Population Surpasses Economies of Scale

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By Kenneth Pasternack

An investor, Ken is a member of the CAPS Board of Directors and the treasurer.

The writer's views are his own.

May 1, 2013

The Chamber of Commerce and trade associations often suggest that economic well-being depends on more growth.

Their stance is dangerously outdated in today’s overpopulated California. Californians can no longer afford to confuse population growth with economic growth while our government goes bankrupt.

Increasing the population made sense in the 1800s when California had few people. A growing population supplied the tax base and labor to build infrastructure like roads. As the population increased, the state gained economies of scale, reducing the cost of adding infrastructure for each newcomer.

Today, we are past the building phase. The road system is fully built out; our cities are covered with a grid of streets. Increasing the population raises costs by increasing wear and tear on existing infrastructure, which is already overburdened, and by increasing demand for scarce resources like water.

Nowadays the marginal cost of providing services to a newcomer is rising, not falling. Even pro-growth communities have been forced to increase development fees for new housing tracts.

California’s population has grown past economies of scale and reached the point of diminishing returns. Growth is healthy for the young. For grownups it is cancerous. Both government and industry will suffer if the population grows further. Infrastructure will deteriorate even while the cost of public services soars, pushing taxes upward.

California’s budget crisis exposes the fiscal futility of providing services and infrastructure for too many people. Governor Brown is even forced to propose cutbacks for education and the disabled, his pet causes. But that’s only the beginning.

While tipping the economy into diseconomies of scale, overpopulation also cripples the economy by reducing resources.

In today’s crowded and technologically advanced world humans can exhaust a fishery or an aquifer within decades. Californians are living off our environmental capital, depleting resources that should be renewable, while the nation races toward famine.

California, the nation’s leading farm state, last enjoyed a sustainable population of 10 million in 1950. We are now at 39 million and adding 500,000 a year. Moreover, each year the state loses 50,000 acres of farmland. Further growth is neither necessary nor inevitable.

A hundred years ago America prospered with a sustainable population of 75 million. Americans enjoyed ample resources and were able to build a great nation. Ecologists estimate America can permanently support 75-150 million people. The nation now numbers 315 million, with all the environmental and economic damage that inevitably follows. But we can reduce our population.

How do we know growth is not inevitable? Because our internal growth has already stopped. Like the Europeans and Japanese, Americans stopped having large families. The post-war Baby Boom ended almost 50 years ago in 1964. Since 1970 American couples in California and nationwide have averaged just 2 children, a no-growth fertility rate.

Today’s growth is imported, not internal. It will end when voters insist that Congress stops setting new world records for immigration year after year.

Far from inevitable, today’s growth is politically driven. The only thing inevitable about any population is that it will eventually stop growing. Infinite growth is impossible on a finite planet.

The business community need not fear population reduction. While businesses might enjoy fewer customers among a smaller population, they will also face fewer competitors.

Fortunes can be made in small towns as well as big cities. Many of America’s great family fortunes were amassed when the nation had a fraction of today’s population.

An enlightened business community will welcome population reduction so our county, state and nation remain viable enterprises for our children and generations unborn.

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