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Can Govt Debt Solve Fertility?
The last month has greatly change what I see as the default future. Instead of seeing the last few centuries of exponential world growth continuing until a new much faster growth mode appears within a century or two, my default is now darker. The economy declines after population peaks in roughly thirty years, and innovation then grinds to a halt, with the economy not rising again until world population is dominated by Amish-like insular religious high fertility communities. Innovation doesn’t appear again until that new economy rises past its prior peak, and then only the kinds of innovation Amish-like folks allow.
But there’s a chance we might avoid this, if a few nations choose well. And I’m not talking about the appearance of human-level AI or ems, or dramatic life and fertility extension. I’m talking about governments just directly paying people to have kids, a policy that I recently mistakenly thought couldn’t work. Not only could it work, but it could also directly pay for itself, requiring no subsidies from anyone! And, amazingly enough, we owe all this to high levels of government debt, debt that I’d otherwise tend to lament. Let me explain.
As I’ve described before, a private fertility solution would be to let parents endow their kids with debt or equity, which they could sell to pay for parenting expenses. While most people want to forbid this due to seeing it as “slavery”, they don’t mind collective national “slavery”, whereby infants are endowed with obligations to pay “their share” of national debt. Which all nations do. And this practice makes it in the simple financial interest of nations to pay huge amounts to induce citizens to have kids!
The U.S. national debt is now officially $33T, but add in promises to pay social security, medicare, etc, and I find published estimates of $100T, $147T, and $245T for what the U.S. has promised to pay out somehow via taxes. Divide these by the current U.S. population to get a debt per citizen ranging from $300K to $730K. We should thus be willing to pay up to these huge amounts up front to induce the birth and raising-to-adulthood of a single child who would then pay average levels of future taxes to repay this debt.
Clearly such big rewards could induce big changes in fertility, maybe inducing a cultural change multiplier effect, and these together might get us up past replacement fertility levels, and thus prevent my default dark scenario. My main reason to keep that as my default is that this winning strategy has been possible worldwide for many decades without any nations even considering rewards so large. But still, we can hope; hence this post.
There are of course details to consider. First, you’d need to withhold some of the payment until a kid reaches adulthood, to incentivize process completion, but also give some rewards early on to help parents cover expenses.
Second, if you paid this same amount to everyone, poorer folks would probably respond more strongly, though their kids would on average later pay below average amounts of taxes. This is why Bryan Caplan suggests payment be of the form excusing parents from N years of taxes . He suggested N=1, but dividing $300K by the average annual federal tax bill of $13.4K gives N>22. However this seems to overpay rich folks due to regression to the mean in kid incomes. So some intermediate schedule seems best.
Third, this scheme would end up paying some parents to have and raise kids when they’d have done this anyway even without these rewards. To ensure a net financial gain to the nation, you’d want to correct for this effect via estimates of the fraction of births induced by these rewards. This shouldn’t be too hard, especially if the program started with a big reward burst at random times across different geographic areas or population types.
Fourth, some faction of kids induced this way would, as adults, leave the nation to go elsewhere. But if this fraction is the same as the fraction for kids not induced this way, these kids still end up paying the same average fraction of national debt. So no correction is needed for this effect.
Firth, there’s a chance that the national debt won’t be paid, either due to debt default or due to unexpectedly high inflation. But both of these effects should be included in market prices paid for such debt. So as long as market prices are used to estimate the present value of national “unfunded liabilities”, no correction is needed for this either.
Sixth, if future population declines, each kid would owe and pay a larger faction of the national debt, raising the dollar value of making such kids.
Seventh, if the investors who now buy national debt can be convinced of the soundness of this investment in kids, they will be willing to buy more national debt in order to fund these big fertility rewards. Thus the nation and its citizens need not actually take the risk of making this financial investment. A limited-supply-of-investment effect might raise the cost of attracting such investment, but that again should reveal itself in market prices.
And that’s the plan. Paying no net cost and taking no risk, nations could pay large fertility rewards to those who have and raise kids, averting my dark default scenario. Yes, the fact that this has long been possible, yet no nation has even considered such huge rewards, does argue against nations doing this soon. But we can hope, and advocate. Will you join me?