Population explosion - or is it implosion?

[DuncanK]

When talking about marxist theory on the business cycle you have to focus on profit. Normal profit is a profit that is 'normalized' after businesses move into new booming industries. Economic profit is more than normal profit. Only businesses with monopoly power and businesses that start up new industries get this type of profit. Marxist theory of the business cycle is focused on economic profit. When economic profit is high the economy is growing and when it is low the economy is shrinking.

Also according to Marxist theory capital gets more and more concentrated with every business cycle. Eventually, this leads to revolution, because the is downward pressure on wages and you get massive unemloyment.

I'm not sure what Che is predicting with respect to wages if world population decreases. He may be saying that wages would decrease. This would be due to falling demand. However, I think UR is right, that wages would increase due to decreased supply of labor, especially since demographics would shift.

Che is focusing on demand for goods. True, this could cut into profits, but its not what Marx himself focused on. Marx was definitely focused on the supply side. This isn't to say that Che is wrong. Marxist business cycle theory was the first theory of the business cycle and no one knew that recessions could be caused by falling demand. We know now that most recessions are caused by falling demand.

I think there is something to what Che is saying, but probably due to other reasons than Che. While Che might be predicting that wages will fall, I think wages would rise. Corporations are taking advantage of cheap labor right now. As world populations fall the supply of labor will be cut back causing wages to increase. This will cause a severe cut into profits. So while Che is saying that a decease in demand for products will cause a decrease in profits, I think an increase in costs will caues a decrease in profits. The result would be the same however. Businesses will fail and people will then become unemployed.

[DuncanK]

This thing depends on the elasticity of demand for labor. There are two questions to answer. One, how much will wages increase? Two, will the result be more unemployment or a tightening in the job market?

If demand for labor is very inelastic we will see much higher wages and very low unemployment. However, there would be severe inflation. Two kinds of inflation would be coupled together, demand push and supply pull. I think this would not cause much business consolidation or a decrease in profits as long as the economy stayed stable, but stability could be difficult because of the supply shock. I believe that demand for labor is inelastic, but it could be elastic.

If demand for labor is very elastic wages will only increase a very small amount and there will be very high unemployment. There would probably not be inflation unless fiscal and monetary policy were used to combat unemployment at the expense of inflation. I don't think that's likely unless unemployment gets very bad. This would cause a lot of business consolidation and recession.

If the demand for labor is unit elastic, that is the ratio of the change in wage is equal to the change in employment, aggregate demand won't change. Income from wages would remain constant. There would be a small amount of inflation and some loss in profits. I don't think this would be catastophic unless monetary policy made the situation worse.

It's most likely that demand for labor is inelastic. The result could be an exageration of the supply shocks of the 70s. It's likely that the world banking system would actively fight inflation at the expense of employment and that would cause unemployment to swell greatly. That would be catastophic. There is the outside possibility that the banking system will combat unemployment at the expense of inflation, but that would create a danger of hyperinflation.

Of course, if population only decreases slightly I don't think there will be much consequence at all. This is all considering that the drop in population would be very significant.

edit: typos

[DuncanK]

Actually, I'm sure demand for labor is inelastic.

[Velociryx]

Communists lecturing us on the reasons Capitalism will fail....uh huh.....

-=Vel=-

[Jon Miller]

I have been saying that we were in trouble pop wise for years

and no one beleived me (all said we ahd too much, and were growing too fast), people who want to kill the human race

get ****ing people (with life partners of course)

Jon Miller

[DanS]

get ****ing people

Yes, Sir!

[Dis]

this looks like good news to me (to the original article)

I am dismayed by India's estimates. They need birth control over there or something.

China looks good, but I fear to think that those rumours are true what they due to extra kids over there.

[Adam Smith]

Originally posted by Big Crunch A fall in population (forgetting demographic) also leads to a fall in the available workforce. With a smaller workforce won't labour demand increase, and so wages not fall?

Yup. Consider what happened after the Black Death in Europe. Population fell by about one third, reducing aggregate demand. But real wages rose. Why? The same amount of productive capital was spread among fewer workers, so capital per worker rose. With more capital per worker, workers became more productive, leading to a rise in real wages.

[DuncanK]

After the Plague there was a complete restructuring of the economy after a collapse. In the long run wages became higher. The short run can not be examined. There is no way to tell from that experience how such and event would effect a modern economy. That is, short run problems can end up as long run problems if they are not managed well. If the problem in the short run can be managed properly the result would be higher wages in the long run and a higher standard of living.

[DuncanK]

Originally posted by Adam Smith
Yup. Consider what happened after the Black Death in Europe. Population fell by about one third, reducing aggregate demand. But real wages rose. Why? The same amount of productive capital was spread among fewer workers, so capital per worker rose. With more capital per worker, workers became more productive, leading to a rise in real wages.

It wasn't the increase in productivity that caused wages to go up it was the decrease in labor supply. An increase in productivity decreases the demand for labor which tends to decrease wages.

[chequita guevara]

The reulting changes from the Black Death led to the demise of feudalism. Higher wages led to the stirring of capitalism. Sure, it took a few hundred years for capitalism to break free from the shackles of feudalism, but it happened nonetheless.

Workers will demand higher wages since they are in shorter supply (and to cover the taxes that will be increased in order to take care of the elderly). But companies won't be able to meet that demand.

[Ramo]

I would argue that the black death postponed the end of feudalism by centuries. If you look at the 13th century, states all over Europe were freeing serfs. Land was in low supply and labor was in high supply, so freedom became more profitable than serfdom. Then came the Black Death, which completely upended the situation. Land was in high supply, and labor in low supply. So it became necessary to re-enserf peasants, take away their rights, tax the hell out of them, etc., etc.

Capitalism thrives during population explosions and falters during population declines.

[Adam Smith]

Originally posted by DuncanK
It wasn't the increase in productivity that caused wages to go up it was the decrease in labor supply.

The population decline, taken alone, causes a proportionate decliine in both the supply and demand for labor.

Originally posted by DuncanK
An increase in productivity decreases the demand for labor which tends to decrease wages.

An increase in labor productivity increases wages. If I produce more I get paid more.

[DuncanK]

Originally posted by Adam Smith
The population decline, taken alone, causes a proportionate decliine in both the supply and demand for labor.

An increase in labor productivity increases wages. If I produce more I get paid more.

That would be true if workers were paid for how much they produce, but they aren't. They are paid according to how long they work. Granted that in cottage industries those who increased their productivity increased their pay, but an over all increase in productibity brings that compensation back to subsistance.

[DanS]

I am dismayed by India's estimates.

Actually, India's population growth is much healthier than China's--it's very even from one age group to another. (Much more even than the United States, which will become fairly even over time.) This is good, since their ratio of workers to retirees will continue to be reasonable.

China is going to have a problem spending money on all of its retirees in only a couple of decades. India will not likely have this problem.