Longevity Tends to Change Economic Behavior for the Better
Permalink | View Comments (4) | Post Comment | | Posted by Reason

People base their plans and their lives around how long they expect to live. With fewer years ahead, you are more willing to take risks and less willing to participate in long-term plans. But much of the value that we humans create and maintain in the world around us requires long-term planning and commitment. The waste inherent in modern democratic governments is a good illustration of what short-termism does to value: political appointees placed in stewardship of resources have no incentive to undertake the tasks necessary for long-term growth, and every incentive to squander the prospects for long term gains in favor of maximizing short term gains.

But what I said above about plans and time is true on every timescale. There are (probably largely unknown and unknowable) economic benefits and patterns of growth that cannot be realized today because people simply don't live long enough to be interested in discovering these possibilities. I believe this to be the case because there exist many forms of economic growth and industries today that were not undertaken or discovered in past centuries due to a much shorter adult life expectancy.

While wandering the wild places of the internet, I came across a paper on the burst of economic growth that took place in 18th century England. The paper makes a fine argument that the roots of this growth lie in a sudden increase in adult life expectancy - how many more years someone can expect to live on average once old enough to own property and make meaningful economic decisions. Those people who expect to be around longer make for better stewards of property, more diligent investors, and overall better engines of compound growth. Interestingly, the easiest historical life expectancy data to dig up is life expectancy at birth, which does not correlate well with economic growth. In the past few hundred years, life expectancy at birth has changed largely due to reductions in childhood mortality rather than gains in adult life span - and it is those gains in adult life span that are the true engine of growth.

But take a look at the full PDF paper - it's a good read, even for the layman. Economics at its best is a very clear assembly of ideas, with minimal resort to mathematics, I think:

During the 17th and 18th century the English economy underwent a dramatic transformation: its capacity to feed and increasing population increased impressively. ... Perhaps for the first time in the history of any country other than a land of recent settlement, rapid population growth took place concurrently with rising living standands.

...

The notion of life expectancy provides the most important tool to examine the phenomenon of mortality, taking into account the age structure of the population. Life expectancy at age x is the average number of years that a person of age x will still survive at a given date. The most commonly used indicator is e(0), life expectancy at birth (or at age 0), but sometimes other statistics like e(1), e(5), e(20), e(50), are also tabulated. Their main advantage is that they capture age-specific mortality profiles: for instance, an increase in mortality concentrated in the age-group between 20-25 (due, for instance, to a long war) would affect e(0) but not e(30) because the probability of survival, given that a person is already 30, does not change.

Decisions about future capital and consumption are not taken by the agent when he is born but, rather, when he is twenty or twenty five years old. Therefore, the relevant survivial profile for considering the influence of mortality over investment choices is given by adult life expectancy. In fact, making the distinction between e(0) and adult life expectancy is expecially important for our problem because adult mortality behaves in a completely different way from infant and child mortality in the first half of the 18th century: adult mortality rates decreased very sharply from the end of the 17th century, while infant and childhood mortality rates were unusually high between 1680 and 1750.

..

If life cycle inspiration was present in rural England in the 18th century, farmers who were becoming aware that old people were gradually living for longer periods must have been more concerned about their own means of subsistence in the future. This may have been an important stimulus to reduce consumption, increase savings and take into account longer horizons.

Savings are the root of investment, and it is investment that enables work to improve existing resources and develop new resources. The choice between saving (investment) or spending now (consumption) is fundamentally the choice between working on improvement or squandering that opportunity. Much of the paper concerns the economic mechanisms and choices that led to improvement in that era, such as use of land, changing the way in which existing agricultural technology was used, and so forth - all stemming from longer lives and longer horizons for investment.

When reading about transformative growth in economic activity and resulting changes in society due to enhanced longevity in the past, one has to wonder what might be in store for us in the years ahead. The proposed roots of 18th century progress are at work again today as human adult life expectancy continues to rise. None of the fundamental line items are meaningfully different between then and now: economic activity today might be more complex, but it is built upon the same truths of physics and human nature as it was hundreds of years ago. So many choices flow from our expectations of life remaining to us: what grand projects and greater wealth for all will be enabled through longer healthy lives?

Comments

Both business and government have short planning horizons. Business is more effective but just as short sighted.

Posted by: Matthew at December 23, 2009 7:01 AM

This is a very fascinating question. I am inclined to agree that moderate life extension boosts investment and productivity. However, in the case of radical life extension or effective immortality I think the psychology could be very different. Most productive work and investment results from the need to save for declining years - but if those years are never going to arrive, then who needs to save, or even to work steadily? However, by that time we probably will have - almost by definition - resolved the problems that we needed investment for in the first place.

All economic activity is a necessary evil, and the main thing that necessitates it at present is aging.

Posted by: William Nelson at December 23, 2009 10:50 AM

The longevity growth in 17th and 18th century England resulted in economic growth because people saved and invested. Unfortunately, it seems (in the U.S. anyway) that increasing longevity in the present is leading to an increasing debt burden, not wealth...and the current government is leading the way with the "debt pedal to the metal".

Posted by: Justin at December 28, 2009 11:15 AM

I would think that it was simply a follow-on of the plagues' effect on the make-up of Europe's population.: http://www.anthropogeny.com/The%20Biological%20Basis%20of%20Western%20Civilization.htm

If the pandemics removed a greater proportion of high time preference individuals, the remaining population would be inclined to save and invest more. They would also be far more capable of technological and scientific advances.

'Mentalism and Mechanism- the Twin Modes of Human Cognition: http://www.thegreatdebate.org.uk/MentalismCB.html is an interesting article on those that create technological civilization and those that don't.

Posted by: Avenist at December 29, 2009 4:19 AM
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