The invisible hand of letting people know who’s boss

Edward links downblog to a piece by Ronald Bailey in Reason magazine. My precis of Bailey’s thesis runs something like this. Having children, per se, isn’t so expensive. Educating them, on the other hand, is very expensive. This is because the levers of a modern, free market, rule of law, enforcement of contract society are complicated and you need a lot of training in order to know which lever to pull, and when. In actuality, lack of training generally leads to denial of access to said levers and hence a lifetime of poverty, and no one wants that for their child. Hence the expense of education deters prospective parents from actually going ahead and having children; this is the ‘invisible hand of population control’. And it’s a good thing! This is because no one wants a tragedy of the commons situation, like you’ve got in all those poor countries.

I can see the following problems with Bailey’s argument, in no particular order, and not worked through, since this is not an essay:

(1) There’s your local commons, and then there’s the global commons. Further, population and global resource depletion need not be coupled; the small population of a developed society may take more in the way of resources from the world than the much larger population of a less developed society;

(2) The length, complexity and cost of education need not be coupled to the total skill demand in a society; to take a picturesque example: piano tuning is a difficult skill to acquire, but it’s easy to imagine a society that generally prefers simpler instruments and has no pianos at all;

(3) In actuality, the length, complexity and cost of education is often to do with status display; in many (most?) societies, education is a positional good purchased by the parents;

(4) The cost of education need not be the only, or even the main deterrent to having children; it’s possible to find low birth rates in actual societies where most (or even all) formal education is state provided (and hence, obviously, the cost of that education is shared between all taxpayers);

(5) It’s fairly well established (I think) that freedom is not something that necessarily flows from rule of law and enforcement of contract; it’s possible to have a society where many citizens have relatively little freedom yet all contracts are honoured;

(6) In the context of (5) above, we should probably ask what Bailey means by ‘economic freedom’; his gist seems to be ‘those freedoms enjoyed by the better off’;

(7) A society where a majority composed of not so well off people is deterred from raising children – and where, by contrast, a few well off people have lots of children – is not necessarily a very nice society. I’d suggest there might be gentler ways of avoiding tragedy of the commons situations.

13 thoughts on “The invisible hand of letting people know who’s boss

  1. Some of the lowest birthrates — Bulgaria comes to mind — are in places where education is free through high school, and college is heavily subsidized and cheap.

    Contrariwise, the US — where raising kids is inconvenient, and getting them well educated is fscking crazy expensive — has the highest birthrate in the developed world.

    The kindest thing I can say about this piece is that he’s dipped into a complex, contradictory stew of several factors, chosen the one that he’s ideologically comfortable with, and elevated it to the level of dominant, if not sole, causation. This is sloppy at best, damn’d stupid at worst.

    Doug M.

  2. Hi Doug,

    “The kindest thing I can say about this piece is that he’s dipped into a complex, contradictory stew of several factors, chosen the one that he’s ideologically comfortable with, and elevated it to the level of dominant, if not sole, causation.”

    I think we would agree that the efficient (immediate) causes of low fertility (short term drivers) are many and complex. In the long run we all seem to be headed in more or less the same direction, so I think the author asks a legitimate question: what the hell is going on.

    I think all of this is “ideological” only if you regard “not having an ideology” as itself an ideology. But then we enter a very circular world.

    The point is, not to treat markets as dogma, and to be prepared to try to arrest the harmful side-effects when they are noted. Look at the most recent financial crisis, for example. People have stepped in and done a lot to try to stop the financial system melting down.

    Some are opposed to this on principle, that is their right, but we wouldn’t agree.

    Same thing goes for fertility. There is now automatic homeostatic correction mechanism. As I am pointing out to another commentator, take away the institutional support of a modern functioning economy as we are seeing in Ukraine and Latvia, and fertility simply collapses. This is very different to a pre moden society with a Malthusian type regime like Ethiopia or Afghanistan.

    So, theoretically speaking, where Adam Smith seems to have gone wrong is assuming the Malthusian correction was permanently valid. It isn’t, and in post Malthusian societies, there is no hidden hand correction, because the population dynamics can spiral out of control. This is simply the intellectual foundation for a more sophistocated view of the whole issue. You cannot simply sit back and wait for this to “correct” or you will be swept away with the flood.

    Basically, I think those famous global “imbalances” which underpinned the most recent financial crisis are all about this, but that, here, is perhaps a side issue.

    Essentially, it is inherent to any post-traditional social structure (with or without the welfare state) that the individual can “free ride” the externalities which belonging to a society offers.

    The point is not whether pensions are private or public, but that you can, without having offspring yourself, save for your old age. But spending these savings depends on having a society which you yourself will have done nothing to reproduce. That basically is the “flaw” in the so called “liberal” argument. This was always Wittgenstein’s critique of Hayek. You can’t have freedom to exercise without a society in which to exercise it. But you can get the society for free, just like the fresh air you breathe, without contributing anything.

  3. Hi Charlie,

    “It’s fairly well established (I think) that freedom is not something that necessarily flows from rule of law and enforcement of contract; it’s possible to have a society where many citizens have relatively little freedom yet all contracts are honoured;”

    I think the thing is, it is not possible to have contract without having some form of society, however primitive, and it isn’t possible to have societies without having people. But modern societies have no inherent tendency to reproduce themselves, hence we are all free riding on the highway to (ultimate) nowhere, and producing a huge global roller coaster on the way. That’s my 2 cents worth.

    Clearly, if you didn’t have market economies, and financial markets to worry about, then perhaps none of this would matter. But we do, and I think we have a consensus that there is some value in trying to hold them together.

    Germany and Japan, as Claus is showing, seem to be on a path where ten years or so from now they will need exponential growth in exports simply to get basline economic growth and finance pension systems, and this is clearly impossible, so all of this is far from being a simple intellectual exercise.

  4. I suspect that retirement ages will have to go up. An economic compulsion to continue working might well come over as a hardship, but on the other hand, the abolition of compulsory retirement based on age seems to be a good thing, and I’d support it.

    However, employers often like to hire younger people. On the whole, they’re cheaper, and this fact stands out more than harder to measure concepts such as efficiency and experience (i.e. the skill of mistake-avoidance). Hence the retirement age issue is connected with the broader notion of fair pay. Should pay be linked to senority? Is seniority really a matter of age? These are all very sensitive issues for an employer, since tackling them threatens to overturn various justifications for unfair wage differentials.

    We’d also have to look at health policies: it’s no good having half your population clapped out because they’re obese, take no exercise, or have harmful dependencies of one kind or another. Again, all very difficult.

    But on a positive note, it’s possible that we could substitute a cultural norm where certain employees are justified their higher wages because they have family of school age. I think such a norm is already partly in effect.

  5. Come to think of it, has anyone tried correlating national fertility rates with national Gini coefficients?

  6. Edward – the reason piece is stupid, plain and simple. It is also ideological, in reducing everything to rational choice. Rational choice economics has ideological overtones, and these become especially clear when it is employed to explain phenomena that are not directly related to exchanges on markets. Reason, moreover, is an ideological libertarian institution.

    Economic incentives have something to do with birth rates at the margin, for instance whether you have a birthrate of 1.6 or 1.9 per woman. This is relevant in our European context, but the example used by the author is the difference with unfree, poor countries.

    However, the much higher birth rates in many third world countries can mostly be reduced to a single factor and that is access to birth control (you will now please note the number of times contraception is mentioned in the reason piece).

    Any economics article that says things like “William Easterly’s (2001) contention that economic development is the best contraceptive is consistent with the data above” but does not control for access to birth control (or indeed a dozen other plausible factors) should be laughed out as professional idiocy.

  7. National Gini coefficients have the problem that they don’t differentiate between intra and interregional wealth dispersion. Larger countries have more regions so their Gini is likely higher.

  8. Actually, a scattergraph of gini vs. TFR would show a very high level of correlation — certainly well over 0.5. Eyeball the gini list, and it pretty much jumps out at you.

    Unfortunately, both gini and TFR correlate with all sorts of other things, from literacy to life expectancy. So while there may be something there, teasing it out wouldn’t be easy.

    Doug M.

  9. Hi Nanne,

    “Edward – the reason piece is stupid, plain and simple.”

    Well this is your choice, it is, after all, your future, and that of your children we are talking about here.

    Personally, one of the reasons I walked away from “normal” economics as a young man is that I didn’t want religion, and never swallowed the idea that people was as rational as economists habitually assume them to be.

    That is why I am a “macro” economist, I deal in aggregates, and properties of large systems. I say it again, there is no homeostasis here. The imbalances will simply reproduce themselves. If we get out of the current crisis without breaking our necks, the next one, around 2018 – 2020 should be definive from this point of view.

    We all need to make changes.

  10. Problem with Charlie’s question is that if you include poor third world countries than the question has a duh answer. (Gini and TFR are much higher in Africa than in Europe.)

    If you don’t include the poor third world countries than the answer is much less clear but i think that this is the question Charlie is after.

  11. I think that’s more or less right – although you should probably bear in mind that I’m a non-specialist. It’d be an attempt to reveal the impact of policy choices in developed nations that have ‘achieved’ low fertility rates and, as such, are societies where birth control is widely available.

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