FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
December 6, 2022

IN THIS ISSUE:

1. Key Inflation Indicator Rises Less Than Expected In October

2. Why We Should Welcome, Not Fear, Population Growth

3. Abundance Of Natural Resources Makes Our Lives Better

Overview: World Population Tops Eight Billion – Implications

The world’s population reached 8 billion last month, but I’ve seen very little in the mainstream media marking this milestone. For years, many have warned that the world couldn’t handle a population of remotely this size. But we have and population growth is expected to continue for years to come, reaching a projected 10 billion by around 2075.

Not only that, our quality of life has also improved significantly over the decades, for the most part. Hunger is down, poverty is down, longevity has increased and overall health is better, despite the explosion in the population. I find this both interesting and fascinating, so I thought I would write about how we’ve accomplished this today.

Before we get to that discussion, I want us to take a look at an important economic report out last week. The Fed’s favorite indicator of inflation, the Personal Consumption Expenditures Index, rose less than expected in October, and this has some analysts hoping the Fed can end its rate hiking spree earlier than expected. I’m not convinced, however.

Let’s get started.

Key Inflation Indicator Rises Less Than Expected In October

The “core” Personal Consumption Expenditures Index (PCE), excluding food and energy prices, rose by only 0.2% in October, according to the Commerce Department. For the 12 months ended October, the core PCE rose only 5%, also below the pre-report consensus among forecasters.

Including food and energy, headline PCE was up 0.3% on the month and 6% on an annual basis.

The modest October gains also represent a deceleration from September, which saw a monthly increase of 0.5% and an annual gain of 5.2%.

I wanted to point out the latest report on PCE because, as noted above, it is the Fed’s favorite barometer of inflation, but more importantly to show you that this index of inflation has not yet begun to trend lower as some other indexes have.

The Consumer Price Index and the Producer Price Index (wholesale prices) have both moved lower in recent months, but the PCE has yet to do so. I believe this may be why the Fed continues to raise its Fed Funds rate.

The good news is Fed Chairman Jerome Powell said in a speech last week that the central bank is considering “moderating” the size of upcoming rate hikes. So, unlike the last five rate hikes which were 0.75%, Fed-watchers now expect a hike of only 0.5% on December 14.

We’ll see, of course.

Why We Should Welcome, Not Fear, Population Growth

On November 15, the world’s population topped 8 billion people, the highest ever. It is expected to rise to over 10 billion by 2075, just over 50 years from now. For most of our lifetimes, we’ve been warned that the world cannot handle a population of this size, but here we are, and the planet seems to be doing just fine for the most part.

Yet to some observers, who worry about the potential scarcity of the earth’s resources, this latest milestone portends possible calamity. But there have been people issuing this warning for decades, yet it hasn’t happened. Below we’ll look at some of the reasons why.

According to the Global Footprint Network, an independent international think tank, “Humans use as much ecological resources as if we lived on 1.75 Earths.” In 2019, Representative Alexandria Ocasio-Cortez (D-N.Y.) told her Instagram viewers that it is “basically a scientific consensus that the lives of our children are going to be very difficult.” Such predictions lead many young people to ask such a legitimate question as: “Is it OK to still have children?”

Shortly thereafter, comedian Bill Maher bluntly summed up the overpopulation theory by declaring “The great under-discussed factor in the climate crisis is that there are just too many of us and we use too much s--t.” 

Maher channeled a high-ranking English clergyman by the name of Thomas Malthus, who in 1798 wrote a famous “Essay on the Principle of Population.” In it, Malthus claimed to show that the world’s population grew exponentially, while resources needed to feed the populace only grew at a linear rate. His theory was that with the growth in people exceeding the growth in food, starvation was around the corner. 

But, of course, this never happened. In fact, the opposite turned out to be true. In reality, the rising global population and human freedom have unlocked an era of prosperity and abundance unmatched in human history.

Abundance Of Natural Resources Makes Our Lives Better

Looking as far back as 1850, researchers have analyzed prices of hundreds of food items, metals, minerals and fuels and found that over time, population growth has fueled human innovation, which, in turn, has provided what some have called a “superabundance” of resources which makes our lives better.

This may seem counterintuitive, given all the scary news articles about rising prices of groceries, textiles, building materials and the like, especially recently. But money prices only make sense when you ask a second question: “compared to what?” 

Researchers have compared the prices of many goods and services to the time it takes to earn the money to buy them, giving more proper context to what things really cost. This “time price” metric factors in the growing productivity of our species and, consequently, higher wages. 

Whereas nominal and real prices are measured in dollars and cents, time prices are measured in hours and minutes. To calculate a time price, simply divide the nominal price of a good or service by your nominal hourly income. That tells you how long you must work to afford something. So, as long as your nominal hourly income increases at a faster pace than nominal prices do, goods and services get more abundant. 

And across the board, commodities have been growing dramatically cheaper for consumers. Between 1900 and 2018, adjusted for inflation, the length of time a blue-collar American worker had to work to earn enough money to buy pork dropped by 98.4%. For rice, the time dropped by 97.6%. The drop in cocoa, wheat, and corn, was 97.1%, 96.7% and 96.1%, respectively. 

The time price for non-edible goods like rubber, aluminum, potash and cotton, all of which are valuable inputs in the production processes that impact the prices of other goods and services, plummeted by between 99.4% and 95.8%. All the while, the population of the United States rose from 76 million to 328 million.  

Of course, many modern critics of population growth are primarily concerned about the environmental cost of having so many people on the planet, but a larger population can actually spur the innovation necessary to protect the environment.  

Every new human being comes to the world not only with an empty stomach, but also a pair of hands, and, more importantly, a brain capable of intelligent thought and new knowledge creation. In the process of economic development, human beings cause a lot of environmental damage, but the new wealth and knowledge we create during this process also allow us to become better stewards of the planet. This is why all environmental protection and quality ranking tables are dominated by developed nations. 

Doomsayers concerned about population growth are right to note that the world is constituted of a finite number of atoms — be they of copper or of zinc. But the limits or bounds of these resources is largely irrelevant to human well-being. 

What matters is our ability to create new knowledge that combines and recombines those atoms in ever more valuable ways. For example, a humble grain of sand had first given us glass jars, then windowpanes, and most recently, fiber optic cables.

Population growth is important, because new knowledge is not restricted by the physical limits of our planet, but by the number of people who are free to think, speak, associate, invest and profit from their ideas and inventions. 

So, while we should certainly continue to improve our ability to be good stewards of the planet and its resources and climate, we should not fear population growth. There may come a time for that, of course, but we don’t seem to be anywhere near that point today.

Finally, while I know there will some who read this who will vehemently disagree, it is increasingly hard to argue that our quality of life has not gotten better over time. A lot better, in fact. For this, we should all be thankful and do our part to make this Earth a better place.

Best personal regards,

Gary D. Halbert

SPECIAL ARTICLES

Key Inflation Index Fed Watches Rose Less Than Expected In October

World Population Tops 8 Billion In November, But Growth Is Slowing

Gary's Between the Lines column:
3Q GDP Rises Again, Fed’s Jerome Powell Remains Hawkish, But…

 

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