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  • Paying For Productive Adults

    Posted by Shannon Love on May 19th, 2006 (All posts by )

    Glenn Reynolds links to an article by Philip Longman in Foreign Affairs that covers much of the same ground that I did in a previous series of post [Family Free-Riders, Family Free-Riders Part II, The Gratis-Giddyup Problem] that looked at how modern economies fail to support the raising of children into productive adults.

    I argued that from the perspective of economics we can think of productive adults as a type of product or resource that an economic system must produce in order to maintain itself. From this perspective, a child represents the production phase of the adult. We seldom think of the problem in these terms. Indeed, the entire debate is framed as to what is good for children as if children were the end goal when in fact children are economically useless in the modern world. Any society could get a short-term economic boost from decreasing the number of children it raises. Many sub-population have done exactly that.

    Longman points out that birthrates are falling in all parts of the world regardless of economic system.

    Explaining the the decrease in birthrates in a free-market system is easy. The freemarket can only allocate resources to the production of goods that can be represented as forms of property. Without property rights, no feedback loop exist between the creation of good and the time resources need to create it. Since people are not property, the freemarket allocates no resources to their production. End of story. People continue to rear children up into productive adults in defiance of the freemarket, not because of it. The freemarket signals everyone that the economy does not want productive adults. People have responded to these signals by producing far fewer children.

    It would seem that socialism would be the solution to this problem. Historically, if a resource cannot be turned into property then the state managed it. Yet socialism suppresses birthrates even faster than the freemarket. Birthrates fall faster in countries and regions of countries with higher levels of state involvement in the economy. Europe has lower birthrates than the US and the deeply blue regions of the US have much lower birthrates than the red zones. San Francisco, for example, is rapidly turning into a child free zone.

    Intuitively, this shouldn’t happen. After all, a far greater percentage of the cost of raising children should be borne by the greater society under various socialist schemes. The great welfare states subsidize housing, medical care, education, transportation and virtually every other economic cost of virtually everyone but the truly wealthy. At first glance, this should dramatically reduce the cost of raising children and therefor prompt more people to make that choice.

    It doesn’t work that way for two reasons:

    First, There Ain’t No Such Thing As A Free Lunch. The benefits of the welfare state come at the expense of a high tax burden. One can think of the State as giant corporation that provides a lot of services for one huge lump payment. In high tax countries and regions, even lower middle-class families can end up with a tax burden of 50% or more. Yes, they get things back for that but they still have to pay and that reduces their disposable income. The point of socialism is security not prosperity. People can easily end up materially poorer under socialism. Also, the benefits of socialism might not be all that hot. Socialist systems tend to use price fixing in various forms that provide low cost but short supply. One might get free housing but it will be crappy cramped housing in a bad neighborhood with no room for children.

    Second, the welfare state doesn’t provide any actual additional incentive to raise children. The welfare state might reduce the cost in the absolute sense but it doesn’t make having children a more economically attractive proposition compared to not having children. People in welfare states get medical care, housing and all the other benefits whether they have children or not. Socializing some of the cost of child rearing reduces the opportunity cost of being a parent but it still doesn’t make it a better economic choice than not being a parent.

    The only means of creating an economic incentive for people to raise up children into productive adults is to reward them economically for doing so. That means going beyond just reducing the enormous cost in money and time that child rearing takes and instead making it an actual paying proposition or at least make it something close to break even.

    Longman suggest that since parents pay to raise up the future adults that will pay the taxes that support future entitlements they shouldn’t have to pay entitlement taxes now. That’s a good idea but it will never fly politically.

    The best way to handle the problem is to create a form of property backed by a child’s future earnings. The lender could expect to get fixed percentage of the child’s future income for all of his working life. Financially supporting the raising of a child would become a type of annuity. Sometimes it wouldn’t pan out and you would end up with say 10% of the income of a burger flipper but other times you might strike a doctor. Perhaps people could fund their retirements by investing in a class of kids.

    Such a plan would not be without problems. People would reach adulthood obligated to payout a percentage of their earnings. It would place a debt on a person who would have no say in the matter. One would just have to hope one’s parents wouldn’t borrow to much. Collecting might be a big problem. It is hard enough to collect student loans. The payout would be so long term that the interest might prove unsupportable.

    Still we should give it some thought. Future generations of humans must be paid for and it would be best if a free-market solution existed.

     

    19 Responses to “Paying For Productive Adults”

    1. Ginny Says:

      Well, during mating season squirrel carcasses suddenly multiply on the roads around here – running beneath a car isn’t that productive. I’d bet on the life force in the long run. Sure, in the short run you get more babies with laws that are counterproductive (aid to dependent children) and you get few with a tax system that does little to make childraising economically fruitful. But having children is likely, in the long run, to make our lives richer (metaphorically, of course – but in the long run, probably literally).

      And I suspect I’d be even less likely to bear children if I thought they’d be essentially indentured servants for their entire lives. We want a better life for our children, not a worse one.

    2. Shannon Love Says:

      Ginny,

      Launching children into life with a debt isn’t a great solution but the fundamental problem we face now is that child rearing is a parasitic economic activity. The economy simply does not allocate resources to child rearing. Economically, people are raising children as a form of a fantastically expensive hobby.

      At lot of people, especially the childless, are gambling that parents will sacrifice more and more in order to keep making the productive adults the world needs. The problem with this is that even if parents WANT to raise children they won’t resources allocated to them to do so. Longman points out that most people want more children than they can afford.

      We are creating a society where the route to wealth and power is to avoid child rearing while at the same time exploiting the work of parents. It won’t take long for the culture to shift to viewing parenting as an idiot’s endeavor something that has already happened in some sub-cultures.

    3. Ken Says:

      Over the long term, there is a feedback loop. People that have kids are replaced by their kids, who tend to behave somewhat like they do. People who don’t have kids are replaced by no one. Over the next few generations, expect to see more people who like kids as well as more people who lack the intellect or self-control to use birth control.

      Maybe the second group will be reduced if we can come up with genuinely idiot-proof birth control.

      At any rate, people work because they get rewarded, and people’s notion of what is rewarding differ. Some people try to earn more money so that they can support larger families; the children aren’t a source of income, they’re the incentive for getting income, just as other people consider nice cars, vacations in expensive locales, and personal aircraft as a more effective incentive for getting income.

      “Such a plan would not be without problems. People would reach adulthood obligated to payout a percentage of their earnings. It would place a debt on a person who would have no say in the matter.”

      Of course, that’s the case now, with respect to Social Security. The problem now is that the kids are stuck sending a portion of their earnings to old people who didn’t bother to have or raise productive kids of their own.

      “One would just have to hope one’s parents wouldn’t borrow to much. Collecting might be a big problem. It is hard enough to collect student loans. The payout would be so long term that the interest might prove unsupportable. ”

      The parents shouldn’t be able to borrow an unlimited amount of money on their kids’ credit. Instead, they should invest their own resources, borrowing on their own credit if necessary and possible, and get paid a portion of their own childrens’ income when they’re done raising the children.

    4. Penny Says:

      Perhaps the lack of economic incentive is the reason we are at our most fertile when we are young and stupid.

    5. Brett Bellmore Says:

      But we DO launch children into life with a “debt”; They pay taxes, don’t they? How would this differ save that it would dedicate a fraction of their taxes to paying back whoever had paid for raising them?

      It’s how social security is paid for now, only without the commons aspect. Dedicate that revenue stream to the parents themselves, and you give them a very strong incentive to raise their children to be productive citizens…

    6. aaron Says:

      A more subtle approach.

    7. GFK Says:

      Great post…

      On this point:

      “Perhaps people could fund their retirements by investing in a class of kids.”

      Isn’t that what parents used to do with their children? It still is part of Indian and Asian cultures. Lots of kids, especially boys, equals security in the long run.

    8. David Foster Says:

      I don’t think financial incentives would have much effect on people who don’t really want children.

      But for people who *do* want kids, but decide to stop at one for economic reasons, one thing that would really help is to get college costs under controls. By which I do *not* mean more government subsidies-which would only shift the costs around and drive further inflation of them–but rather effective action to control the extreme rapaciousness of these institutions.

    9. Jonathan Says:

      Lex had an idea about how the federal govt might offer Americans the opportunity to gain a BA-equivalent via testing. I think this idea has potential and might provide some needed competition for conventional universities. However, for these same reasons it might also be a political nonstarter.

    10. Jay Manifold Says:

      A less subtle approach. ;^)

    11. Ginny Says:

      An example of why competition for students might be a good idea:

      The local “big school” has decided to cut back on tech. writing sections; it wants departments to do it for themselves or send them over to us (jr. coll). They feel such “service work” is beneath them. Of course, Land Grant schools were founded to be of service. However, when when promotions & pay scales are directly dependent upon publications, how else is a department to choose? They don’t really want the faculty tied up grading papers. So, research universities (including public ones) are becoming gigantic & fragmented think tanks with some annoying students thrown in.

    12. Kurt Says:

      Why not just complete the SENS (www.sens.org) research and just be done with the whole thing?

    13. pouncer Says:

      “Children are are economically useless in the modern world”

      There’s your change right there. In times past a child of six years old or so began to contribute to the family income — apprentice to a trade, squire to a warrior, maid servant in the kitchen, whatever. Now our society seems to need people with 8 to 16 years of schooling or specialized training beyond the basic ability to stand on two feet and avoid crapping in inappropriate locations …

      However, the effort to provide that training or to secure it for children is seen by families as an EXPENSE. A dead loss, not even an investment. The returns to the student of good study habits, analytical thinking, memory of various historic trivia … all that goes to the adult (former) student, not to the parent.

      Why not use the school system and standardized testing system we have in place, but have the state or national government pay parents for their kids’ good scores or grades on those tests?

      A kid who is not “earning” good scores is a liability still. But parents would have strong incentive to help the kid learn,and shop around for a teacher to help even more. A poor school or a poor teacher would be expose and go out of business. A good education will ultimately return value to the state as the better educated kids become productive adults.

      This also provides incentive for families to produce MORE kids — provided their parents correctly assess their own genetic and memetic ability to produce good students.

      Also, the rigid 12-year education program needs to be flexible — a kid capable of more “productivity” — moving thru the grades faster — would take more standard tests each year and draw a higher “annual pay” than a less-gifted student. Again, incentivize what you want. If you want lots of well-schooled young people, you pay for productivity.

      Keeping it at the state level has some advantages in developing better “tests” — the Iowa TBS is a better test than the Texas TAKS — if the US Dept Education paid more for good scores on harder tests then more students would shoot for the higher standard.

      I quite fail to see on what economic theory such a proposal founders. Maybe others here can enlighten me.

    14. Half Sigma Says:

      Just a few days ago I blogged about this. Resource insecurity and childlessness.

      It expains why people are having so few children. The basic biological need to feel resource secure. The baseline is based on your own family growing up.

      Because never in the history of man have young people been so poor relative to their parents, young people feel resource-insecure.

    15. Sandy Says:

      What if Social Security (or other government administered retirement benefits) were contingent upon the number of your offspring paying taxes? Rather than have SS eligibility based upon your contributions, base it upon the tax contributions of your offspring. This also has an incentive for parents to start younger so that the children will have finished a J.D. or M.D. before one turns 70.

      Isn’t this a good incentive to have several kids? Almost like having no SS and letting every family take car of itself, but with the state setting the minimum rates and likely some net for the genetically cursed.

    16. veryretired Says:

      People who want to have children should have them. People who don’t want children should not have any.

      Trying to reduce this decision to economics is a mistake, not because economics don’t influence the decision, but because the whole urge or lack thereof encompasses so much more than simple calculations about investment and return.

      In the final analysis, a person wants to be a parent because that’s what his or her personality needs to feel whole and fulfilled, and, conversely, other people find the idea of raising kids actually interferes with, not fulfills, their self image and development.

      My best friend doesn’t have or want kids. My other best friend has five. Love both of them just like the brothers I never had. It’s just a part of who they are, but not the whole enchilada.

      Oh great, now I’m hungry for Mexican food…

    17. Shannon Love Says:

      veryretired,

      Trying to reduce this decision to economics is a mistake…

      I’m not reducing the decision to economics but rather showing how economics overshadows other factors. People have to make economic choices when deciding to have children because the project is so damned expensive. People who want children and who are good at raising them to the benefit of all can’t because the economy simply does not support child rearing. They have far fewer children than otherwise because they simply cannot afford them.

      The economy needs productive adults and productive adults just don’t drop from the sky.

    18. Jay Manifold Says:

      I’m telling you, Vandervecken is a productive adult, and he drops from the sky. ;^)

    19. veryretired Says:

      I still want an enchilada. Can anyone airdrop one to me on a little parachute?

      I understand your point, Shannon, and I agree with both parts of it. The point I was trying to make is that the decision is so much more emotional and deeply psychological than it is economic.

      I have 3 boys and a girl. Nothing I have ever done or been involved in, experienced or dreamt of, no person, no thing, no goal, no desire, no other aspect of my life means much of anything compared to them and their well being.

      For me, that’s what being a parent, choosing to have children, means—that everything else takes a seat in the back, amongst the trivial and less important parts of life. I can’t function any other way, and wouldn’t want to even if I could figure out how to do it.

      People who see having kids the same way they see getting the latest fashions, or as some kind of complimentary accessory, desirable because it’s trendy, should stick with sports cars.