Refillable Planet

Humanity has a fertility problem. Birth rates are near or below replacement in all but the world’s poorest countries – and falling rapidly. Without a change in projected population trajectory (or AI timelines), humanity could have less than a century of current-level innovation left, forever

What can we do? In the short term, countries will try to encourage immigration – see Japan’s recent liberalisation of immigration rules. But, fertility is falling everywhere. We might then try relying on the traditional driver of population growth over the past century, namely the lower mortality rates from economic growth and medical advancements. However, the gains from this approach have been exhausted. People rarely die before reaching the age at which they would have stopped having children.1

So, we’re left with trying to encourage more births, or removing barriers that exist currently. More people are good. Not only are they capable of leading happy lives (a philosophical position), but they have ideas, and innovate. However, it is not immediately clear if we, like good economists, should subsidise this positive externality. This is because, bar some sophisticated (and politically difficult) targeting, we’ll have to subsidise all births, including those that would’ve happened anyway.

In this post, we show that under the median estimated elasticity the socially optimal fertility rate is 2.4 in the US, well above today’s 1.7, given that the US should place a value of 14.28x GDP per additional birth ($1.17mn per birth). Furthermore, to achieve this, the US should be willing to spend the equivalent of 3.8% of its GDP ($290K per birth) per birth. For context, the existing child tax credit is worth $2000/year, or $26K present value. We’d like to stress that these figures are highly uncertain, because of both the varying welfare gain from more births, and also varying estimates of how effective subsidising births are. Even still, in the main case, the US government should seriously consider greatly increasing its child tax credits, and explore more creative and ambitious solutions to address this looming demographic crisis.

How much should we be willing to pay for an additional birth?

There are probably four reasons why you should care about increasing fertility rates: public goods (the fixed cost for public goods are spread across more productive people), externalities from research (more people, more ideas!), life cycle effects (the young can help the old) and altruism (we care about the happiness of future generations).

Firstly, more people, more ideas. Ideas have been the driver of economic growth, and people are the driver of ideas. And ideas are ‘non-rival’ - if we invent a better way to grow wheat, it doesn’t matter whether the technique is used by 100 people, or a million. To figure out how valuable these new people and their ideas are, we work out the value of the worlds where they did and did not exist. There are a couple of considerations we need to make these calculations. However, the quality and quantity of ideas (as measured by their economic contribution) does not increase in direct proportion to the number of people. They suffer from diminishing returns which means we should multiply each additional person’s output by 0.75. Because we’re only concerned with the US, using the contributions of scientists to published research as a proxy for total contribution to scientific output, the US accounts for only 26% of global science output.2 We must also remember that the new births are children, and so we should apply a discount factor of 0.82.3 The Economist, arguing against the subsidies we model, noted that only 8% of children of parents without college education will get a college degree, compared to 62% of all parents. However, even if we fully account for this, this still yields a $1.03m (around 12.67xGDP/capita) willingness to pay for any given birth from just their research contributions.4

Now we also should add the additional benefit from spreading the fixed cost for public goods, eg. on defence or public debt, across more people. Such public goods are “non-rival”, which means that they don’t get worse for existing users if more people use them. As a result, if we increase births, we increase the number of people who can pay for them, and hence reduce costs for existing users. For the US, we model just the military and public debt, subtracting climate change. The US devotes 3.4% GDP to the military and has debt worth 122% of GDP. And, how about increasing birth’s effects on climate change? Well, though the aggregate costs of climate change increase faster than the population, it’s not by much, with an elasticity of 1.18.5 When we consider this with a 3.5% discount rate the present value decarbonisation expenses are equivalent to 23% GDP for purposes here, overall resulting in the 1.96xGDP gains from the other public good effects, which we also discount by 0.82.

Next, higher fertility means younger people. In the medium term, this results in higher taxes per capita. Unfortunately, we don’t have good figures of the marginal government spending over a lifetime by age. Both caring for the elderly and educating children are expensive - so we don’t know what the net effect will be, because the elderly are much more expensive per person, but their costs are also far in the future. We’ll leave this out of our calculations for now.

Finally, we’ll briefly consider the “full altruism” case, ie. one where we also value the raw happiness enjoyed by these new people. A life is worth much more than a total lifetime income.6 We get this from considering the statistical value of life, currently $13m, which is much higher than expected lifetime income. This yields a 164x GDP in the US. We don’t include this number for our baseline estimates – whether or not to do so philosophically controversial - but do present results if this utilised.

One billion Americans

We conclude that the US government should be willing to pay up to $290,000, overall, to each parent who gives birth. This is a result of our model that shows that any new child born, that wouldn’t otherwise have been born without the subsidy, has a $1.03mn value to the US. In practice, suggestions for additional child tax credits from across the aisle should be implemented, and perhaps even greatly increased.

Because there is a huge range of elasticity estimates in the literature, there is only so much confidence we can ascribe to any policy implications. Existing interventions aren’t well studied. And we’re interested in the best interventions, not the average ones. Society should invest more resources in studying fertility interventions worldwide, and coming up with new ones: subsidising fertility treatment, reforming child care regulation, changing cultural norms.

For this post, though, in many senses, we’ve modelled the worst case. That these subsidies are non-targeted, while in practice, we can do much better. That more young people won’t improve the demographic structure of the economy, while in practice, it will. That society doesn’t account for the happiness of the new children themselves, while in practice, we do.

Humanity has a fertility problem. But it’s a solvable one.