16 October 2009

Kids

EconLog | Brian Caplan | Was Having Kids Ever a Paying Venture?

One popular story about the decline in family size over the last two centuries goes like this: Back in the old days, having kids paid. Children started working when they were quite young, and provided for their parents in their old age. Then industrialization and/or the welfare state came along and changed everything. Young children ceased to contribute much economically to their families, and once Social Security, Medicare, and so on were in place, people stopped supporting their aging parents.

It turns out that this story is only half true. [...]

Kids did not pay in agricultural societies:
Calculations by Mueller and by Goran Ohlin (1969) indicate that a parent who gave birth at age 20 and supported a child from age one to age 15 would receive a monetary rate of return of less than one percent on her investment if she retired at age 60 and was supported by the child until age 85 at the level of living that is normal for old people in peasant societies. When one accounts for the probability that either parent or child may die before the parent reaches 85 years of age, the expected rate of return becomes negative. In a peasant society, where land ownership is possible and where there are markets for borrowing and lending, such low rates of return are not likely to be acceptable on purely financial grounds.
An anti-natalist might take this as further proof that breeding is sheer idiocy. To me, though, it confirms that an intrinsic or "consumption" demand for kids is deeply rooted in human nature. It also shows that explaining the long-run decline in family size is harder than it looks. If parents in 1850 were willing to support five or six kids with a negative financial return, why aren't we?
Is it possible that having children may be a bad economic decision in the aggregate, but that it changes your risk profile? Could having children be insurance against the possibility of dying enfeebled and alone? Even if the numbers on this don't add up it can still be the underlying cause of a pro-natalist instinct since humans are so bad at estimating probabilities and routinely overestimate the chances of unlikely but catastrophic results.

I think this might be closely tied to Caplan's children as consumption model, if one takes companionship to be a consumption good, since having a larger family is a great way to fill your social calendar. If you are scared of dying alone then even if future generations don't transfer wealth to you in your old age they are supplying you with a valuable service just by existing in your life.

Okay I need to switch out of cold & calculating family planning mode since I'm off to a Pre-Cana program tomorrow and I don't think the padre will want to hear about expected financial rate of return on babies. That might be a red flag in their book. Know that I am pro-natalist for reasons I won't go into now that have nothing to do with ROI.

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