An Economist article on government subsidization of child care (day care) is full of economic lessons, although not necessarily or exactly those that the magazine draws (“British Child Care Is Expensive: Making It More Affordable Would Help Some Mothers Into Paid Work,” June 30, 2022).
The magazine correctly suggests that a statement by the outgoing British prime minister, Boris Johnson, is questionable: better access to child care, said the politician, “would have a massive benefit for the economy.” We can be more radical: the statement is meaningless if the benefit is not net of cost or if, by “the economy,” Johnson did not mean all UK citizens or residents. In any event, better access to baby food or diapers or clothing or large apartments would have the same effect.
It is true that the venerable magazine and often offers refreshing perspectives and sets the problem correctly:
In an ideal world, the government would not have to worry about any of this. Based on their preferences and potential earnings, parents would make a rational judgment over whether to outsource child care or keep it in-house; it might make sense for them to borrow to cover short-term costs, for instance.
The sentence that follows, however, is not sufficiently informed by the economic way of looking at things:
The question for policymakers is how much parental behaviour does reflect actual preferences and how much it is driven by constraints. …
In a free society, “constraints” are made of other people’s preferences and their equal freedom of choice. For example, most consumers are not willing to pay more for goods and services that use the less regular labor of women who choose to have ten children.
The magazine also writes:
But there is also plenty of evidence that constraints are an issue. Three in five non-working mothers say that they would prefer to work, given the right child care.
Of course. Most good things have costs, that is, constraints. Many non-working people would prefer to work given the right salary. Many people would prefer to read more books or to go to the gym more frequently if it required less time or money. Many would shop at Whole Foods if it were not so expensive. Many would prefer to live in Los Angeles if they could get both the benefits of the city and none of its costs. And so forth. The real question, subliminally alluded to by The Economist, is whether these choices are made by individuals given their preferences and constraints, or by the government given its agents’ own interests and constraints.
A sentence that shortly follows helps identify the error of imagining an ideal government world:
Cheaper child care could help growth, in other words, but policies would need to be well-designed to target genuinely constrained parents and to stop costs spiralling out of control.
The first clause would be true only if we defined “economic” growth as the growth of the production of the goods and services that the government prefers its flock to consume—more child services as opposed to fewer concerts or less beer, for example. The important second independent clause assumes that (to paraphrase the doubts expressed by the Economist about the preferences of rational parents) rational government behavior reflects the preferences of everybody in the economy, which public choice economics has shown is the mother of all heroic assumptions, instead of representing bureaucratic and political interests and constraints.
To avoid being what James Buchanan called normative eunuchs, we may consider another factor: personal responsibility, which is inseparable from the ethical belief in equal and sovereign individuals. In this perspective, each individual adult (or voluntary family grouping) must make his own trade-off between, on the one hand, the joy and learning benefits of having and rearing children and, on the other hand, the opportunities that must thereby be forgone. Time and other resources are limited.
And how did our forebears, who were poorer than us, do it? Anyone today who is willing to be, net of child care, as poor as our forebears were could raise as many children as they did with as little help from Big Brother as they had. This remains true despite changes in relative prices between their time and ours; for example, housing and domestic servants have become much more expensive relatively to domestic appliances and robots, which have become much cheaper (they previously had an infinite price).
READER COMMENTS
Thomas Lee Hutcheson
Jul 8 2022 at 1:02pm
As a taxpayer I don’t mind, indeed rather like the idea of defraying some of the costs of child care. I do not think it is a good idea to defray only out of pocket costs however. I prefer just to have a child allowance that can be spent on out of the home child care, paid to a relative, or be used if one of the parents takes care of the children. If it leads to more child care being outsourced that will of course lead to an increase in GDP that will be becasue care withing the home in not counted in GDP, but that’s not and additional benefit of the transfer.
Craig
Jul 9 2022 at 11:14am
“I prefer just to have a child allowance that can be spent on out of the home child care, paid to a relative, or be used if one of the parents takes care of the children.”
This exists today. The payments to relatives COULD count, most don’t do it because then you have to put the expense down and the Tax ID of who you’re paying it too and then that person has to declare it as income so intra-family arrangements aren’t going to show up.
“If it leads to more child care being outsourced that will of course lead to an increase in GDP that will be becasue care withing the home in not counted in GDP, but that’s not and additional benefit of the transfer.”
Why is that a benefit? I love my children. Aside from cronyism the fact that blue state taxation raped me bothered me because it imposed on my finite time such that I would wake up before my kids were awake and get back after they were asleep.
But now remote? I don’t need after care. Now its summer, I don’t need Summer Day Camp, or sleep away camp. Indeed the money I spent on child care would add to GDP to the extent those child care services added to GDP of course. That which is seen.
That which is unseen, and now actually SEEN, is the fact that now that I don’t have to pay all those child care expenses, I spend those monies on other things and THAT adds to GDP, doesn’t it?
Thomas Lee Hutcheson
Jul 9 2022 at 11:29am
The Child Tax Credit was not renewed. I think it should have been and should yet be.
Craig
Jul 9 2022 at 12:39pm
If I am not mistaken I believe that specific thing was just generally if you had kids and had an income underneath whatever threshold they established. There is something in there about itemizing your child care expenses over and above that. Perhaps it is just a deduction? I forget now, but I do remember getting the statement from the daycare provider or the aftercare provider and giving it to my accountant.
Craig
Jul 9 2022 at 11:37am
“As a taxpayer”
If worried about people being unable to afford child care, perhaps consider how people are affording taxation?
For a majority of people taxation is the single greatest expense they face.
The Professor’s article of course discusses the UK where the situation is even worse actually.
Thomas Lee Hutcheson
Jul 10 2022 at 5:21pm
Even including S&L taxes and the wage tax, taxes are not the single largest expenditure item for “most people.” Maybe for you and me, depending on how you aggregate other expenditures but not for “most people.”
Craig
Jul 11 2022 at 10:04am
A large plurality of Americans spend more on taxes than housing, clothing and food COMBINED. Its not just ‘most’ its actually a significant majority of people spend more on taxes than on housing. Of course by taxes I mean of course ALL of them, not just federal income tax.
Pierre Lemieux
Jul 11 2022 at 10:53am
Craig: I think you are speaking of gross taxes and that Thomas is speaking of net taxes (taxes minus government transfers).
Pierre Lemieux
Jul 9 2022 at 12:08pm
Craig: You are raising important points. Let me just mention two.
First, the answer to your last-paragraph question is Yes. And it is an important point. To avoid Keynesian aggregate-demand traps, your point is better reformulated in terms of real output: the resources that would be used to produce child care can be used instead for producing some other goods that you prefer. This is true whether the production is or not calculated in GDP. For example, you may work less in order to spend more time playing or reading with your children, as opposed to working more to pay for child care.
Second, the income tax, although usually a disincentive to work, does not impact everything in life (or its impacts are more complex than at first glance). If, as Thomas Hutcheson suggests, you received from Big Brother an unconditional cash subsidy of $1000 (instead of a child-care subsidy in kind), you could give it to your wife to do the child-caring job instead of paying Bureaucrat X. Bureaucrat X would get $800 after tax. Your wife would get $800 after tax. The cost to you would be the same, but your preference for having your children in the hands of your wife instead of under a bureaucrat’s (ideological) ferule would be satisfied.
It is true that if your wife’s marginal (progressive) tax rate is higher, she may be less interested to take the job; but depending of your wife’s opportunity cost of time, it could be the other way around. On the other hand, she may get more utility caring for her own children than Bureaucrat X. So the impact of the income tax is uncertain.
Pierre Lemieux
Jul 9 2022 at 11:36am
Thomas: Your last sentence is a valid criticism of the abridged argument I offered. Now, what would you say of somebody who, “as a taxpayer,” would “not mind” if prostitution were subsidized (at least for some disadvantaged clienteles)? (See my answer to Katie below.)
The argument for government subsidization of a given activity is more complicated that a simple cost-benefit calculation suggests (which amounts to taking resources away from infertile would-be parents or oldies and use them to produce child care). A Buchanan type of argument would be more persuasive.
Pierre Lemieux
Jul 9 2022 at 11:46am
Thomas: Another point. You write:
You are right that if a subsidy is to be paid, it should be a cash subsidy. But here is a public-choice consideration you have to include in the theorizing: Do you think that the child-care industry, including government child-care bureaucrats, will agree?
Craig
Jul 9 2022 at 12:05pm
Well the current pre-K child care industry probably would prefer cash subsidy because if the government just extended public school to include pre-K well then they’d lose their customers. The government bureacrats? We know what they’d want!
Just curious if you distinguish cash subsidy and tax credit?
Between two I prefer the latter because you get it back but you have to lay it out so you’ll still think a bit more about it than if they sent a debit card to you.
Thomas Lee Hutcheson
Jul 10 2022 at 5:31pm
I can only advocate for what _I_ think is best among alternatives. And I agree that knowing what the alternatives ARE is difficult. But at this stage with neither a child tax credit or a child care tax credit or a public provision of child care, I feel comfortable advocating for the CTC. And as I vaguely understand politics, the CTC was not renewed not becasue of advocates of a child care credit. But if they did, then too bad. They should have listened to me. 🙂
Craig
Jul 11 2022 at 10:10am
Just as an aside I did look that up, there is currently a child care expenses deduction. Obviously deductions are less valuable than credits.
Jose Pablo
Jul 10 2022 at 3:28pm
Why should I, as a taxpayer, finance the ideas that you like?
I cannot afford all the alcohol I would like to drink. I don’t see why this fact entitles me to ask the government to use your taxes to buy my more drinks. Despite the fact that “as a taxpayer I don’t mind, indeed rather like the idea of defraying some of the costs of my drinking preferences”
johnson85
Jul 11 2022 at 6:00pm
It’s not that you should finance the ideas anybody in particular likes, but US voters have promised themselves that younger people would pay them a ton of money. And to actually pay what was “promised”, they are going to have to pay higher taxes than the people that will receive the benefits paid.
It’s expensive to produce those younger people, so it’s not unreasonable help pay people to produce them.
Jose Pablo
Jul 12 2022 at 11:33pm
“Some” US voters might have promised themselves that and “some others” don’t. Let the ones that have promised that to themselves (and them alone) engage in this encouragement of the breeding of semi-slave youngsters (which is, basically, what you are proposing).
I find the idea morally questionable, to say the least.
And in any case, your argument is that the gigantic Ponzi scheme that the government is running requires an increase in the number of tomorrow “fooled investors” (every Ponzi scheme requires that kind of people). But that is the very definition of “snowballing” since the youngster being “produced” now will need to produce even more youngsters down the road to finance their own pensions …
That’s never the solution to a Ponzi scheme. The sensible solution to any Ponzi scheme is to stop it yesterday.
vince
Jul 8 2022 at 10:07pm
The Economist article seems so full of trivialities I didn’t bother reading from the source.
1. The title itself, daring to suggest that cheaper child care would help some mother turn to paid work.
2. Boris Johnson’s daring suggestion, that better access to child care would help the economy. By implication, worse access would harm the economy.
3. The claim that most mothers would prefer to work–given the right child care. By implication, they likely would prefer not to work–given the wrong child care.
4. Cheaper child care COULD help growth. So maybe, or maybe not.
Pierre Lemieux
Jul 9 2022 at 12:10pm
Vince: You’re right, but it’s much better than Fox News or the Washington Post.
Craig
Jul 10 2022 at 11:26am
But then again so is my gut, right? 😉
Katie Flavin
Jul 9 2022 at 12:24am
I think by “growth” the article means the increase in productive capability from greater labor force participation, not an increase in spending, as you suggest.
Pierre Lemieux
Jul 9 2022 at 11:24am
Katie: I was of course speaking of total real production, not of “spending” and not only of market production. In this sense, your critique is good (see also the last sentence of Thomas Hutcheson’s comment above).
But it is important to see all its implications. Imagine that the state determined that it would be “good for the economy” that more sexual services be outsourced to the market instead of being produced and consumed in the home. It therefore decides to subsidize the consumption of prostitution. More sexual services are thus produced on the market. Spouses who were producing sexual services only at home now produce them on the open market (as prostitutes or gigolos). Labor participation and measured productive capacity have gone up. GDP increases. But note that real output has not increased. In fact, it has decreased by the amount of the deadweight loss: the cost of sexual services produced is higher than the value attached to them by consumers. Note also that Keynesian “spending” appears nowhere in my story–only real production and real consumption.
Dylan
Jul 10 2022 at 7:52am
@Pierre – It seems you are not accounting for the benefits from specialization and economies of scale? Surely a child care provider with years of experience can take care of more children than a parent with one child? If one child care provider can take care of 10 children that otherwise would be taken care of by a parent? Then you are freeing up 9 people to participate in the workforce and specialize in something else, increasing real output. And of course, a dedicated specialist is likely to provide superior child care than a new parent with no prior child rearing experience?
I’m sure you can do a similar exercise with your prostitution example.
Pierre Lemieux
Jul 10 2022 at 12:47pm
Interesting objection, Dylan, but it is not valid at the level of the whole economy, that is, when you are on the economy’s production possibility frontier, which is convex. This amounts to saying that if more of something is produced, less of something else must be. If there only one child-care provider, the most productive one can (and will, in a free-market economy) be chosen, that is, the one who is the least productive at manufacturing cars and everything less; the second one had this advantage to a lower degree; and when you get to the Nth one, she was more productive in car production, so she stays there. To say the contrary would imply that all resources are equally productive in all activities, that is, for example, as more nurses and steel (for child-care buildings) are diverted into child care, the less car manufacturing would be negatively affected. (A generally incorrect but perhaps intuitive way of starting to see the same thing is to think that when some economies of scale are gained in child care, some will [may] be lost in car manufacturing or health care.)
Dylan
Jul 10 2022 at 2:33pm
You must forgive me, Pierre, as my undergrad economics is long behind me, but isn’t this neglecting the other side of the equation? You now have 9 mom’s and dad’s moving from an area in which they are unskilled to one in which they are specialized, raising overall productivity. Is not gains from specialization one of the pillars of economic thought?
Pierre Lemieux
Jul 11 2022 at 10:45am
Dylan: You are right on specialization and the division of labor, which determines the PPF as the locus of the least costly ways to producing goods and services. Now, as the government, just add one child-care provider. You have taken somebody who was specialized in car production and made her a child-care provider.
Dylan
Jul 11 2022 at 1:00pm
Well, I think the choice is still up to the individual on if they become a child care provider or stay making cars. But, the point I’m trying to make is you now have 10 people that were raising children that can instead do something they are more specialized in. Let’s assume the world only has two industries, child care and car manufacturer and all of the parents are experts in car manufacturing. We have a net increase 0f 9 people making cars and one person is now doing the work those 9 were doing in child care. How is that not a net increase in production?
Pierre Lemieux
Jul 11 2022 at 3:52pm
Dylan: Yes to your first point: you are on the PPF. The problem arises when the government diverts a second person from car manufacturing to child care. To remain on the PPF will imply a larger decrease in car manufacturing than what happened with the first child-care provider.
Now, note that the actual trade-offs along the PPF don’t say anything about the value of production. This is set by consumers on a free market.
vince
Jul 10 2022 at 1:10pm
“Spouses who were producing sexual services only at home now produce them on the open market (as prostitutes or gigolos). Labor participation and measured productive capacity have gone up. GDP increases. But note that real output has not increased. ”
Indeed. For if sexual activity were higher, increasing real gdp, then time spent having sex would be taken from other productive activities, decreasing real gdp. But perhaps the increase in one would exceed the decrease in the other 😉
vince
Jul 9 2022 at 12:52pm
Is no one concerned about government subsidizing an industry? Picking winners and losers?
Before throwing taxpayer money at the problem, economists should look at WHY it’s too expensive. Let me start by throwing out a couple suggestions: regulation and excessive liability risks.
john hare
Jul 10 2022 at 4:16am
That is my thought not only on this but on other subjects such as education and medical services.
Jose Pablo
Jul 10 2022 at 8:24pm
“Cheaper childcare could help growth, in other words, but policies would need to be well-designed to target genuinely constrained parents and to stop costs spiraling out of control.”
This could easily win “the most economically empty sentence contest” of the year. After all, if you change “parents” for “individuals” you can put almost everything in place of “cheaper childcare”:
Less regulation could help …
Cheaper energy could help …
Lower taxes could help …
Lower transportation costs could help …
Less building restrictions could help …
The scraping of minimum wage regulations could help …
Open borders policies could help …
Eliminating tariffs could help …
Ending fiscal distribution could help …
Particularly so if in all these cases you “stop costs spiraling out of control”
As a matter of fact, the removal of any restriction should help growth (by definition of restriction)
And the whole argument is an example of the “That which is seen and that which is not seen” kind of reasoning: if in order to subsidize child care taxes have to be raised then some other workers (or investments, or both) will be driven out of the work force since they taking less money home would mean it won’t make sense for them to work any longer.
Pierre Lemieux
Jul 11 2022 at 10:39am
Jose: You’re right. It beats what I remember (from old memory) of a statement from Jerry Brown, governor of California: “What we need are flexible policies for an ever-changing world.”
Jose Pablo
Jul 11 2022 at 12:42pm
Now try to falsify Brown’s statement using hard data …
Reminds me of an old friend that used to say: “If the opposite of what you are saying makes no sense at all, what you are saying is, very likely, a platitude” (applies also to the corporate world)
nobody.really
Jul 11 2022 at 3:13am
Initially, the choice to have kids is a choice of consumption: Parents do it to please the parents. The choice to have kids is like the choice to have pets: Do it if you like, but expect to bear the resulting costs.
Society/government may intervene if it finds evidence that these private choices would lead to socially sub-optimal outcomes. But do they? Perhaps.
1: The parents’ choice to have kids generates externalities, in that the choice will perhaps impinge upon the autonomy of other members of society. For example, members of society may regard kids as fellow members of society, thus creating a social burden to defend civil rights for these kids. For another example, the kids may commit crimes. Ergo, society has an interest in influencing these kids in a manner that will tend to minimize the social harms/enhance the social benefits; for example, society may provide education, and even compel kids to attend.
2: Maybe society would derive net benefits by subsidizing things that promote the parents’ participation in the paid labor force. It is not clear why private forces wouldn’t provide the optimal balance of benefits and costs.
3: Maybe society would derive net benefits by encouraging procreation to boost the FUTURE labor supply. But in most developed nations, there is a substantial number of volunteers hoping knocking on the nation’s boarders, hoping to expand the nation’s labor supply. Other societies have already incurred the cost of creating and raising these people to the point where they are ready to join the labor market. Doubtless there are some advantages to having a domestically-generated labor supply, but how large are those advantages relative to the costs (and given the imperfect ability to exclude foreign laborers)?
Note that every intervention creates a moral hazard–that is, by reducing the burden on parents of having kids, the intervention tends to result in more kids being born, thereby exacerbating the problems the interventions were designed to mitigate.
But in democratic societies, domestic parents get to vote while would-be immigrants do not. More generally, humans evolved in small social groups that promoted the idea that loyalty to your own kin over strangers is virtuous. Ergo, we can expect that social policy will be biased somewhat in the interest of domestic parents and against the interests of immigrants, relative to a world governed by an economist-king.
Pierre Lemieux
Jul 11 2022 at 10:36am
nobody.really: Some of your points may be right, and some may be wrong. I would suggest, however, that the underlying approach will start to unravel when you ask only two questions: (1) Who is society? (2) Is 100% of society included in “society”?
nobody.really
Jul 11 2022 at 5:41pm
Any entity that has the interest in evaluating whether aggregate individual decisions produce an outcome that “society” finds sub-optimal, and the resources to alter circumstances to “society’s” benefit. If you prefer, substitute “the state.”
Not necessarily. I don’t understand your (or John Rawls’s) obsession with unanimity.
Pierre Lemieux
Jul 12 2022 at 7:45am
nobody.really: If 100% of society is not included in society, you have a logical problem. (I am not talking about the state.)
vince
Jul 11 2022 at 1:20pm
nobody.really wrote: “Maybe society would derive net benefits by encouraging procreation to boost the FUTURE labor supply.”
That MAYBE depends on whether the educational system and child rearing help the kids develop job skills and work ethic. Are you confident?
Jose Pablo
Jul 11 2022 at 5:18pm
The main question is WHO should decide on this “maybes”. The all-knowing non skin in the game central planner or the individuals bearing the consequences of their decisions?
Since none of the two has a clue I will go 100% with the second.
Between my great-grandmother deciding that it was better having 10 children to work in the corn and potato fields and to have some spare for the early deaths or my mother deciding it was better having 2 children and sending them to college and the Chinese government decreeing the number of children they had to have, I would always go with the wisdom of the women of my family.
Pierre Lemieux
Jul 12 2022 at 6:52pm
Jose: Your first sentence is the fundamental question of political philosophy.
nobody.really
Jul 11 2022 at 6:14pm
If I were confident, I wouldn’t say “maybe.”
But neither am I confident that encouraging domestic procreation would NOT prove to be an optimal strategy for boosting the future labor supply. I regard this as an empirical proposition–not one that can be resolved via ideology.
If you recognize that the choice to have kids generates externalities, then pretty much EVERYONE has skin in the game. I don’t share the view that parents are the only people who bear the consequences of their decision about whether to create children, and how to rear children. Likewise, immigration policies will bear on everyone’s interest–including the decision to have NO immigration policy.
nobody.really
Jul 11 2022 at 7:16pm
Regarding immigration: The trade-off between importing a labor force and procrating a labor force has some of the qualities of the standard “make or buy” decision faced by private firms. By acquiring our labor force from abroad, we literally outsource labor.
Are immigrants less productive than domestically produced labor? Typically yes–initially. But the children of poor immigrants are more productive than the children of poor people born and raised in the US. It may take a generation for this trade-off to pay off, but it pays off.
Or does it? Harvard sociologist Robert Putnam (author of Bowling Alone) documented that a neighborhood’s social cohesion declines in proportion to ethnic diversity. And in his book The Upswing, he documents how social cohesion in the US reached its apex around 1965–which, perhaps not coincidentally, was about the time when the US had the smallest share of its citizens born abroad.
In short, many variables bear on public policy. (Did Caplan’s immigration book examine the variable of social cohesion?)
Jose Pablo
Jul 11 2022 at 7:25pm
Some skins are way bigger than others.
nobody.really
Jul 12 2022 at 6:16pm
You sure know how to make a guy feel inadequate….
Comments are closed.