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.