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  • Paying For Children Revisited

    Posted by Shannon Love on June 16th, 2008 (All posts by )

    I made one of my long comments over on Reason’s Hit&Run so I thought I would turn into post here.

    The economics of child raising is the ultimate driver of the welfare state. That makes it a matter of key importance to libertarians. If libertarians cannot create a free market system which provides for the material resources needed to turn a zygote into an engineer, then we will never see the end of the massively invasive state.

    Economically, children are just the production phase of the economically vital adult. (Without a future generation, nothing else we do matters.) The coming of the industrial age severed the economic linkage between having children and the production of the economic resources needed to raise them. This created a classic free-rider problem: people who did not pay for creation of an adult worker nevertheless received the same benefit from that worker as the people who paid for that worker’s upbringing. In short, people who do not have children end up richer and more powerful than those that do.

    People always turn to the state to solve free-rider problems. Public education was the first major socialized program in the developed world, and most subsequent expansions of the state have been predicated on the need to provide resources for the care of children. Unfortunately, the state is very inefficient at economic allocation, and the overall cost of the welfare state for parents in taxes and opportunity exceeds the benefits they receive, so socialism actually suppresses birth rates by making children too expensive. (Which drives people to demand more benefits and a feedback loop forms.)

    The obvious solution is to create a property interest in the future earnings of children when they become adults so that the parents can borrow against those earning to pay the cost of raising a child. With appropriate safeguards, this would be no more onerous than piles of public debt we now heap on children. Think of it as a kind of extended college-loan program.

    The devil would lie in the details but I think we can make such a system work. After all, people are the only true resource. It makes sense to create an economic system that lets investment drive support their creation.

    We’ve really got to think hard about this. Many libertarians so fear that acknowledging the importance of supporting children will lead inevitably to more state power that they try to ignore children, and try to frame them as a form of luxury consumption on the part of parents. That short-term blindness is political suicide.

    People want children and they want those children cared for. If libertarians can’t provide a free-market solution to pay for children then people will continue to turn to the state. We can accomplish nothing politically until we provide a credible solution to this central economic problem of our time.

    [Related Post: Family Free-Riders, Family Free-Riders Part II, The Gratis-Giddyup Problem]

    [Related Post:

     

    3 Responses to “Paying For Children Revisited”

    1. Jim Bennett Says:

      The easiest way to operationalize the principle of paying for current child-rasing expenses from future earnings is to expand on Mitt Romney’s idea of a child-care credit deductible against not just income tax withholding but rayroll tax as well. Intact married couples should be able to deduct a genuinely realistic amount (say, $30,000 per kid per year) against all taxes, federal, state, and local. You get a debit card with the amount programmed on, and you can swipe it at the pump and cash register to pay for the tax portion of your bills, and chanrge your withholding to it. The government borrows the shortfall, and it’s paid by the next generation. Everybody alive in th next generation will have benefited from the program so it’s fair that they should pay. After all, they also inherit the assets we created (i.e., a functioning society and all its infrastructure.)

      Not perfect, but a lot better than the current system.

    2. Shannon Love Says:

      Jim Bennett,

      Tax write offs and rebates might be the best we can hope for but I would like to explore creating a true market system complete with feedbacks. It seems to me that beyond just supporting children we should try to seek create incentives for skilled parents to have more children and for all parents to optimize the children that they raise.

      I would really like to get the government out of things all together. Creating a property system would be the best bet.

    3. aaron Says:

      A tax incentive.