How Much Should America Spend on Having More Kids

Trillions. Hundreds of thousands per kid.

I offered a dollar for mowing my lawn

the only response was a great big yawn

Man, these days no one wants to work

They don’t value money, they just want to shirk

Hungary is in the news. It has a suite of pro-natalist financial incentives that seemed to tick up the TFR a modest but encouraging amount—but now the births are going back down.

Why Don’t Subsidies Work?

Lots of countries offer incentives for having kids. Nowhere do the incentives obviously work.

There are two possible reasons for this.

• Subsidies don’t work. The problem is 100% spiritual, social, cultural, sociological, and “structural.”

• The subsidies are laughably small. We are throwing pennies at trillion dollar problems.

Cards on the table: we think that the problem is mostly spiritual, social, cultural, sociological, and “structural” but also that the subsidies are probably laughably small.

EXECUTIVE SUMMARY

1. Low births are a crisis especially if the births continue to decline.

2. Like almost all other advanced countries, America’s birth rates are low and declining.

3. Comparisons with spending for other crises suggests one-time spending of $2 trillion.

4. Comparisons with annual spending for other ongoing concerns suggests annual subsidies of $500 billion.

Breaking Down the Problem

So, what is the right amount of subsidies to see if they work? There are three possible ways you could work the problem. You could work the problem cost-side: how much does it cost to have kids? You could work it directly: look at known financial interventions that have affected fertility such as car seat mandates or old-age pensions and rising housing costs, and try to back out an estimate for what size of subsidy would work. Or you could work the supply side: how much do we normally spend on crises and what level of subsidy would that imply?

This transmission looks at the last question. What would be a reasonable level of subsidy?

Caveat 1. We are going to do rough calculations but please don’t rely on the numbers. The numbers are magnitude indications.

Caveat 2. We are not getting into how subsidies should be offered. This is as important a question as how much. For example, we believe that offering a large sum of money up front to a young couple for a birth would do much, much more than offering the annuitized yearly equivalent over the next 20 years for a birth. For psychological reasons, it may even be true that offering an annuity that would pay out X each year for 20 years would still be better than just offering an annual subsidy of X for each child under age 20. Program design matters, but its not our subject here.

What is the crisis?

The crisis is below replacement birth rates that are continuing to drop. The continued drop is important because it means that even halting the current birth rate drops at their current low level is much better than continued decline.

Most people who’ve considered the problem think that below replacement birth rates are a serious crisis, leading to social stagnation and economic decline. Others argue that while population declines are a problem, the problem can still be managed if the declines are slow, with TFRs of 1.8 or 1.9, perhaps even 1.7. The American TFR is currently about 1.7 – 1.8.

But nearly everyone agrees that rapid population declines are a catastrophe. TFRs of 1.3 or 1.2 or 1.1 or even lower are a disaster. So here’s the kicker. TFRs aren’t static. TFRs continue to decline. Every advanced country’s TFR used to be higher. Every advanced country’s TFR is getting lower. Some are just further along in the process.

You have a crisis if your dam is unbroken but the water is high and rising.

American crisis spending

Keeping the American population going has at least as much an impact on the country’s ongoing health as stopping a recession or stopping a second 9-11. Even the highest estimates of possible Covid deaths are smaller than the number of Americans lost when the birth rate drops even a little.

Let’s do a one-time spend of $2 trillion on our existential birth crisis.

There were 3.5 million babies roughly born in America last year. If you start with just wanting to stabilize the birth rates, that's $600,000 per baby.

Some people may have concerns about quality and only want to subsidize children who will grow up in productive, stable homes. OK. As a proxy to give us an idea of the magnitude of impact, lets limit it to kids born to married parents, which is about 60% of them. That's $1,000,000 per baby.

Limit it to 3rd or beyond kids? We don't easily find those kinds of stats but based on distribution of family sizes and with a lot of handwaving, we'd say that somewhere around 20% of all births are 3rds or beyond. That gives you $3,000,000 per baby.

What can you do with that amount of money? Could you increase or at least stabilize the birth rate? We think you can.

Let’s do a simple model of a program. Let’s assume you take your one-time crisis appropriation and use it to give $100k tax-free for every kid born to a married couple.

If all you do is stabilize the birth rate, your program lasts a decade. If you DOUBLE the number of kids born, which with that amount of cash you might, it lasts for five years. Congratulations, you have just created a baby boom. That’s 10.5 million extra babies in good homes, who have a good chance to grow up as a happy, healthy contributing citizens. In 30 years, that’s 10.5 million extra workers, educated the way you wanted, speaking your language, bone-deep familiar with your culture, steeped in process knowledge.

The average American pays $500k in taxes over a lifetime. Depending on your assumptions about rates of return, this program may even be turning a profit.

American annual spending

Having kids to keep healthy and educate seems at least as important as keeping them healthy and educating them.

Lets modestly pick a number that is less than Medicaid and less than education and in fact less than every item on this list. Let’s subsidize births to the tune of $500 billion per year indefinitely.

Let’s take a simple model where you just divide that cash up among all children born that year. That’s 150k per birth at current rates or 230k per child born to married parents. That’s a lot of money. Would that incentivize more births? We think so. If you double the birth rates, that’s still 75k/115k per kid, which seems like it would still be a big encouragement. If Mom is making the standard salary of roughly $50k/year, she could roughly meet that just by having a child every couple of years.

Its a crisis and an ongoing concern

Do both. You can run the numbers for the different permutations, and remember these are just rough order-of-magnitude calculations anyway. But as an example, if you offered an annual appropriation of $400 billion split up among all births that year, with a flat addition of $100k per birth until the $2 trillion ran out, then up front people would be getting payments of more than $300,000 per kid, coming down to around $200,000 as the birth rates shot up.

Would that make a difference? Yes, it would.

We don’t have the money

True. Nor do we have the money for those other things we are spending money on, yet we do.

Ask yourself: is it better to be a stagnant, aging country with huge amounts of debt, or a vital, booming country with huge amounts of debt? Because the huge amounts of debt are baked in. That’s a given either way.

Is it better for the dam to break or to go bankrupt?

The solution—bales of money.