By Bryan Caplan
If I had to sum up the mind-set of my Princeton econ education in one cliche, it would be, “There are those who would strain out a gnat, but at the same time swallow a camel.” Sometimes, the profs could be incredibly fussy. Ex: Theorists would scoff at the concept of consumers’ surplus in favor of compensating variation and equivalent variation. Other times, they would spend a semester talking about politics as if the self-interested voter hypothesis were absolute truth.
When I was reading the Handbook of Population and Family Economics, I came across a section that made me feel like I was back in Fisher Hall in 1993. It’s in Van Praag and Warnaar’s chapter on the cost of children. They explain their motivation upfront:
[W]e have to ask why we need cost of children estimates. The primary answer is political. In modern (and not so modern) societies it is felt that families with more children need more money to reach a specific welfare level than families with fewer children… Given the fact that in most societies it is accepted that households with children should get some accommodation, the question arises how much.
Next, they explain methods of computing the answer.
In this field there are roughly two branches. The first and oldest is that of the rather straightforward calculation of normative budgets. This way is theoretically not sophisticated and even incorrect. However, it is easy to explain to laymen… The second branch is much more “scientific” and hence sophisticated… We shall start this section with the first method.
Such methods are based on normative budgets… Now the norm may be laid at a subsistence level, or a modest-but-adequate level… or at any other level. Mostly a level of subsistence is defined by letting nutritional experts define a satisfactory diet in terms of calories and so on. This diet is then evaluated at current prices. This is supplemented (equally arbitrarily) by adding normative amounts for clothing, heating, etc…
I won’t bore you by detailing the “sophisticated” method, because by the authors’ own admission, no one other than a few academics cares!
In economic literature the [normative budget] methods are hardly mentioned, because they are scientifically not interesting or considered as naive, arbitrary, etc. This should not obscure the fact however that these “noninteresting” methods are nearly the only ones used in practice.
If I were back in the classroom hearing this, I’m sure I would have snarked, “You began by saying that the whole reason to care about this is political. So why bother telling us about methods that no policy-maker cares about?” I suppose they would have replied , “Once we perfect the sophisticated approach, they’ll listen.” Then I would have rolled my eyes, and the class would have moved on.
But now I’d like to travel back in time and say, “Wanna bet?”