Bryan Caplan’s new book, Selfish Reasons to Have More Kids, (which he blogged about for us here and here) has people talking about happiness and kids, again. Over at Cato Unbound, my better half Betsey Stevenson takes Bryan to task on some of his claims. It’s worth reading the full essay. Jeff Ely at Cheap Talk says you should take note of her views on the distinction between happiness and utility. Instead, I want to highlight an insight that comes from thinking through a formal framework:
Caplan suggests that parental over-investment in their children is causing parents to be unhappy. He infers from this that we should invest less in each child, and have more children. In the classic quantity-quality trade-off, Caplan is arguing that too many resources are going to child quality and not enough are going to child quantity.
Stating the problem this way makes it clear that Caplan’s argument actually requires parents to be making two mistakes. The first mistake is that the returns to the marginal hours with our children are lower than we think, and so we are over-investing in quality. If he’s right, we can all save ourselves a lot of time. But this doesn’t mean that we should necessarily have more kids. Here’s where the second assumption really matters: Caplan thinks that we should take the time we save and spend it on a greater quantity of children.
You can think of this another way. Caplan says that we parents are charging ourselves too much for children. And just as we buy more televisions when the price falls, we should have more children when the price falls. Maybe. But maybe not. When we reduce the price, there are both income and substitution effects. Caplan is entirely focused on the substitution effect: having kids becomes cheaper relative to buying TVs. So he says buy more kids, and fewer TVs. But what about the income effect? As people become richer, they tend to “buy” fewer children, not more. So there’s an offsetting income effect. Is it possible that the income effect overwhelms the substitution effect? Typically this only occurs among goods which take a big share of our budgets. Like children.
In his response, Caplan claims that family size is increasing in income—at least once you control for education. But this is pretty unconvincing. First, once you control for education you’re mostly just analyzing temporary income blips. If you want to see the effects of income, compare rich and poor societies, or fertility rates as countries develop, or any of the really important variations in income, and you’ll see that the rich have fewer kids than the poor.
Oh, and if you enjoyed this debate, stay tuned. In a forthcoming Freakonomics Radio episode about kids and happiness, you’ll hear plenty more from Betsey and me, and our own little natural experiment—our daughter Matilda. You’ll also hear from Bryan Caplan, and Joshua Gans of Parentonomics fame.