Libertarians and fertility

As I noted in yesterday’s post, Bryan Caplan has written the lead essay for this month’s Cato Unbound on The Politics of Family Size. Caplan argues that as there are strong benefits to increasing population, libertarians should support “libertarian policies” to increase population, educate and persuade people to have more children and while they are at it, have more children themselves.

Caplan suggests that people underestimate both the social and private benefits of having children. In the case of the private benefits, Caplan uses twin research (among other things) to build the case that as a parent’s contribution to the child is largely in the form of their genes, children require less work than people think. This is a major focus of his new book Selfish Reasons to Have New Kids, which I am currently reading. I find these arguments convincing, and I will address them in more detail when I review Caplan’s book next week (the review can be found here).

The social benefits referenced by Caplan rest in part on the work by Julian Simon. A larger population has benefits as more people leads to more ideas. Caplan writes:

Economists’ central discovery about economic growth is that new ideas are more important than labor or capital. The main reason we’re richer than we used to be is that we know more than we used to know. We know how one man can grow food for hundreds. We know how to build flying machines. We know how to build iPhones. Best of all: Once one person discovers a new idea, billions can cheaply adopt it.

Caplan also notes that we tend to seek areas of higher population. Despite the problems with congestion and crowds, people choose to live in cities - and in fact, more than half of the world’s population now does so.

In the first response to Caplan’s essay, Gregory Clark questions for how long increased population will continue to deliver net benefits. Clark notes that there is a balance between the costs and benefits of population growth:

Population growth always generates gains and losses. More population drives up the cost of limited resources: land, minerals, and fossil energy. But larger populations reduce production costs through scale economies. … There is thus a race between resource costs and scale economies as population grows.

I have some sympathy with Clark’s argument. We have had a 200 year period, in some parts of the world, where the benefits of population have outweighed the costs. As Clark points out, the costs of population are evident in the time after the Black Death in Europe, with the lower population delivering incomes that were not exceeded again until 100 years after the Industrial Revolution. Today, there are many parts of the world where population growth has resulted in problems. Jared Diamond’s discussion of Rwanda in Collapse comes to mind. Some parts of the world are still in an effective Malthusian trap.

Even for the developed world, I am reluctant to extrapolate such a small slice of history too far forward. Eventually, population could catch up with and possibly overtake economic growth, as those who have a heritable inclination to have more children do so. Having stated this, I agree with Caplan’s argument that in the short-term for developed countries such as the United States, if resources are priced appropriately, people would be better off with the increased range of ideas that comes with a larger population.

On the fiscal (government finance) side, Caplan argues that despite concerns about the weight of new people on government programs, new children have a large, positive fiscal externality. Citing work by Wolf and colleagues (which I am going to have to read in detail - published here), Caplan notes that each child born in the United States has a $217,000 positive externality (2009 dollars). After noting the significant fertility effect of a small baby bonus in Quebec, Caplan suggests that anyone who wants to improve the government’s fiscal health should support natalist tax credits to boost fertility (I have some doubts about the strength of these effects for reasons I will expound in a later post).

This is one point where I depart from Caplan. While a tax credit is clearly better than a subsidy, this type of social engineering by government makes me nervous, particularly where it seems to be based on a fiscal cost-benefit analysis. In Australia, the social engineering attempts of successive governments have resulted in a horrible mess of tax credits for childcare, women in the workforce and stay at home mothers. While Caplan’s argument might be clean, the actual implementation never is.

The claim of a positive fiscal externality is also interesting. Given that the United States government runs a large deficit, it would seem that government spends more than it receives. Wolf and colleagues achieve their result of a net positive fiscal benefit to children by excluding pure public goods - that is goods that are non-rivalrous. An extra child should theoretically result in no extra expenditure for these pure public goods. Defence is one example.

The problem with this argument, however, is that government does not work in this way. As most governments’ persistent deficits suggest, governments tend to spend all that they receive. On average, people are close to fiscally neutral or mildly negative. On that basis, an extra child is likely to be fiscally neutral or mildly negative once you consider how a government will actually act and spend the surplus generated during the child’s life. In that case, I suggest that Caplan is on stronger ground when he argues of the positive social benefits received by other people, in the form of the ideas, goods and services produced by that child, rather than the child’s lifetime fiscal contribution.