Worst of Both Worlds

Richard A. Epstein

8 Anne Alstott has proposed the creation of a caretaker resource account that would give a $5,000 annual grant to one parent of each child under the age of 13 for child care, parental eduction, or parental retirement benefits. This proposal, which she estimates will come at a cost of $100 billion per year, follows on the heels of her earlier proposal with Bruce Ackerman to give every American an unconditional grant of $80,000 when he or she turns 21. Measured against that baseline, it shows vast restraint in the expenditure of public resources. But by any other standard, it is both an intellectual and a political nonstarter.

The politics are easy to understand. We are now in a period of record deficit spending brought on by a profligate president and a compliant Congress. (No, it is not the tax cut but the spending that causes problems.) The estimated cost of the latest prescription-drug caper, the recent Medicare bill, was a modest $400 billion in 2003, only to increase by about 50 percent by early 2004 after the bill was passed. There is simply no money in the till to fund rickety new programs that will quickly outgrow their ostensible resource base.

The intellectual case against this program is, if anything, stronger. In making her argument for these caretaker accounts, Alstott claims, falsely, that the principle of autonomy guarantees all individuals a resource base sufficient to lead a meaningful life when all it requires is that individuals be allowed to make choices for themselves using the resources they have available. Then she reminds us of the enormous sacrifices and burdens that parents, especially mothers, have to make for their children. These parents should not be put between a rock and a hard place. Finally, she hits defenseless libertarians over the head for taking the heartless position that so long as parents know the long-term commitments that they make when they choose to have their children, then they have to abide by the consequences of their choices.

There are many cases in which this assumption-of-risk argument should carry the day, but this is not one of them. The great danger of the argument in this context is that it assumes prospective parents have to make do with any social arrangement no matter how unjust. The notice that hard times are ahead surely counts, because it allows prospective parents, like everyone else, to mitigate the damages of unjust social arrangements. But notice of these conditions does not give any hint one way or the other about which kinds of social arrangements are just. No libertarian should rest their arguments on such flimsy grounds in opposing yet another transfer system.

The source of our opposition is systematic and structural. Alstott makes the common mistake of so many statists. Once she has established to her satisfaction the injustice of the status quo, and once she hears the special pleas of her favored constituency, she leaves all other social arrangements in place and adds on her preferred subsidy. This is a poor Band-Aid fix. At no point does she ask whether the proper way to handle the plight of many parents is to remove the burdens that they are asked to bear in order to supply costly subsidies to others.

A start to this second approach is no further than a pay stub away. All parents of young children have to pay into the Medicare kitty for senior citizens, many of whom have wealth far beyond their own: after all, everyone knows that old people with declining skills face challenges that younger people do not have to cope with. And they must pay income tax to fund schools, including teachers' unions, and comply with a set of dizzying mandates, including the Bush administration's meddlesome No Child Left Behind Act, which does nothing to alleviate the fundamentally monopolistic structure of public education that these strapped parents are forced to support even if they send their children to private school. Add into this stew the huge set of farm subsidies and protective tariffs that mark, and mar, the political programs of both major parties. Let these programs be dismantled and the real income of all families, with and without children, will rise to achieve the objective that Alstott wants. She has forgotten the first principle of welfare economics: you cannot bring about social improvements by shrinking the size of the overall pie with another round of transfer payments. All you get is rent-seeking on the one side and diminished incentives to create wealth on the other.

In this case, moreover, the proposed form of the subsidy is entirely otiose. Alstott is rightly worried that selfish parents would just take a $5,000 check and spend it at the local pub. In order to forestall this unhappy eventuality, she proposes restricting the use of the money to child care, education for the parent, or retirement benefits for the parent. These ostensible restrictions will only create administrative headaches. But they will not transform family behavior any more than an unrestricted grant of $5,000 would. All dollars are perfectly fungible. The key question is whether the ordinary family of four with $50,000 in family income would choose voluntarily to spend $5,000 on the list of permitted activities. It is the rare family that would not. The net effect is that this grant will be applied to these purposes, freeing up income from other sources for ordinary consumption. All the program amounts to in practice is a wealth transfer made more palatable by a bit of old-fashioned guilt.

This proposal thus represents the worst of both worlds. It uses ineffective means to achieve undesirable goals. It won't fly. <

Richard A. Epstein is the James Parker Hall Distinguished Service Professor at the University of Chicago and the Peter and Kirsten Bedford Senior Fellow at the Hoover Institution.

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Originally published in the April/May 2004 issue of Boston Review.