Economists should be worried about birth rates

The Economist has an interesting article this week, in which it goes after Daron Acemoglu. Acemoglu is probably the top economist in the world at this point, having just earned a Nobel prize, and sitting right at the top of the list of most cited economists. So it’s kind of funny that when it talks about people who doubt Acemoglu’s research, the one person it mentions is…me!

Give an economist a few drinks, however, and some of them will venture their true opinions about this giant. “Much of his theoretical work is useful, but he uses his models to inform populist policies that have been tried before and failed,” blasts one well-known economist. Some commentators do not require Dutch courage. “I’ve been yelling about Acemoglu for literally a decade,” Noah Smith, an economics blogger, has said, in response to a flurry of online criticism of Mr Acemoglu’s work.

It is true that I have been pretty critical of much of Acemoglu’s work over the years. In 2012 I argued strongly against a paper he wrote in which he claimed that America is more entrepreneurial than Sweden because America’s weaker safety net forces people to work harder (in actuality, Sweden is more entrepreneurial by most measures). In 2022 I pointed out that a famous Acemoglu paper claiming that robots destroy jobs was actually an outlier, and listed a bunch of other papers that reach the opposite conclusion. I liked his book Why Nations Fail, but I also admit that its empirical foundations are fairly shaky. I didn’t like Acemoglu’s more recent book Power and Progress, and I was highly critical of a recent paper Acemoglu wrote about AI and productivity.

But this is hardly newsworthy. I go after Acemoglu’s work because I know he can take it; he’s a titan of the economics field, and I am but a lowly blogger. Nothing I say is going to affect his reputation or his prestige, even if someone at The Economist mentions my critiques in an article. Indeed, after the article came out, top figures in the profession rushed to condemn it and to defend Acemoglu. The Economist does list a bunch of — usually justified — criticisms of Acemoglu’s work, but this does not mean Acemoglu has been discredited as a researcher or exposed as overrated; indeed, it would be difficult to name a top economist whose body of work does not contain a variety of questionable theoretical assumptions, motivated reasoning, and/or shaky empirical results. This is a problem with the field itself, not the man; it’s part of a broader crisis of unreliability throughout much of academia.

But for that same reason, despite the Economist article’s lack of newsworthiness, I think it’s good that the magazine decided to come at the king. Economics is far too hierarchical and closed of a profession. Younger and less accomplished researchers routinely defer to the authority of famous and senior figures, and critics from outside the field are typically brushed off. Exactly how it got to be this way is a topic that deserves a longer post, but I believe the hierarchical, closed culture of econ has resulted in a research literature that has been too skewed toward the priorities and intuition of top authority figures. I thus think it’s generally a healthy thing to tweak the tails of those Olympian figures, as long as criticisms are grounded in substance. As they say, “science is the belief in the ignorance of experts.”

So in that spirit, let’s critique another Acemoglu paper.

First, the background. Recently, a lot of people (including myself, but also prominent economists) have begun worrying about low fertility rates. Across all countries — poor as well as rich — fertility just keeps going down and down, with no floor in sight.

This presents two distinct dangers: population aging and population shrinkage. Aging, rather mechanically, creates a burden for young people, because you have more retirees who have to be supported by each worker, either through taxes or through family support. It also might reduce productivity, for example if older managers are less innovative, but that’s more speculative. Population shrinkage, meanwhile, is a threat to total GDP, which you might care about if you want your country to be more powerful. There’s also the possibility that a smaller population might reduce growth — by reducing the opportunities for specialization, or by reducing the available pool of researchers.

But some people argue that a shrinking population is no problem — or might even be a good thing. When you make human workers scarce, it creates an incentive to invest in labor-saving technology, which boosts productivity. This mechanism has been proposed by some growth theorists, and some economic historians, like Robert Allen, even think this is what caused the Industrial Revolution! This effect might be strong enough to cancel out the aggregate effect of population aging, so that society stays just as rich — or even gets richer — due to low fertility rates.

This is actually a plausible mechanism. I have to say, I’m skeptical that it works in the general case. Human beings aren’t just labor supply; they also create labor demand. The incentive for businesses to buy new machine tools, robots, AI, etc. is that someone is going to buy the stuff they produce with those tools. If you have fewer people, you have fewer consumers. This is probably the reason why the effect of immigration on wages is typically close to zero. Babies are not that different from immigrants. A larger market size can also create an incentive for more rapid innovation — in fact, Acemoglu and Linn (2004) find that faster population growth increases pharmaceutical innovation.¹

But anyway, the idea that population scarcity stimulates innovation is the thesis of a new paper by Daron Acemoglu, David Autor, Keelan Beirne, and Andrew Scott. This is from the abstract:

Contrary to the widespread expectation that [low birth rates] hamper economic growth, we find lower birth rates are associated with higher growth in GDP per working-age adult across countries and higher wage growth across US commuting zones, with no negative impact on aggregate GDP or earnings. These patterns are not explained by educational upgrading, rising female labor force participation, the declining importance of agriculture, or neoclassical-Solow mechanisms. We argue that they reflect the endogenous, labor-saving response of technology to the scarcity of younger workers. Consistent with this interpretation, countries and regions with lower birth rates exhibit more labor-saving patents and growing high-tech activity. There is also higher TFP growth across countries and industries. [emphasis mine]

It’s a plausible result. But before we go on to the details of the paper, let’s talk about what this result would imply, if it does turn out to be true.

One of the paper’s basic theses is that technological automation raises wages. That flies in the face of the empirical work that Acemoglu has done on robots.² It also more broadly seems to contradict what Acemoglu has been saying about AI, both in his research papers and in his public statements. In his 2024 paper, “The Simple Macroeconomics of AI”, Acemoglu writes that “predicted TFP gains over the next 10 years [from AI] are…predicted to be less than 0.53%.” In his 2021 paper, “Harms of AI”, Acemoglu writes:

I argue that if AI continues to be deployed along its current trajectory and remains unregulated, it may produce various social, economic and political harms. These include: damaging co