Paying mothers to have children must stop

Gary S. Becker is a Nobel Prize-winning economist from the Chicago School. His revolutionary idea was that people, often unbeknown to themselves, make decisions on the basis of a cost-benefit analysis. For instance, whether to marry or commit crimes are subjected to this analysis.

The implications of the Becker theory were not immediately apparent, but over time governments grasped the policy implications. It meant that if you wanted to reduce crime then you needed to either lower the benefits of crime or increase the costs.

(Unfortunately, governments misapplied this theory. Becker made it clear that most people break laws after assessing the likelihood of getting caught. This includes violent crime, speeding and illegal parking. The costs are almost incidental as most people who infringe laws assume that the cost is zero because they have already figured that the likelihood of discovery is very small. In other words, the best way to reduce crime is to increase the likelihood of capture.)

Becker also turned to the question of welfare and how it impacted on people’s behaviour. His most controversial conclusion regarded the single mother pension. In short, Becker showed that if you pay single mothers on the basis of the number of children they have, you create an incentive for single parents to have more children. It has been shown that this causes more harm in health, educational, employment, life expectancy, crime outcomes and so on.

This analysis more than anything else drove the conservative agenda in the US calling for welfare reform. For decades progressive thinkers, on both the Left and the Right, argued vehemently against single mother benefits because of the harm it was causing children. Conservative Left-wingers contended that stopping single mother payments would only hurt the capability of single mothers to look after their children.

Under Bill Clinton and Newt Gingrich, single mother benefits were moved away from payments on the basis of the number of children towards helping single mothers find employment through upskilling and child care provisions. Once again this change was contemplated because a substantial amount of research showed that children brought up in households where the provider had some form of employment had better health, employment and educational outcomes.

This debate was reflected in Australia in the lead up to the 1996 federal election when several Liberal politicians criticised the Keating Government’s $500 upfront payment to pregnant women. Their criticism was largely based on Becker’s analysis.

Little research was done on the impact of the Keating initiative, however, anecdotal evidence from social workers was that the program created substantial incentives among welfare recipients to have more children regardless of their capability to provide for more children.

Given the weight of research: why would a government provide an incentive for parents to have more children? Such schemes are curious and perplexing. A so-called baby bonus would have the policy purpose of helping to ease the financial burden of the birth of a child. This is presumably to improve fertility rates in Australia.

However, what Becker’s analysis shows is that this payment is likely to impact most effectively with people on lower and fixed incomes. Those people on higher incomes, for whom the payment is somewhat negligible, would not consider it a relevant factor in their benefit cost analysis. On the other hand, people on welfare would find the benefit cost analysis substantially improved.

And who are those on the lowest and fixed incomes? Single parent households. The very same households that decades of research have shown were most badly served by a policy of paying mothers for having children. It would be interesting to see which areas have had a substantial increase in births in the past few years.

For many women the cost of having a child is the time taken out of the workforce, the isolation of raising a child in the early years, and the difficulty of finding adequate, affordable and flexible childcare when they want to re-enter the workforce. Substantially reducing these costs, as has been done in Scandinavian countries, is probably a better and healthier way to improve Australia’s fertility rate.

The policy objective itself is also interesting. It is not like the world needs more people. And it is not like Australia has problems finding people - skilled or unskilled - to come to this country.

And what we do know from over four decades of research is that welfare programs that encourage single parent households to have more children are destructive and counterproductive in the short and long run, especially for the children and mothers.

Earlier this year, the outer Sydney suburb of Macquarie Fields was in riot. The cause is often sheeted home to the slow police response. Most social scientists would sooner conclude that the causes of this riot happened over several decades. A combination of poor housing development, a lack of social infrastructure, a welfare state that perpetuated problems it was meant to fix, and a general lack of investment in human capital.

How payments for simply having children helps resolve problems like Macquarie Fields is a mystery. It has created a situation in which households that are least able to afford children in terms of time and financial burden have more children.

Finally, there are the tax consequences of running social policy through the tax system. As The Australian reported (30/11/05) growth in deductions have far outstripped growth in salaries:

Wages and salaries declared to the tax office have risen by just 5.6 per cent a year … Capital gains have soared by almost five times that amount, at 27.3 per cent.

Rental deductions (8.9 per cent a year) have been growing faster than rental income (7.9 per cent) and work-related expenses (8.5 per cent) are out-pacing wages and salaries (5.6 per cent) - despite repeated crackdowns from the tax office to curb claims.

Using the tax system to promote social outcomes only encourages this sort of perversion, where the rich pay less and the poor and middle classes keep paying more.

Payments tied to the production of children, and not tied to other outcomes, promotes social outcomes that are perverse and harmful, environmental outcomes that are an anathema to our survival, and only serve to hurt the people they are meant to help through a tax system that increasingly resembles a piece of Emmentaler cheese. Such payments should be scrapped before they do any more harm.