[ExI] The Economic Value of Parenthood

[Rafal Smigrodzki]

I recently read "How Civilizations Die (And Why Islam Is Dying Too)" by the
Jewish author and economist David P.Goldman, and it prompted me to think
about the economic value of parenthood.

I am sure that this subject has been thoroughly analyzed by reasonable
economists but a cursory examination of top google hits is full of
references to the declining or absent economic value of children. It seems
that a majority of writers see children as a pure economic/financial
burden, which may or may not be offset by various emotional benefits.

But this is an insane way of looking at the issue. Until the robot
revolution changes everything, economic value creation needed to keep the
retired alive requires both capital and labor. Childless (oops, non-PC
term, should have written "childfree") contributors to pension plans
provide only capital, as their savings generate buildings, machines, IP and
other infrastructure. Parents, aside from similar pension savings, provide
also the labor, and without their contribution all the capital will be just
so much dead junk.

There was a time when parents were able to directly capture a part of the
labor value of their children, both through child labor and by receiving
care in their dotage from their own children, rather than from children of
strangers. In our economy, however, this connection between parenthood and
economic benefits is largely severed. The childless derive almost as much
from the labor of the next generation as the parents who actually produced
this next generation. In effect, the childless are freeloading on the
effort and spending of parents.

So how much is a child worth? The average lifetime economic output of an
American might be approximated (crudely) by GDP per capita x lifespan = 4.2
million dollars. In other words, each parent contributes 2.1 million
dollars per child to the economic output needed to take care of him in his
retirement. (Of course, this is a ballpark estimate, not intended to
provide a thorough analysis of the various modifying factors)

Obviously, we are talking about big money. Literally, our future depends on
parenthood. And yet the popular writings are full of vitriol directed at
parents, there are analyses of how parents are "deluding" themselves to
justify the effort and cost of parenting, armchair economists are wringing
their hands about the "irrationality" of having children.

Unfortunately, our society fails at incentivising parenthood and punishing
childlessness in a way that would be commensurate with the contributions
and costs of each. Is it possible to devise such incentives?

I could imagine the following: Parents receive a transfer payment for each
child they have. The payment is used to fund a personal retirement plan,
including disability benefits but beneficiaries are not allowed to borrow
against it, or prematurely withdraw. The plan grows in proportion to the
economic potential of their children, such that parents of inept, lazy,
unemployed children get less, if any benefits. This provides an incentive
against the breeding of the inept. The plan is independent of any private
savings that each parent or non-parent might also have. Finally, the plan
is financed by a general levy on economic activity, such as a VAT, and
supplants social security and medicare/medicaid. In a libertarian society
other mechanisms might be used.

Since the costs of the plan would be borne by all, including the childless
and single-child parents, but the benefits would accrue only to the parents
of economically productive persons, the plan would incentivise responsible
parenting, penalize childlessness and would not contribute to the growth of
the underclass.

Of course, it won't happen because parenthood is unpopular. Furthermore,
the need for labor will soon precipitously drop, obviating the economic
need for children. Yet I feel it was still useful to perform this analysis,
if only to achieve clarity.

Rafał
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