear) returns to scale. As foodproduction carrying capacity, its growth may resemble afunction approaching its mathematical limit as shown in thechart to your right. This suggests that instead of the slow,grinding immiserization of rising food prices promotingincremental adaptation, the population crisis will occursuddenly with evidence only apparent when the population hasalready passed an irreversible “point of no return.”

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2.2 THE PRODUCTION POSSIBILITIES FRONTIER2.2 THE PRODUCTION POSSIBILITIES FRONTIER

The tradeoff between high wages and a large population suggests another basic economic framework: theproduction possibilities frontier (PPF). The PPF is a chart where two possible uses of the same set of resourcesare drawn on the horizontal and vertical axes respectively. A curve representing all possible combinations ofthe two options creates a frontier that maximizes the use of existing resources. Consider the PPF charts below.

This pair of PPFs represent different choices made between two alternatives -- texting and reading a textbook-- facing a student with the same resource: time. The shape of the curve is not symmetrical: the student ismuch better at texting than reading the textbook and so has to give up much more texting to achieve the sameresult reading the textbook than she would gain if we gave up reading the textbook to do more texting. Thearea of the blue box is equivalent to the utility (y units texting, x units textbook reading) derived by a givenallocation of resources, in this case time. The white areas under the curve are unutilized potential. The PPFshows the opportunity cost of choices: part of the cost of texting is the foregoing reading the textbook (andwhatever benefits reading conveys) and part of the cost of reading the textbook is not using that time to text.Opportunity costs are often overlooked in making choices, but they are often the largest costs because theyinvolve the trading away of the most scarce resource: time. The most commonly used PPFs are the supply anddemand curves which show the transformation ratio between money (price) and real goods and services(quantity). The PPF is also a graphical illustration of the principle of “no free lunch.”

2.2.1 INTENSIVE & EXTENSIVE GROWTH2.2.1 INTENSIVE & EXTENSIVE GROWTH

As a production function, the PPF also gives us insight into different strategies to expand an economy’sproductive capacity. Essentially, there are two strategies: intensive growth and extensive growth. Intensivegrowth (“work harder”) means to simply to increase the inputs into a production process to raise the output.In the example above, it would be as if a person had two hours instead of one to text or read; one would beable to both read and text more. Graphically, this would work by reducing the white unutilized potential areasunder the curve. Extensive growth (“work smarter”) means to improve one’s technology so that one canachieve greater output with the same amount of resources. For example, if one became more dextrous, onecould accomplish the same amount of texting in less time and either choose to do more texting or have extratime to read their textbook. Graphically, this is equivalent to shifting the PPF outward.

These two approaches can describe the two approaches to industrialization taken by East and South Asiancivilizations and Western Europe respectively, explaining the “great divergence” in productivity since 1500.Broadly speaking, Asian empires (Ming-Qing Chinese Dynasties & Indian Mughal Empire) pursued labor-

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intensive strategies. The Asian empires hadno frontier to expand food production, sothey turned to labor-intensive rice-paddyagriculture. Due to their reliance on ricecultivation, which allowed them to feed alarger population on fewer acres, they hada ample supply of human labor. Finally,the intensive character of Asia’s ricecultivation, including terracing hillsides,cut into their ability to produce energyfrom biomass. Europe had a differentexperience. The “discovery” of the Americas following Columbus added many acres for cultivation under thecolonial plantation system. In addition, the Bubonic plague caused labor shortages and raised the cost of labor,pushing Europeans to pursue capital and energy-intensive, labor-saving technologies as the charts above show.In addition, Europe fortuitously found cheap sources of energy underground -- coal -- which allowed them torely less on surface area for biomass energy (wood) and freed land for food production. The development pathsof Europe and Asia show how relative scarcities of key factors of production nudged Europe to adopttechnologies that allowed it to close and then surpass the much more advanced Asian civilizations.

2.3 MALTHUS & MORAL HAZARD2.3 MALTHUS & MORAL HAZARD

While Malthus’ description of the population problem areimportant, equally interesting are the prescriptions he proposed toaddress the problem. There are two “checks” regulating thepopulation’s size: “positive” checks -- the death rate -- and“preventive” checks -- the birth rate. In particular, Malthus cited twotypes of positive checks and one preventive check on populationgrowth. Malthus ruled out the preventive check -- “moral restraint”(birth control / contraception) -- and favored the positive checks“vice” (war & crime) and “misery” (poverty & disease) to keeppopulation growth within production limits necessary to support it.

These recommendations made Malthus a curious character in theannals of social reform and welfare. Malthus criticized the Poor Laws that provided free food and shelter tothose unable to support themselves and their families. If you fed the poor, it would only “encourage” them tohave more children they could not support. This would further exacerbate population pressures, putting

downward pressure on wages and upward pressures on food prices, leading togreater and more widespread poverty. The kindest, and most socially responsible,policy would be to let starving people die. The most famous expression of thissentiment is found in the mouth of Ebenezer Scrooge of Charles Dickens’ TheChristmas Carol:

Later, the Ghost of Christmas Present -- a personification of Abundance --confronts Scrooge by showing him “his children”: Ignorance and Want. Mostcontemporary readers see this as evidence of Scrooge’s miserliness, but forScrooge and Malthus, this position was considered “progressive.” Therefore,

"Since you ask me what I wish, gentlemen, that is my answer. I don't make merrymyself at Christmas and I can't afford to make idle people merry. I help to support theestablishments I have mentioned: they cost enough: and those who are badly off mustgo there.'' "Many can't go there; and many would rather die.'' "If they would ratherdie,'' said Scrooge, "they had better do it, and decrease the surplus population."

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Malthus recommended “starvation wages” -- payworkers enough to live (and work), but not enoughto support children -- to employers and advocatedthe institution of “workhouses” that would requirepaupers -- including the elderly and children -- towork to receive public assistance. The cartoon(1834) on the right displays a critical view of theworkhouses Malthus supported. Poverty should notbe ameliorated, but cruel and miserable as possibleto serve as an incentive for productive work.Malthus’ thoughts on this proved influential to thedevelopment of Darwin’s concept of “survival of thefittest.” The poor, as evidenced by their poverty, were“unfit” and therefore should not “survive.” Darwin acknowledges his debt to Malthus in his autobiography:

Before we dismiss Malthus as a hard-hearted hater of the poor and destitute, we need to understand theeconomic concept of “moral hazard.” Moral hazard refers to the perverse incentives that arise when choices areseparated from consequences or when the benefits of an action are divorced from its costs. In part, this is anextension of the principle that “there is no free lunch” and charity given to the indigent is taken from someoneelse. However, it is also the aphorism, “if you give a man a fish, you feed him for a day; if you teach a man tofish,you feed him for life.” Charity and welfare provide disincentives to work. If a teacher gives a student agrade higher than they deserve, the student learns not to study. If you give a patient too much care, they maynot learn to heal and become self-sufficient. If policies make gasoline (and other pollutants) cheap, there is noincentive to reduce pollution. If everyone receives the benefits of an invention, there is no incentive to innovate.If criminal penalties are lenient, there is no disincentive to deviant behavior.

2.3.1 MORAL HAZARD & WELFARE2.3.1 MORAL HAZARD & WELFARE

On of the most significant application of Malthus’ ideas -- outside of population control -- is the analysis ofsocial welfare programs. First, the association of promiscuity with the poor (and racial minorities moregenerally) is a stereotype that unfortunately carries down to the present day and reflects Malthus’ linkage ofpoverty and population growth. The false stereotypes of women as “baby mamas,” “welfare queens,” and “golddiggers” all derive from the premise that women use children as means to extract ill-gotten financial gains.However, the larger area of application is the concept of moral hazard and the disincentives to work created bypublic welfare programs.

The first area is unemployment insurance (UI). The graph to yourleft shows when unemployed workers return to work relative tothe timing of their UI. The key is the big spike that occurs about2/3 along on the horizontal axis, showing a large number ofunemployed suddenly finding work the same week that their UIexpires. The graph suggests that as long as individuals receiveincome from UI, which they only receive if they remainunemployed, they have no incentive to find work. This data seemsto support Malthus’ idea of moral hazard and work incentives.

In October 1838, that is, fifteen months after I had begun my systematic inquiry, I happened to readfor amusement Malthus’ On Population, and being well prepared to appreciate the struggle forexistence which everywhere goes on from long- continued observation of the habits of animals andplants, it at once struck me that under these circumstances favourable variations would tend to bepreserved, and unfavourable ones to be destroyed. The results of this would be the formation of anew species. Here, then I had at last got a theory by which to work

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Research by Harvard economistRaj Chetty questions whether UIcreates work disincentives. Thegraphs to your left show hisfindings. On the left, the chartcompares more generous (red) andless generous (blue) UI benefits.This data seems to supportMalthus, where less generousbenefits seem to predict a less

likelihood of unemployment. However, the key fact is that the left graph is only for individuals who are in debt(no net savings). The graph on the right shows compares the same levels of UI benefits for individuals who havesome savings when they became unemployed. It shows that there is no difference in the likelihood of workingbased on the size of the UI benefit. In fact, contra Malthus and moral hazard, recipients of a more generousUI benefits are more likely to be employed after 35 weeks ofunemployment than those receiving a less generous benefit. Similarevidence can be found from Austrian UI where instead of a weeklybenefit, employees who have worked for more than 36 months (3 years),receive a lump-sum severance payment. A lump-sum payment shouldhave no effect on the incentive to work because you receive the amountwhether you remain unemployed for one day or one year. However,employees receiving the lump-sum payment are likely to remainunemployed longer. This evidence suggests that UI does not provide adisincentive to work, but enables the unemployed to find the bestpossible job by avoiding taking a lesser job due to income pressures.

Another source of evidence is the relationship between disabilityinsurance (DI) provided Social Security and unemployment. Thegraph to your left shows how applications for disability (blue) appearto rise and fall with the unemployment rate (red). Since disability isnot a result, nor a cause, of business cycles, this relationship wouldsuggest that some individuals apply for disability as an alternative tounemployment and not because of a disabling condition. Also notableis that DI applications increased dramatically following the 2001recession -- the first recession after welfare reforms passed in 1996made public assistance more stringent. In short, DI is increasinglyused by the unemployed as an alternative to welfare assistance that is

no longer available. This interpretation is supported by the composition of disability diagnoses as shown bythe graph to your right. The graph shows a distinct rise in the diagnosisof mental (stress & psychological disorders) and musculoskeletal (backpain) as a cause for disability compared to other disabling conditions.Mental and musculoskeletal problems are notoriously subjectivediagnoses. The pattern in the graph suggests that physicians --knowing their patient’s economic hardship -- are colluding to classifythem as disabled so that they can receive assistance. The case of DIsuggests two about moral hazard and work incentives. First, theleniency of DI does provide a work disincentive. Second, theeconomizing of ordinary welfare (1996 Welfare Reform) did noteliminate all disincentives for work, but shifted a sizable amount ofindividuals to a more generous and unnecessary form of assistance.

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The third area is the high marginal tax rateslow-income households face because welfareprograms are means-tested (the greater yourwork income, the smaller your benefit). Thechart on the right provides a summary ofincome-support and welfare programs and thesize of the benefit at different income levels.Note: this does not include TANF (TemporaryAid for Needy Families), federal housingassistance (“projects”), or WIC (Women,Infants & Children) that are not universallyeligible. They fall into three broad categories:healthcare -- Medicaid, CHIP, and“Obamacare” subsidies to buy privateinsurance, childcare -- dependent taxexemption, Child Tax Credit, etc, and income support -- SNAP (“food stamps”) and the Earned Income TaxCredit (EITC = negative income tax). As the chart shows, every dollar a person earns over $15,000, there is acorresponding decrease in benefits received. As a result, the poor face an effective tax rate of between 54.5%and 81.9% -- steeper if “Obamacare” subsidies are cut. At some levels -- $15,000 to $25,000 -- individuals facea near 100% tax rate, where every additional dollar earned equals one dollar of benefit lost.This is a powerful disincentive to work.

Another “welfare” program that is provided free of charge is public education. Students (and their parents) arenot charged anywhere near the economic cost (2008 = $10,441/pupil) or value (1 year of school = 7-10%increase in average annual earnings) of the education they receive from grades K-12. Despite this generousbequest from society, many students “waste” their free education through absenteeism. Some students, whenthey begin to pay tuition in college, finally realize the value of their education. As a result, some educationalsystems charge their students a nominal fee (for textbooks, school uniforms, etc.) to encourage students to taketheir education more seriously. In the author’s experience, which includes both public and private institutions,daily attendance at tuition schools is between 90%-100%, while the daily attendance at public schools is in therange of 75%-80%. In terms of moral hazard, the difference between “free” and “nominal charge” issignificant. So, while Malthus (and neo-Malthusians) may have exaggerated the impact of moral hazard, thereis something to be said for imposing a nominal cost for receipt of benefits.

2.4 GENERAL GLUTS2.4 GENERAL GLUTS

A second dimension of Malthus’ writings on population and economics is the possibility of a general “glut.”The Classical economics of Adam Smith, Ricardo, and Say held that general gluts of commodities wasimpossible. In the aggregate, demand equaled supply; supply equaled demand. Temporary excess inventoriesof particular goods and services were possible, but always balanced against a shortage somewhere else in theeconomy. The solution was for the holder of an excess inventory to slash prices until the inventory was sold,freeing capital and purchasing power to address the shortage elsewhere. However, this was only a temporaryand transitory phenomenon. A general glut where there were excess inventories everywhere was not possible.Malthus identified a clear exception: population. The demand for food (population) could be greater thansupply (food production) due to the differential growth rates of arithmetic and geometric growth. Malthuswould broaden the critique to strictly economic inventories during the recession after the Napoleonic wars

[A]According to [Ricardo's]... theory of profits...manufacturers would have been in a state of the most extraordinaryprosperity...but, instead of this, we hear of glutted markets, falling prices, and cotton goods selling at Kamchatka lowerthan the costs of production. It may be said, perhaps, that the cotton trade happens to be glutted; and it is a tenet ofthe new doctrine on profits and demand, that if one trade be overstocked with capital, it is a certain sign that someother trade is understocked. But where, I would ask, is there any considerable trade that is confessedly

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The missing shortage was money. The existence of credit and money allowed individuals to exceed their budgetconstraint, just as differential growth rates permits population to exceed its carrying capacity. In terms ofbusiness-cycles, the overshoot occurs because optimism about future economic prospects exceeds the deliveryof the goods. With respect to population, it comes from miscalculations about the demand and supply ofchildren. Given their historical experience of death rates, couples may plan on having more children than theyneed or can support. However, they cannot (and probably would not), upon reflection, “un-birth” a childwhen they discover that fewer children will die in childhood than before.

2.4.1 THE DEMOGRAPHIC TRANSITION2.4.1 THE DEMOGRAPHIC TRANSITION

The demographic transition is a widely held theory of why we have avoided a Malthusian population disasterso far. It presents a model for how key demographic parameters, such as birth and death rates, will evolve acrossits social and economic development. The diagram below shows the basic model. In this model, birth and

death rates are “flows” in and out of the“stock” of population. The differencebetween the flows determine the growthrate of the stock and ultimately thepopulation size.

In the pre-modern, “Stage 1” phase,both birth and death rates are high,which keeps population growth ratesstable and the total population sizesmall. Life expectancies during thisperiod were low, roughly 30 to 40 years,making a contemporary high schoolsenior or college freshman, “middle-aged.” In addition, childhood mortalitywas high. The chances of surviving toadulthood and bearing children was less

than 50-50. In 1832, Nathan Rothschild -- reputedly the richest man in the world -- died of blood poisoning,an ailment that would be simply, and safely, today with a simple course of penicillin. Most fared worse.

As a result, women had to produce children at a prodigious rates to keep pace with mortality. One estimate ofbirth rates in Colonial America puts the figure at 40-50 births per 1000 (average 10+ children per mother) --compared to 13 births today. This often meant that marriages occurred in the early teens (the age of bar andbat mitzvahs), at least for women, and childbearing commenced in the mid-teens. Childbirth was dangerous:about 1 in 50 births end in the death of the mother and a woman’s chance of dying in childbirth was 1 in 8.Childhood, as many Colonial Era gravestones attest, was also dangerous. Ordinary illnesses such as influenzaand fevers often proved fatal. Hunger and undernourishment were common: until recently, birth month was apredictor of life expectancy because gestation during “lean” months meant your mother was likelyundernourished, producing congenital defects in the children. It should be observed that few at the time wouldhave found any of this strange, but simply an unavoidable aspect of the human struggle.

Then, due mostly to improvement in diet, public health, and sanitation, but also better medical care, death

understocked, and where high profits have been long pleading in vain for additional capital? The [Napoleonic] warhas now been at an end above four years; and though the removal of capital generally occasions some partial loss,yet it is seldom long in taking place, if it be tempted to remove by great demand and high profits; but if it be onlydiscouraged from proceeding in its accustomed course by falling profits, while the profits in all other trades, owingto general low prices, are falling at the same time, though not perhaps precisely in the same degree, it is highlyprobable that its motions will be slow and hesitating...

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rates began to drop. However, since no one knows how long they will live, this development went undetected.Therefore, they continued to bear children at a rate commensurate with a much higher death rate. In terms ofstocks and flows, the faucet was still flowing, but the tub was plugged. Not surprisingly, the tub filled withwater. In was probably during this “Stage 2” that Malthus wrote about population growth.

2.4.2 ECONOMIC FAMILY PLANNING2.4.2 ECONOMIC FAMILY PLANNING

Before continuing with the Demographic Transition model, it may be helpful to step back and explore howeconomists approach the decision to have children, how many children to have, and how to organize thehousehold as an economic unit. From a Malthusian perspective, people are poor because they have too manychildren. However, some argue that households have large families because they are poor. To understand why,we need to think of the family as an economic unit in agarian and industrial societies. Although some havemade an issue about the centrality of the traditional marriage institution as a pillar of social stability, thetraditional marriage and the nuclear family is relatively new family form, no more than 400 to 500 years oldat most. Historically, extended kinship relationships formed the basis of economic organization,multigenerational households were the norm, and marriages often served as the seal on business alliancesbetween families. The prevalence of arranged marriages and marriage brokers (“matchmakers”) suggest thatthere has been a distinct economic function of the family household beyond love and procreation.

In an agrarian society, children, particularly boys (girls were seen as liabilities, “mouths to feed”), are seen asproductive resources. In agricultural work, even young children could be put to work and contribute to thehousehold’s output. Most premodern agricultural households operated through intensive growth: more labor,and land equals more production. Therefore, the more children one had, the more food the household couldproduce. The second concern was support in old age. Before Social Security, 401(k)s, and pensions, the mainsource of retirement support was children. However, this was a risky proposition because high mortality ratesmade the chances that a child would not live to support their parents was a non-negligible proposition. Inaddition, girls were worthless for this purpose since they would be married into other households. Hence, thetraditional preference for male over female children. This explained some of customary family institutions,such as primogeniture (the eldest male inherited the entire estate), because with inheritance was the obligationto care for elderly parents. In this economic environment, both to increase output and to hedge againstmortality risks, it made sense to maximized the number of children.

In industrial societies, the calculus changes. Instead of productive members of the household unit, childrenbecome strictly liabilities. They cannot be put to work easily to earn income and higher skill requirements ofimply an additional investment in their education. In addition, the pressures to earn income to support thefamily meant increasingly that mothers would be forced to leave the household and earn wage income. Parentsopted for fewer “higher-quality” children instead of simply maximizing the quantity. Supporting these choiceswas the creation of public retirement programs, elderly care facilities, and pensions that removed the need formultigenerational households. Family size has decreased significantly over the past century. Parents no longerexpect their children to be economic contributors to the household, but treat them as consumption goods (oralternatively investments) that produce affection. This change can be seen in the economic value of children inlaw. A century ago, compensation for children’s wrongful death was their economic wages; the wrongful deathof a newborn was zero. Today, compensation can run into the millions. The change in the economicsignificance of children may also explain changes in parenting. As a valuable (and scarce) investment, parentsneed to protect their investment leading to “tiger-mothers,” “helicopter parents,” and “kyoiku mama” (Japan)parent types and parent-advice industry that ranges from baby-naming (and the choice of distinctive andunique name spellings) to how to raise a “perfect” child. Perhaps the most poignant measure of children’sworth is the reaction to war casualties. The monthly casualties in America’s War on Terror are equivalent to thecasualties of a third-tier Civil War battle. While all lives are valuable, the crushing reaction to war deaths todayreflects the greater investment in individual children by contemporary parents.

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2.4.3 DEMOGRAPHIC TRANSITION CONTINUED2.4.3 DEMOGRAPHIC TRANSITION CONTINUED

In the later stages of the Demographic Transition, peoplerealize that death rates have declined and begin to reducebirths. A large part of the change was due to the improvingstatus, education, and employment of women. The graph onyour right shows the time paths of total fertility and adultfemale literacy in several key developing nations. As is clear, asadult female literacy improved, fertility declined, slowingpopulation growth. However, where traditional female rolescontinued to prevail, fertility remained high. For example, thebackward curve in Iran’s (green) time-path reflects, no doubt,the influence of its Islamic Revolution in the early 1980s.Higher female education levels typically resulted in greaterknowledge and willingness to use contraceptive methods.Increased female labor force participation caused women todelay marriage and the age of first childbirth, reducing the window to bear children. Higher social status meanthat women enjoyed more options beyond the traditional roles of wife and mother which had implications forpopulation growth rates.

By the final stages of the Demographic Transition,both birth and death rates reach a low level: lifeexpectancies have doubled and birth rates are nowbelow replacement levels (2.3 children/woman) inmost of the developed world. In fact, this hasbecome an issue of concern in Northern Europe,Scandinavia, and Japan. In Japan, low birth ratesmean that the Japanese population will shrink by athird over the next half century as birth will notreplace deaths. As the chart to the left shows, whilemany countries still have high birth rates drivingpopulation growth, in most developed countries,populations are shrinking due to the low birthrates.

A key element of this is female participation in the labor force. As a result, many countries have initiated pro-natalist social policies to encourage women to have more children including long (and paid) maternity leaves,free childcare, and even bonuses for newborn children. However, they have only been modestly successful inraising birth rates.

2.4.4 FEMALE LABOR FORCE PARTICIPATION2.4.4 FEMALE LABOR FORCE PARTICIPATION

One of the key social developments of the past century is the rise in female labor force participation (FLFP).Obviously, women have always worked, but historically, this was largely concentrated in the private sphere(home and society) and not compensated in wages. For a variety of reasons -- some economic, some social --the traditional gendered division of labor has broken down, and women now compete with men in the wage-earning labor force. In fact, while FLFP has risen, it has declined for men in the USA. The value of “women’swork” has become apparent, not only in the raising and care of children, but in the decline of key socialfunctions such as charitable organizations, religious groups, volunteer organizations, mutual-aid societies

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and neighborhood associations have all declined in membership, subtracting from society’s stock of socialcapital. In addition, many social functions traditionally performed by women: caring for elderly and sickrelatives (and neighbors), norm regulation and maintaining social networks, are going undone or are now paidwork. In short, the value of women’s un(wage)compensated work has become manifest as the areas of childcare,elderly care, food preparation, and domestic service have become increasingly monetized activities. However,more importantly the social value of women’s activities was unnoticed as an externality of social activitieswhose value is seen in the rise of social problems these externalities addressed. While male “fraternal”organizations were mostly directed at private gains and business networking, female organizations focused onimproving quality of life and social reform. Although the gains of FLFP (and education) are considerable, thesocial costs are as well.

Two economic aspects of changes in FLFP participation is thequality of traditionally female-dominated occupations such asnursing and education and the rise of the “two-income trap.”Previously, when women’s occupational choices were limited, theseprofessions attracted the most-talented women. As occupationalchoices, especially for professional women, has proliferated, theseoccupations no longer draw the same share of the best talent and amajor cause of the reputed decline in teaching quality and shortageof nurses may be due simply to occupational choice. Secondly, inthe past, women served as an “insurance policy” against lostincome due to male unemployment. “Unemployed” mothers couldenter the workforce to defray lost wages. However, as the norm ofa “two-income” household became commonplace, householdsexpanded their budgets as added female wages made up forstagnant male wages in the 1970s and 1980s, but lost theirflexibility, making bankruptcy much more common thanpreviously.

The “shape” of FLFP shows the tradeoff between work andchildbearing. If FLFP rates are plotted over the lifespan, theyhave a distinctive “M-Curve” shape with a kink during theprime childbearing years. In other words, women enter theworkforce prior to marriage/childbearing, take a hiatus fromcareers to raise children, before returning to the labor force.The diagram above shows the development of the M-Curve inthe US over time. As is clear, the kink in the M has graduallydisappeared over time along with higher levels of FLFPsuggesting that women are no longer leaving the workforce toraise children (contributing to the decline in births). Acomparative view, shown in the diagram to your left, suggestsa similar dynamic and the gendered division of labor in

different societies. In Japan (red) the M-Curve is much more pronounced than the US (blue). However,northern European nations, such as Germany and Denmark show much higher FLFP and less dip duringchildbearing years, while more traditional countries like Singapore and Malaysia show no return to the laborforce after marriage/childbearing. A similar structure can be found if Japan’s FLFP composition is shown. Interms of full-time employment, Japan’s M-Curve looks similar to Singapore and Malaysia with part-timeemployment consisting of the largest share of post-childbearing employment. A final note is that countrieswith lower FLFP tend to have longer labor force participation and delayed retirement, while high FLFPnations tend to have earlier effective and statutory retirement than their counterparts.

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3.0 SEX RATIO3.0 SEX RATIO

The sex ratio is the of men to women in a society. A sex ratio greater than one shows that there are more menthan women (women are relatively scarce) and a ratio less than one shows that there are fewer men than women(men are relatively scarce). Biologically, there should be more women than men because of longer lifeexpectancies due to lower infant morality, fewer congenital diseases, and lower mortality at every age over thelifespan. Sex ratios below one should be the norm. However, in developing countries sex ratio are consistentlyover one, while in developed countries are under one. The map below shows the global distribution of sexratios where blue shades show sex ratios below one and red shades show nations with sex ratios above one.

If the distribution of sex ratios is not biologicallydetermined, social factors -- such as the status ofwomen -- explain the pattern of variation. Sex ratiosare also an indicator of relative scarcity of men andwomen in the “marriage/relationship” market. Insocieties where the sex ratio is over one, women arerelatively scarce, while in those that it is below one,women are relatively plentiful. What are the socialimplications of “cheap” or “expensive” partners inthe relationship market? In traditional societies,women tend to be scarce, raising their value.Women become prized possessions and customssuch as veiling of married women in some Islamicsocieties or foot-binding in traditional China have asocial function of marking wives as “exclusive” property. Having a wife was a sign of wealth and social statusand the inability to pay the “bride price” (now institutionalized in the purchase of an engagement ring) meantthat one could not marry. It implies that longer-term, monogamous relationships would be the norm. Virginityand chastity would be prized in women and chivalric conduct expected from men. The notion of treatingwomen as property was widespread before modern times and the description of an unchaste woman as“damaged goods,” and that this precious item was “earned” through chivalric action fits this misogynisticperspective. In addition, the distinction between “legitimate” and “illegitimate” children was key. Legitimatechildren could only be created as the product of a sanctioned marriage (or through adoption). Legitimatechildren had legal and economic claims on the household; illegitimate ones did not. Legitimacy, therefore, wasalso a scarce resource.

In the a low sex ratio society, the terms of exchange are reversed. A comparison of 19th century Americanregions is instructive as the graph to the leftsuggests. Sex ratios stayed much higher in theSouth relative to North and this may explaindifferences in cultural values about families,parenting, and the status of women. Recently,some authors have noted differences in family lawacross US states that reflect this regionalvariations. In low sex ratio societies, women havebecome “cheap” due to their “oversupply.” Someauthors argue that this is consistent with higherlevels of infidelity, divorce rates, and promiscuitybecause there is a lower penalty. In addition, onemight expect a coarsening of social manners,especially toward women, and more

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non-traditional households. One would also expect a rise in illegitimacy, but less social stigma attached to it.Also, practices that “objectify” women -- by both women and men -- are more likely to be common andaccepted. On the other hand, there is likely to be more freedom for women to take on non-traditional roles andoccupations. The best examples of this are post-WWII Germany, which suffered a huge decline in the malepopulation due to war deaths, and WWII America because of war mobilization. Another historical example isAncient Rome, a relatively progressive society that allowed women to own property. Rome imposed “bachelortaxes” to encourage men to enter conventional marriages and produce legitimate children.

3.1 HEALTH & SEX RATIO3.1 HEALTH & SEX RATIO

One of clearest signs of the impact of the sex ratio is in legaltreatment and social outcomes. A good comparison is theUnited States and Latin America, which have both differentsex ratios and cultural attitudes toward women. Somestatistics: about half of Latin American women report beingvictims of domestic violence (compared to about 1 in 3American women); Latin American women are twice aslikely to be sterilized compared to other developing areasand four times more likely than the developed world,making sterilization one of the most common form ofcontraception in the region. Rape statutes are far lessstringent than their American counterparts. In somenations, laws are not enforced, but in others, legal languageonly makes “good women” eligible to be considered rape victims. In others, women are not provided recourse,but their husband, father, or brothers area, deriving from legal doctrines that treated women as property.

However, health outcomes provide a clearer test. Some diseasesaffect both men and women, while others, like cervical cancer, onlyaffect women. The difference in incidence and survival rates acrosscountries is a good indicator of the status of women in that society.The map to your left shows the incidence of cervical cancerworldwide. Unlike other cancers, cervical cancer is largelypreventable through the HPV vaccine and so incidence levels reflectthe priority given to women’s health, particularly OB-GYN care. Themortality rate for cervical cancer in Latin America is four to fivetimes higher than the US and about 50% higher than otherdeveloping areas, while the survival rates for other cancers is nearlyequal across regions. Further evidence of the disparity can be seen in

the graphs below that show the levels across time in Latin America compared to the US and the age specificmortality from cervical cancer acrossregions. Still, while the US doesbetter comparatively, differences canseen between regions.The first mapshows the levels of HPV vaccinationand the existence of abstinenceeducation programs across states. Ascan be seen, states in the South aremore likely to have lower vaccinationrates and are more likely to haveabstinence-only education programs.

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How does this affect the incidence and survival of cervicalcancer? The two maps to the below left show the incidence(left) and mortality (right) from cervical cancer. As is clear, agroup of Southern states have both a higher incidence and alower rate of survival from cervical cancer. This is consistentwith the theory that women’s health receives lower priority incertain regions. On the right, incidence and mortality levels forbreast cancer are shown. There is no regional clustering forincidence, but there is a somewhat regional grouping formortality. In addition, while not shown, there is no regionalclustering for incidence and mortality from skin cancer, adisease afflicting both men and women equally.

3.2 CHANGING SEX RATIOS3.2 CHANGING SEX RATIOS

The level of gender development and gender equality aresignificant predictors of social and economic development.Therefore changes in the sex ratio over time are good indicators ofdevelopment trends. The chart to the right shows the changes inUSA since the Civil War. We see the initial dip due to male CivilWar casualties, followed by a rise in the sex ratio in concert withthe Gilded Age policies that lead to malnourishment, promptinga decline in average height over time. From the 1930s, we see along secular decline in the sex ratio that paralleled the robusteconomic growth following the Great Depression and socialprograms and progressive taxation that spread wealth broadly.This development also saw a long secular improvement in the status of women, including a rise in FLFP.However, beginning in the 1970s, we start to see the sex ratio tick up again. Once again, this tracked stagnationin wages and a reverse tide (or a slowing in progress) for American women.

The main driver in the improvement of the sex ratio was probably the passage of Social Security that providedwomen with an independent income in their old-age. Thisseparated their welfare from the income of their spouse and womencould take full advantage of longer life expectancy. The chart toyour right shows age-specific sex ratios for children (< 5 years) andthe elderly (> 65 years). The sex ratio at birth, captured by the <5sex ratio, did not change significantly. If anything, the number ofboys increased. The dramatic change is in the sex ratio among theelderly. The elderly female population jumps after the 1940srelative to men as women realize their life expectancy advantage.Social Security, by providing secure income to the elderly, removedthe social and economic barriers to longer lifespans.

Incidence -- Cervical Cancer -- Mortality Incidence -- Breast Cancer -- Mortality

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3.3 SEX RATIO & SAVINGS: CHINA3.3 SEX RATIO & SAVINGS: CHINA

Just as Social Security drove a major change in Americansex ratios, China’s sex ratio is driving retirementconsiderations. In the 1970s, to reduce populationgrowth, China embarked on a “One-Child Policy” thatlimited most families to one child per couple. Theunintended consequence of this policy was that manyparents used sex-selection abortions to choose a malechild. As a result, the generation of the One-Child Policywill have approximately 40 million more men thanwomen. In addition, the adoption of capitalist marketreforms after 1978 dismantled several pillars of China’ssocial safety net including elderly support and healthcare.This created a dilemma for Chinese adults. In Asia,daughters (and daughters-in-law), not sons, areconsidered to be the better caretakers of their parents, but they have produced too few girls to take care of theaging elderly population. As a result, a need to build up savings to provide income in their retirement yearsbecame imperative. The chart above shows the high correlation of China’s sex ratio with the savings rate (Y-C/Y = (Income - Consumption)/Income = Savings Rate). As the sex ratio (blue) rose in the 1980s due to theOne-Child Policy, so did the savings rate (red) in lockstep. They need to save more because they do not trusttheir male children to take care of them in their old age. The economic result is that China has the highestsavings rate in the world, several magnitudes higher than the US at its postwar height. This creates problemswith the functioning of the current economy. The money that could be used to purchase China’s productionfor consumption is instead being funneled into investment through savings, leading to overcapacity andchasing up asset values of real estate -- a key source of China’s economic problems. It also forces China to findan outlet for its production via export, mostly to the US. The lesson of China’s adoption of a Malthusian policyof curbing the birth rate is that instead of making the economic system more viable and sustainable, it hascreated significant problems that threaten China’s long-term economic welfare.

3.4 MISSING WOMEN3.4 MISSING WOMEN

The Nobel Prize-winning economist Amartya Sen has called attention to the “missing women” problem.Biology predicts that boys and girls should be born in roughly equal proportions. However, if this is true, thereare 100 million “missing” women -- mostly concentrated in Central, South, and East Asia -- from the world’spopulation. A large part of this story is the practice of sex-selective abortions, where cultural preferences formale children in concert with ultrasound technology to determine the gender of the fetus with unregulated

access to abortions allowed Asian parents to tilt the scalestoward male over female children. However, this is onlypart of the story. The low-status of women means thatmany Asian women are more likely to be mal- andundernourished and are less likely to receive necessarymedical care. In developed countries, women have lowerage-specific mortality at every point in the lifespan,however, as the chart to the left shows, Asian women havehigher mortality at every point in the lifespan compared totheir male counterparts. In particular, Chinese girls in theirlate teens have a mortality rate over twice that of boys theirage. And in other developing countries of Asia, middle-aged women (30-60) have a 50% higher mortality.

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4.0 AGING SOCIETIES4.0 AGING SOCIETIES

Population structures are not uniform. Some societies are older than average, while others are weighted towardyounger people. Unlike other products, humans cannot be produced on the spot or at convenience. One cannotdispose of excess population like one could dispose of excess inventory, machines, or raw materials. Individualsare most productive in certain age-spans and therefore a society with a larger share of its population in theseage cohorts will be more productive than an equally sized population with more young or elderly. Some liketo observe that “demography is destiny” and one challenge that faces the US in the near future are the problemsof an aging society. In Malthusian accounting, one person = one person, regardless of other characteristics, buta young population, who has not entered their peak childbearing years, is much more likely to grow simplyfrom momentum even if the birth rates are low, while an older population might continue to decline even withhigher birth rates. The diagram below shows the population pyramids for three different settlements.

Population pyramids should the percentage of the total population, usually in 5 or 10-year increments, frombirth until old age. It is split by gender with the female population on the right and the male population onthe left. As is clear, these three settlements have significantly different age structures. Sandy, Utah -- a wealthysuburb of Salt Lake City -- has a classic hourglass shaped population structure. Why? The two bulges representschool-age children and their middle-aged parents. The 20-somethings are absent, either at college or pricedout of a community with little rental stock and full of single-family homes. In addition, there are fewindividuals of retirement age. The second community is Washington, DC, a major metropolitan area. Here thebulge is in the 20s-30s. Noticeable is the small school-age child cohort. The younger adults are not parents,but likely singles flocking to large cities in search offuture spouses. Finally, on the right is Miami Beach,a Florida retirement community. It shows largeelderly cohorts, with distinctly more women than menat the upper age cohorts. Although different places(suburbs, cities, and retirement communities) havedifferent age structures, in total it show the changingage structure over time. To the left is Japan’s evolvingpopulation pyramid for 1950, 2003 and a projectionof 2050. In many ways, this parallels the US sans

immigration. In 1950, we see a broad-based population pyramid, typical of most developing countries today.The key fact is the shares of the population in the labor force (black) compared to the youth and elderly (blueand gray respectively). Although the size of the labor force was relatively small -- just under 60% -- most ofthe dependent population was young, which bodes well for the future because they will enter the labor force.It also means that the population will likely grow simply from momentum as the larger younger generationhave more children even at lower birth rates. The 2003 pyramid, typical of most developed nations today,shows a mature “barrel-shaped” structure. Most (2/3rds) of the population is in the labor force as the younggeneration of 1950 has grown up. However, youth cohort has shrunk considerably -- more than halved as ashare of population, while the elderly dependent population has increased fourfold. While this is sustainablein the short-term, the lack of a young population entering the workforce makes this long-term unsustainable.If current trends continue, the projected population for 2050 -- an inverted pyramid -- presents a challenge toJapan (one also faced by other developed nations). The workforce will be significantly smaller, with a large

group of elderly dependents and little prospect ofgrowing because of the small youth cohort slated toenter the workforce. This will put stress on thefinances of income support and medical careprograms for seniors such as Social Security andMedicare. One of three things will happen: a) taxeswill be raised on future workers to make up for thegap in revenues, b) benefits will be reduced for futureretirees or c) the statutory age of retirement will bepushed back forcing workers to work longer toqualify for benefits. If you are a high school studentgraduating in the early/mid 2010s, this means thatthis will hit just before the time you plan to retire.

The demographic squeeze is not simply a problem for taxpayers or Social Security recipients. Even ifretirements are privately funded, they depend for their returns ultimately on the productivity of the workforce,which depend in turn (in part) on the size of the workforce. In addition, as the Chinese example in the previoussection suggests, the lack of secure retirement leads to excess savings in the present, which cuts into incomes.Moreover, the gap created by lack of public support will be made up by the adult children of retirees to providethe support. Although the Social Security “crisis” has often been exaggerated and dissembled (see chapter ontaxes), the generational balance created by too many dependents and too workers is a policy problem. Thechart above shows the generational balance for China in the early 1980s. It charts age-specific “production”and consumption” across the lifespan. When individuals produce more than they consume, they generatesavings, but when they consume more than they produce, they must “borrow” from those producing savings.In other words, over time, the area of “borrowings” (blue) must equal the area of savings (red) in the diagram,regardless of actual borrowing and savings of individuals.

5.0 FAMINES5.0 FAMINES

One of Malthus’ direct influence was on the British colonial administration of India and his influence can beseen in colonial policies. In addition, the case of India seems tailor-made to confirm Malthus’ theories ofpopulation and scarcity. Neo-Malthusians, such as Stanford biologist Paul Ehrlich argued in 1968 that “Indiacouldn't possibly feed two hundred million more people by 1980.” Since independence, India’s populationhas grown from 400 million to over 1 billion. India occupies 2.5% of the Earth’s arable land, but supports 15%of the world’s population, a population density that is six times the world’s average. In addition, 35% of itspopulation is under the age of 15, nearly 70% is rural, and about a third is illiterate. None of these statisticssuggest India is in the latter stages of the Demographic Transition to slow population growth. In addition,India has suffered several major droughts that seriously impaired its food production. During the first

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hundred years of British rule, India seemed to confirm Malthus’ predictions with famines claiming over 50million lives. In addition, shortly before independence, the Great Bengal Famine claimed over 2 million lives.Since independence, India has had three major droughts that resulted in millions of tons of grain productionlost -- larger than the food supply loss in previous periods, but famine deaths have not mounted to more thana thousand. Meanwhile, in neighboring China, a country with many of the same objective challenges, but withgreater wealth, food production, literacy, and age structure than India, the worst 20th century famine -- killingat least 20 million, but more likely 45 million -- following the Great Leap Forward from 1958 to 1962. Howwas India able to defuse the population bomb while China -- following all the Malthusian prescriptions --suffered the nightmare scenario?

5.1 DEMOCRACY5.1 DEMOCRACY

Nobel Prize-winning economist Amartya Sen has argued that the key ingredient in India’s success wasdemocracy. Despite widespread and persistent poverty, especially in rural areas, India has been able to maintaindemocratic institutions and processes for most of the period following its independence. Above and beyondthe protection of political freedoms, democracy acts as a social information processing mechanism and aguarantee of social equity. By providing a channel for the disadvantaged and suffering to pressure publicofficials to be responsive to their needs. In India, despite the patron-client structure of the ruling CongressParty, they could not ignore the widespread suffering and moved quickly to redistribute grain to the drought-stricken provinces even before the bad harvest lead to food deprivation at no cost to individuals. In contrast,local officials in China during the Great Famine repeatedly underreported or failed to report famine conditionseven after hundreds of thousands of individuals had died because they were afraid they would be punished forreporting bad news. The second role of democratic institutions was the norm of equity and sharing the burden.India opted for widespread hunger and malnourishment -- everyone received less than a full calorie allowance-- but no starvation. In contrast, party officials and urban workers received full rations while rural farmers wereleft to starve. To illustrate, imagine there is one full meal available and two persons to feed. In India, theindividuals agreed to split the meal and both go hungry, while in China, the more powerful person took all thefood and left the other to starve. The following report was typical during China’s great famine:

Instead of following the Malthusian and Darwinian principle of survival of the fittest, India followed a policyof support for the weakest and most vulnerable and did much better in combatting the crises of food supplyshortages.

5.2 TECHNOLOGY & TRADE5.2 TECHNOLOGY & TRADE

A second factor Malthus underestimated was the role technology to liftthe carrying capacity limit. Malthus, and most Classical economists,believed resources to be finite in an absolute sense. At best, foodproduction could only increase as a linear (arithmetic) function ofpopulation: one person = one bushel; two people = two bushels, etc.However, subsequent research by agricultural economist Ester Boserupargued that food supply is not a linear function of population. Herargument was twofold First, as food became more scarce, higher foodprices would provide an incentive to use more efficient techniques andspur innovation. Second, the supply of “geniuses” grows withpopulation. As population grew, the chances of a breakthrough rose.

In the second half of 1959, I took a long-distance bus from Xinyang to Luoshan and Gushi. Out of the window, I sawone corpse after another in the ditches. On the bus, no one dared to mention the dead. In one county, Guangshan,one-third of the people had died. Although there were dead people everywhere, the local leaders enjoyed good mealsand fine liquor...I had seen people who had told the truth being destroyed. Did I dare to write it?

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Therefore, food supply would behave like a step function that stayedahead of population and not a logarithmic function approaching acarrying capacity limit. In India, the Green Revolution introduced newseeds and agricultural techniques that greatly expanded food supplydespite a growing population. In addition, the response to famineswas not decrease in food supply, but a increase in the following yearfrom previous good harvests. Food shortages, conveyed through theprice system, sent signals that reorganized food production to increaseboth inputs and improve techniques to raise output. The graph belowshows food supply in post-independence India. The dips in 1966,1975 and 1980 correspond to the major droughts where India’sindigenous food supply dropped. A Malthusian would predict thatfood supply would only return to pre-drought levels in the followingyear, but as the graph shows, after each drought -- and only afterdrought years -- grain production reached a new high. In addition, ifthe grain production was simply a one-time application of “GreenRevolution” techniques, the rise in grain production would have a

slightly different trend pattern: a one-time gain followed by aplateau instead of multiple stepped rises and plateaus.

Another mistake of Malthus’ can be seen in the graph:underestimating the beneficial influence of trade. Malthusopposed the importation of foreign agricultural products,thinking it would undermine the wages in the agriculturalsector. However, as the trend of Indian grain imports shows,imports rose during times of droughts and poor harvests,supplemented the domestic grain supply. Trade allowsindividuals to diversify natural risks: there may be a majordrought in one place, but it is unlikely to happen everywhereat the same time. Some areas will be in surplus while others arein shortage. High prices will attract surplus resources fromother areas and provide the quantity of food demanded.Although climate change may result in more correlated

weather events, undermining the logic of risk diversification through trade, it has proved beneficial in the past.

5.3 WHO STARVES?5.3 WHO STARVES?

There are two major misconceptions about famines about who is most likely to starve and when famines occur.The first misconception stems from the belief that everyone is equally liable to the threat of famine, i.e., if thereare 100 people, each person has 1/100 chance of starvation. The most likely group to starve during a famineare primary food producers, who common sense would say should be the least at risk. The secondmisconception is that famines occur when there is a food deficit, but in fact they often occur when there is afood surplus. The reason behind misconceptions can be answered from the same dynamic. First, theexpectation of a poor harvest usually occur long before the harvest due to telltale signs such as heat, floods,and other weather events. This drives up food prices before harvest as households stockpile in anticipation.When this occurs, owners of food stocks sell into the high prices, reaping windfall profits. Farmers, who mustwait for harvest, are frozen out of the market. In addition, they cannot buy food on the market because of thedebt incurred to plant the harvest. When farmers are able to sell their harvest, prices plunge as all try to sellinto markets with fewer buyers, further depressing prices. Farmers are “selling calories” at a lower price thenthey can buy them, further depleting their own household calorie stock. Many end in bankruptcy and starve.