Thursday, July 20, 2006

Declining Fertility: Quality, Quantity and Darwin

Bioeconomics has not yet gotten much respect from much of the profession. It is, along with cognitive psychology applied to various economic problems, part of what is called behavioral economics. This is probably because cognitive-psychology literature, which sometimes pokes pinpricks in rational choice, is more congenial to those who reject rational choice and the economic freedom it implised. But bioeconomics' orphan status is changing as there are more attempts to use evolutionary biology to explain economic problems. One article even tackles the most important problem in economics, economic growth and prosperity. (Adam Smith’s foundational work, after all, was called An Inquiry into the Nature and Causes of the Wealth of Nations.)

Why is fertility declining in so many countries? There are two leading schools of thought. One, based on economic reasoning and derived substantially from the work of economics Nobelist Gary Becker, says that potential parents maximize a tradeoff between child quality and quantity. One can have many children and invest little in each one’s development, or have few and invest a lot. Over time the time opportunity cost of children has become higher. 10 years out of the labor force in one’s 20s or 30s to raise children now entails greater costs in foregone investments in human capital. (An equal investment in on-the-job training or postgraduate education at age 20 has a much higher present value than the same investment at 35.) At the same time, economic growth has made it much easier for parents to self-finance their retirement, and even leave some to their children, rather than requiring their children to take care of them in old age. (Public pension systems such as Social Security not only do not contribute to this effect, they detract from it insofar as a private pension financed with what would otherwise be working-life Social Security contributions would be more rewarding.) Such a model explains both the tendency for fertility to fall as societies get wealthier and the tendency within societies for better-educated families to have fewer children.

But to Becker this was simply a matter of parental preference – of preferences and utility, the basic building block of rational choice, itself the basic building block of most economic theory. Parents invested in fewer children as they got richer because it maximized utility. Evolutionary biologists, in contrast view such behavior not as chosen rationally by the organism (which is ultimately all we are in their worldview) but as a random permutation that confers survival advantages. The reasons why people might choose quality over quantity are not as important as the fact that it provides propagation advantages.

What has been missing is a marriage of the rational choice of individuals with the survival advantages of quality investment at the expense of quality.
In the aforementioned study two economists joined evolutionary biology and the economic model of rational choice to get a theory of economic growth. The argument is that evolution-driven improvements in the human brain gave survival advantages to lower-quantity, higher-quality families, motivating increased investments in human capital, which created the Great Transformation, the making of modernity that liberated humanity from short lifespans and Malthusian struggles. (The genes that might have caused this transformation were not identified.) The greatest advantages, they note, are conferred primarily on men with moderate sperm count – big enough to conceive, not big enough to conceive indiscriminately.

This publication, in The Quarterly Journal of Economics in 2002, one of our most prestigious publications, is part of a growing acceptance of biological arguments by economists. That we are willing to do so is to our credit, in contrast to many in anthropology, sociology and political science who reject the encroachment of economic modeling on their turf. This is probably due to our belief in gains from trade, which makes biological models productive rather than imperialistic. Even so, many of my economist colleagues who are raised on utility theory, where preferences are simply given by nature, or who think primarily of behavioral economics as a way to invalidate rational choice, are probably going to be disappointed by the rise of bioeconomics, which will soon vindicate the rational-choice approach in broad measure in an evolutionary framework. But they had best get used to it, for that is going to be the way of things in the future.

Morally, this is troubling. A scientific diagnosis of why we do the things we do naturally lends itself to state control over our choices if, in the judgment of experts, they are seen as socially costly. Indeed, the entire biological approach takes us to be automatons, with no moral content, only the struggle for survival of all against all. In economic modeling we are calculating machines, but our preferences themselves are inviolate (if they do not involve negative externalities imposed on others), and so orthodox economic modeling lends itself to a bias toward freedom. (This is why economists with radical political bents know that the first thing they must do is debunk rational choice.) But while believers in freedom will have to be on guard against any marriage of sociobiology and public policy (which is a philosophical and moral question on which neither biologists or any other scientists have any particular expertise), believers in the progress of knowledge will have to accept it.

Curiously, the argument also raises the possibility that declining fertility is a good thing, not for the usual tired reasons of overpopulation, but because it will improve average child quality and hence the rate of technological progress. But that is a proposition for another day.


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