Benefits or Babies: Will Social Benefits “Crowd Out” Children?

World Congress of Families | Published on May 25, 2012

By John D. Mueller

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The following presentation was delivered by John D. Mueller, Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center, to the VI World Congress of Families in Madrid, Spain, on May 25, 2012.

At the World Congress of Families IV in Warsaw[1] and WCF V Amsterdam,[2] I presented a country-by-country model of fertility, which has since been published in my book Redeeming Economics[3] and updated for last June’s Moscow Demographic Summit.[4] Today, I’d like to draw further on that analysis, using the United States as an example, to compare the likely birth rates if social benefits grow as predicted under President Barack Obama’s budget and if they are reformed as Congressman Paul Ryan has proposed.

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The cover of my book features Gustave Dore’s engraving, “Arrival of the Good Samaritan at the Inn” because the parable illustrates all the possible economic transactions we can have with our fellow man: the robbers beating a man and leaving him for dead illustrate crime; the priest and Levite who passed him by illustrate indifference; the innkeeper’s bargain with the Samaritan illustrates justice in exchange; and finally, the Samaritan’s devotion of time and money to restore the beaten man to life illustrates a gift. Crime, indifference, just exchange, and gift: this is the range of possible transactions.

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In contrast, the premise of today’s neoclassical economic theory was expressed by Adam Smith in the Wealth of Nations with his assumption that “every individual . . . intends only his own gain.”[5] “Neoscholastic” economics differs from neoclassical economics chiefly in retaining Augustine and Aristotle’s theory of gifts (and their opposite, crimes) as well as exchanges. This also makes the neoscholastic theory much more accurate.

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For example, updating scholastic theory refutes the famous claim by economist Steven D. Levitt, featured in Freakonomics, that the U.S. Supreme Court’s legalization of abortion in 1973 caused the crime rate to fall 15-20 years later, by eliminating potential criminals.[6] In fact, there is a 90% current inverse relation between “economic fatherhood and homicide. Legalizing abortion raised crime rates immediately and with a lag.

The “Neoscholastic” fertility model is also more accurate. Just four factors explain most variation in birth rates among the 70 countries for which sufficient data are available (comprising only about one-third of all countries, but more than three-quarters of world population).[7]

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The birth rate is strongly and about equally inversely proportional to per capita social benefits and per capita national saving (both adjusted for differences in purchasing power), which represent provision by current adults for their own well-being.

When these factors are taken into account, a legacy of totalitarian government is also highly significant, reducing the birth rate by about 0.6 children per couple.

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Finally, the birth rate is strongly and positively related to the rate of weekly worship. This is because all gifts of scarce resources-whether rearing a child or worship-require the same lowering of self and raising of others in our scale of preferences for persons. On average throughout the world in 2005-10 (adjusted for differences in mortality), a couple which never worshipped had an average of 1.2 children; but the average couple which worshipped at least once a week had 2.4 more-an average of 3.6 children.

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Regular worship is not only positively related to fertility in a roughly linear fashion. It is also inversely related to the incidence of abortion, which (like crime in general) rises exponentially as the rate of worship declines.[8]

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There are four main reasons, then, for “demographic winter,” in order of importance: First, low rates of religious practice, which are associated with low birth rates and high incidence of abortion; second, social benefits so high as to displace gifts within the family, particularly the gift of life; third, legacies of totalitarianism; and finally, finally, heavy reliance on fiscal policies which penalize investment in people-: so-called “human capital.”

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Fifty years ago, the three most populous countries were China, India, and the United States. That’s still true today. But the practice of abortion in China but not as widely in India is causing a reversal of their first and second population ranks.

Adjusted for differences in mortality rates, in 2005-10 China’s TFR was 1.53 after but 2.10 before abortions; India’s 2.34 after and 2.41 before abortions, the USA 2.01 after but 2.66 before abortions. (Spain’s TFR was 1.37 after, but 1.59 before abortions).[9] Based on all 52 countries for which data are available (comprising about two-thirds of world population), the World TFR was 1.88 after, but 2.34 before abortions.

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What does this mean for policy? Based on current projections, President Barack Obama’s budget would substantially increase Federal social benefits as a share of GDP.

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Meanwhile House Budget Committee Chairman Paul Ryan’s budget would prevent such an increase by fundamentally reforming Federal health care programs.

Because of the strong inverse relation between the birth rate and per capita social benefits, I project that the U.S. birth rate will fall significantly under current law, from about 2.1 to about 1.7 children per couple in 2085. These projections indicate that the Obama budget is likely to shift U.S. society to conditions approximating the Trustees’ “High-Cost Assumptions.” The same projections indicate that the U.S. birth rate would remain almost exactly at the replacement rate under the Ryan budget–thus approximating the Social Security Trustees’ Intermediate Assumptions.

In general, my findings therefore support Congressman Ryan’s emphasis on reform of medical entitlements. Without reforms of the same magnitude as Congressman Ryan proposes, there will be no way to prevent a sharp decline in the U.S. birth rate, and thus a decline in the relative size of the U.S. population and economy.

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At the same time, my analysis offers a note of caution on reforming pay-as-you-go retirement pension. Neither the Obama nor Ryan budget directly addresses Social Security. But I project that substituting private accounts for PAYGO Social Security retirement pensions, without reforming medical entitlements, would actually lead to a lower birth rate at least through 2050 than under the current-law policy mix that President Obama proposes. The main reason is the additional forced saving represented by individual retirement accounts, which may not be used to raise children.

As an economist I practice what has been called the ‘dismal science.’ But I like to emphasize that my message is one of hope. All the unfavorable trends we have discussed here are reversible if we reverse the policies which caused them.

John D. Mueller is the Lehrman Institute Fellow in Economics at the Ethics and Public Policy Center.

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[1] John D. Mueller, “A Family-Friendly Fiscal Policy to Weather Demographic Winter,” remarks to the Fourth World Congress of Families, Warsaw, Poland, 11 May 2007, http:/ /www.worldcongress.org/wcf4.spkrs/wcf4.mueller.htm, and http://www.eppc.org/publications/family-friendly-fiscal-policy-to-weather-demographic-winter/.

[2] John D. Mueller, “How Do Nations Choose ‘Demographic Winter’? Is America Doing So?” Remarks at the Fifth World Congress of Families Panel on “Family and Demography,” Amsterdam,, Netherlands, 11 August 2009, http://www.worldcongress.org/wcf5.spkrs/wcf5.mueller.htm and http://www.eppc.org/publications/how-do-nations-choose-a%C2%80%C2%9Cdemographic-wintera%C2%80%C2%9D-is-america-doing-so/

[3] http://www.eppc.org/publications/redeeming-economics-2/

[4] John D. Mueller, “Babies and Dollars: Babies and Dollars: Implications for USA, Russia, and the World,” available at http://demographia.ru/eng/articles/index.html?idR=80&idArt=1946 and http://www.eppc.org/publications/babies-and-dollars-implications-for-usa-russia-and-the-world/. I’d like to thank Mary Claire Reim for her assistance in gathering the data necessary to update the model.

[5] Smith, A. (1966 [1776], Smith, Wealth of Nations, IV.ii.9, accessed on 19 September 2009 from http://www.econlib.org/library/Smith/smWN13.html#IV.2.9.

[6] Steven D. Levitt and Stephen J. Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything (William Morrow, New York, 2005), 117-144.

[7] The model was first published in John D. Mueller, “How Does Fiscal Policy Affect the American Worker?” Notre Dame Journal of Law, Ethics and Public Policy Vol. 20 No. 2 (Spring 2006), 563-619; available at http://www.eppc.org/publications/how-does-fiscal-policy-affect-the-american-worker/

[8] As Augustine noted, a crime is the opposite of a gift: taking from other persons their own goods. As with “legal” abortion, the objective facts remain the same whether or not the crime is recognized as such by human law. Augustine, On Christian Doctrine3. 10. 16 (Grand Rapids: Christian Classics Ethereal Library), pp. 396-97, http://www.ccel.org/ccel/augustine/doctrine.xi_2.html. Data on abortion rates by country from update of section VII, “Global Abortion Summary,” version 3, March 2000, © 2000-2007, 2008 by Wm. Robert Johnston. Last modified 26 October 2008, available at http://www.johnstonsarchive.net/policy/abortion/wrjp333pd2.html

[9] Fertility rates should be adjusted for differences in mortality rates. The Net Reproduction Rate (NRR) represents a hypothetical woman whose experience matches the average rates of fertility and death of all women in a given year. (The Total Fertility Rate measures fertility alone.) An NRR of 1.00 indicates that each woman bears exactly one surviving daughter. The Total Fertility Rates used in the model equal twice the NRR. For example, the TFR in Mali in 2006 was 7.42, but the NRR was 1.987, which corresponds to a TFR of 3.97 children per couple. In other words, in Mali the typical couple had about 3-1/2 children simply to compensate for the likelihood of premature death before reaching child-bearing age. United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: The 2008 Revision, New York, 2009; http://data.un.org/Data.aspx?d=PopDiv&f=variableID:48.