I’m about to reread A Farewell to Alms, by Gregory Clark. The book challenges the conventional wisdom of economists about how and why economies grow. Ask a typical economist for an economic growth recipe and he or she will say “low taxes, property rights, security and stability.” Clark has assembled amazing quantities of data on wages, prices, and rents going back to the year 1200 in England. He demonstrates that England circa 1300 had all of the things that a modern economist says are sufficient to guarantee economic growth and yet its economy stagnated for centuries.
Clark starts with a defense of Malthus. In most societies at most times in human history, Malthus was right. The population expanded until everyone was living at a subsistence level. Given an improvement in technology or health care the long-term result was not that people on average had an improved standard of living, but rather a population of increased size living at an even lower material standard. You had to be robust in filthy Europe to survive infections, but even an underfed weakling was relatively safe from disease in hygienic Japan and China. The consequence was that China and Japan were more densely populated and strikingly poor by European standards right up to the Industrial Revolution.
If Malthus and Clark are right, foreign aid is the ultimate career path for a young person. Western donors are motivated by images of people living in poverty. Money flows in. Even after subtracting for the overhead of running all of the NGOs, a certain amount of food and health care aid reaches the unfortunates. You might expect the NGOs to suffer a reduction in demand and a reduction in donations as the unfortunates begin to look less unfortunate. Malthus would predict that the former unfortunates will have a lot of children and eventually the larger population will be worse off than before, which will result in more dramatic TV images of starving people, more donations, and more job opportunities for our young NGO careerist.
Population growth combined with personal income growth is an anomaly, according to Malthus and Clark. The U.S. population has been growing steadily in recent years and our average inhabitant is no better educated than before. Politicians stand up and angrily ask why average personal income hasn’t grown. The real question is why average personal income hasn’t shrunk.