Fun With Math: Burdening Society by Having Kids Too Early?

Tom - June 11, 2007

Note: Thanks to the work of people who are way better at this kind of thing than I am, I learned that I was way wrong in discounting the time value of money in this analysis. I don’t have any experience with these kinds of problems, so my sense that the $800k gap in total contribution over 60 years would stand up even if we did take the time value of money into account was wrong. In the real world, the present value of the gap in contributions is probably actually closer to $100k.

Does having children early in marriage, perhaps even before you can take care of them without some outside assistance, cause one to add to society’s burden? In the short run, of course the answer is yes. What about the long run?

Consider two young Mormon couples, the Freeloaders and the Smugs (sorry—couldn’t resist). They have typical, Proclamation-friendly Mormon values. They are identical in the following ways:
—Right now (t=0) they are all 22 years old.
—The husbands went on missions and are just now starting identical educational paths that will lead them to an advanced degree and a salary of $100k per year when they reach age 30.
—Neither husband will have any income until age 30.
—The wives have just finished identical degrees with identical job prospects. They could both earn $35k per year now.
—Both families plan on having 4 children with two years between each child.
—Both families plan on having the mother work outside the home when there are no kids at home and not work outside the home whenever there are children under 18 living at home.
—They will all retire at the age of 65.
—The (identical) Freeloader children and Smug children will all be part of households that will have an income of $70k per year starting when they reach the age of 26.

The difference is that the Freeloaders have decided to try to have their first child when they are 24 (t=2) and the Smugs have decided to wait until they are 32 (t=10). Making timing of childbearing the only difference between the two families will allow us to isolate the effect of that choice. One way to compare the effects of the Freeloaders’ and the Smugs’ respective family planning choices is to look into the future, say, 60 years, and see how much money each family will have contributed to society in the form of income taxes paid.

For the sake of simplicity I’ll assume no inflation, an unchanging flat income tax rate of 35%, and unchanging salaries; this will simplify things and won’t much affect the outcome as far as the comparing the two family plans goes, at least I don’t think it will.

OK, let’s look at the taxes paid by the two families over time:

Freeloaders:
From t=0 to t=2, Mrs. Freeloader will make $70k and pay about $25k in taxes.
From t=2 to t=8, the Freeloaders will make no money and pay no taxes.
From t=8 to t=43, when he retires, Mr. Freeloader will make $3.5M and pay $1.2M in taxes.
From t=26, when Mrs. Freeloader goes back to work, to t=43, Mrs. Freeloader will make $600k and pay $210k in taxes.
From t=28 to t=60, Freeloader child #1 will make $2.2M and pay $780k in taxes.
From t=30 to t=60, Freeloader child #2 will make $2.1M and pay $740k in taxes.
From t=32 to t=60, Freeloader child #3 will make $2.0M and pay $690k in taxes.
From t=34 to t=60, Freeloader child #4 will make about $1.8M and pay about $640k in taxes.
By t=60, the Freeloaders and their children will have made $12.3M and paid $4.3M in taxes.

The Smugs:
From t=0 to t=10, Mrs. Smug will make $350k and pay $120K in taxes.
From t=8 to t=43, when he retires, Mr. Smug will make $3.5M and pay $1.2M in taxes.
From t=34, when she goes back to work, to t=43, Mrs. Smug will make $320k and pay $110k in taxes.
From t=36 to t=60, Smug child #1 will make $1.7M and pay $590k in taxes.
From t=38 to t=60, Smug child #2 will make $1.5M and pay $540k in taxes.
From t=40 to t=60, Smug child #3 will make $1.4M and pay $490k in taxes.
From t=42 to t=60, Smug child #4 will make $1.3M and pay $440k in taxes.
By t=60, the Smugs and their children will have made $10.7M and paid $3.5M in taxes

At t=60 the Freeloaders and their children will have contributed $800k more in taxes than the Smugs.

$800k is how much the Smug’s decision to put off children for 8 years would cost the government over 60 years. The Smugs and their children will eventually catch up to the Freeloaders. But taking into account subsequent generations, the Smug clan will never catch up to the Freeloader clan.

What’s more, at t=60 when the Freeloaders and Smugs are 82 years old and retirement savings may be running low, assuming equal spending and saving habits, the Freeloaders’ children will have more resources available for the support of Ma n’ Pa Freeloader than the Smugs’ children.

Can we really say that the Freeloaders’ choice causes them to become a burden to society? Not if we look long-term. Even if the Freeloaders’ decision leads them to receive tens of thousands of dollars in government assistance early in their marriage, their decision to have children earlier would still result in more money for the government in the long run.

Of course, investing in the Freeloaders, facilitating their earlier childbearing, has an opportunity cost for the government. It could invest the money in money markets or something. I’m not a financial guy, so I could be missing something important here, but I think that in order for the government to receive a payout of $800k at t=60, it would have to invest about $43k at t=0 at an annual interest rate of 5%.

Taking into account the time value of money (a dollar today is worth more than a dollar tomorrow), things get very complicated. The $800k difference over 60 years is really more than that because a lot of it comes before t=60. But the Smugs pay more taxes in the early years than the Freeloaders, so taking that into account would decrease the gap. But the Freeloader children start paying taxes sooner than the Smug children, so the time value of their contributions would widen the gap. I don’t have the time to figure all that out, but I don’t think that, on balance, taking the time value of money into account affects the conclusion that the Freeloader family contributes a lot more taxes than the Smug family over the long run.

None of this is to say that the Freeloaders’ choice is better than the Smugs’. There are many other, more important factors to consider when making these decisions than how much money for the government a given choice will generate. But one thing’s for sure: regarding the Freeloaders as burdens to society is short-sighted.

61 Comments »

  1. The other issue that will affect the gap is that the the smug’s contribution at t=0 through t=8 will not be 35%, but more like 20%.

    Further the Freeloaders will lose the child deduction 8 years sooner than the Smugs. This is at a time when the income tax burden is likely closer to 35%.

    Comment by Jay S — June 11, 2007 @ 3:50 pm

  2. Thanks Tom,
    Interesting math, however, the pieces that you don’t account for are critical. For example, if the Smugs are paying this money in the early years and one calculates the NPV (net present value) of that money today vs the money paid in the out years combined with the welfare benefits to the freeloaders you lose any benefit and, likely, the benefit flips to the Smugs given the fact that $1 today is worth a lot more than $5 in 60 years. So it is an interesting analysis, but does not tell me anything unless you calculate the time value of money – I will see if I have time to do that calculation. However, thanks for doing it.

    Comment by Devyn S — June 11, 2007 @ 3:52 pm

  3. Devyn,
    I’d definitely be interested to see the results after taking the time value of money into account. I don’t have a lot of natural feel for these kinds of calculations, but I’d be surprised if that big of a gap disappeared. The eight-year head start for the Freeloader children is big.

    Comment by Tom — June 11, 2007 @ 4:05 pm

  4. OK I will do the math at some point. The other issue is that if the Smugs wait 10 years to have kids, realistically the wife will get a graduate degree and earn a higher income than the freeloader wife.

    Comment by Devyn S — June 11, 2007 @ 4:11 pm

  5. Wouldn’t the NPV be determined by the fed bond rate?

    Comment by Jay S — June 11, 2007 @ 4:21 pm

  6. Yes, but we’re isolating one variable. Also, if she did that, she would give up the income in the early years and would only have a few years of work before having kids. Then, from t=26 to t=34 when Mrs. Smug is at home with the kids and Mrs. Freeloader is free, she could get an advanced degree and catch up. Further, Mrs. Freeloader’s career would be uninterrupted, so she would likely end at a higher salary than Mrs. Smug.

    We could tweak all sorts of things on either family, making one woman more career-oriented than the other, but I don’t think we have a chance of figuring this out unless we make the families identical except in the timing of childbirth.

    Comment by Tom — June 11, 2007 @ 4:22 pm

  7. #6′s “yes” is in response to Devyn’s #4.

    Comment by Tom — June 11, 2007 @ 4:23 pm

  8. I just did a spreadsheet calculation on just the couple’s income. I assumed a 3% wage increase, cutting out some for the wife’s return to work.

    I did a sum of the NPV of tax payments (including EITC txfrs to the freeloaders as Negative NPV, assuming a 5% rate), as well as a simple accumulation interest (add 5% each year, plus the tax paid in). Essentially I got the same value paid in. Alot varies depending on the tax rate early on, as well as the tax benefit given to children (i assumed cutting off at age 21 – 1k per child, increasing 3% a year, which i know is not as smooth a curve as in real life).

    There was a slight edge to Mr. & Mrs Smug, but that is before you consider the tax paid by the children. I chave posted the spreadsheet here
    http://spreadsheets.google.com/pub?key=pqfsjFLotazNv2DdTFVTcBw

    Comment by Jay S — June 11, 2007 @ 4:48 pm

  9. And I thought I had too much time on my hands.

    Comment by Susan M — June 11, 2007 @ 5:06 pm

  10. I’m not worthy. I gotta learn how to use spreadsheets. I was just contemplating making NPV calculations for all of the future tax payments, regarding them as future annuities that could be invested by the government at a real rate of return of 5% annunally. I got a headache just thinking about it, especially since I have no real experience working with NPV’s.

    The NPV of all of Mr. and Mrs. Smug’s future tax payments would have to be a bit higher than than the NPV of all of Mr. and Mrs. Freeloader’s because they’re paying more in the early years.

    And the NPV of all of the Freeloader children’s payments would have to be significantly higher than that of the Smug children’s payments because they’re paying sooner and for longer.

    So I’d bet that the NPV of all the future tax payments puts the Freeloaders in the lead.

    The question becomes how much could the government spend on the Freeloaders from t=2 to t=10 before that lead disappears?

    Comment by Tom — June 11, 2007 @ 5:10 pm

  11. OK I did the analysis as I am stuck here in the DC Airport waiting for a Boston bound flight. The NPV on the taxes in the scenarios you laid out is $294K for the Freeloaders and $335K for the Smugs based on a 10% discount rate – this is the value of the future tax payments at t=0. Therefore, those early working years of the wife make all of the difference. If I add in the costs of welfare to the freeloaders (cost incurred by government) and alter the Smugs wife income by two years (due to MS degree) and double her salary to $70K, then the difference is much more stark – $277K vs $425K. So the Smugs are the better tax payers….

    Comment by Devyn S — June 11, 2007 @ 6:11 pm

  12. That’s for the math Devyn, but what about the biology? A woman’s fertility drops sharply after age 27 (according the information I have). The Smugs aren’t even trying to have kids until she’s thirty. It’s most likely that there will be bigger space between the children than they had planned on, so the Freeloader kids would still be in the workplace years before the Smug kids. That’s assuming that the Smugs are physically able to have all the children they plan on and assuming that none of them are born with Downs Syndrome, which (as I understand) is fairly common for older mothers. How does the money (and time) put into fertility treatments or adopting affect this math exercise?

    Comment by Proud Daughter of Eve — June 11, 2007 @ 6:18 pm

  13. PDOE – interesting assertions, but realistically the falloff in fertility is more stark post 35 so the Smugs could have 3 kids by then. As for the infertility issues, I know a lot of couple who have issues when young too, so I don’t think that is an issue to consider here. As for the Downs syndrome, that is an issue for 40 year old mothers and older – so I dont think it is relevant.

    Comment by Devyn S — June 11, 2007 @ 6:21 pm

  14. Devyn,
    What about the children? That has to be taken into account. In today’s dollars they pay about $800k more than the Smug children by t=60 and they start eight years sooner. What is the NPV of the payments made by the children up to t=60?

    We have to keep everything identical besides time of childbearing. We can’t give Mrs. Smug an advanced degree unless we give Mrs. Freeloader one.

    If you’re talking about what’s most likely, if Mrs. Smug is career-oriented, gets an advanced degree, and puts off bearing children until age 32, she’ll probably only have two kids. Then the Freeloader children would end up paying about $1.4M more in taxes than the Smug children, and they would start sooner.

    Comment by Tom — June 11, 2007 @ 7:05 pm

  15. Maybe they would be better off to skip college altogether, learn a trade, and save a lot of money in their twenties. Then, they could be already earning more in investment gains, interest, dividends, etc. than the high-salaried by the time they start to work. However, since these are taxed at a lower rate, their contributions might be smaller.

    Comment by Bill — June 11, 2007 @ 9:11 pm

  16. Wow!, No one flinched when “an unchanging flat income tax rate of 35%,” was written, yet the Nephites cried until the Lord because their burden was 1/5 (20%).

    Your assumptions are wrong because you think paying 35% to a wasteful, bloated government is a good thing. If %35 is good then why not 70%?

    Perhaps you ought to run the numbers at the originally promised 2% “on the very wealthy”

    Comment by Daylan — June 11, 2007 @ 9:13 pm

  17. As for the Downs syndrome, that is an issue for 40 year old mothers and older – so I dont think it is relevant.

    It would be nice to cite sources–the charts I’ve seen show age 35 as the year when rates start increasing, with another increase at 42. (Having had two children between 35 and 40, my OB went over these risks with me a lot.)

    I wondered about the assumption of both couples retiring early….age 67 is the age for full social security benefits, for folks born in 1960 or later, and I expect that to move even later for their children.

    Comment by Naismith — June 12, 2007 @ 2:44 am

  18. Re #4. I don’t know why you would make that assumption. An advanced degree is not for everyone. Lots of folks are comfortable at the level they are functioning, and in many fields a graduate degree doesn’t necessarily translate to more money or a better job.

    And if someone wants an advanced degree, they can always get it later. I used graduate school as a transition back to the workforce after some years at home. If there is a university nearby or a reputable online program in her field, mom can go to school while the kids are in school.

    Comment by Naismith — June 12, 2007 @ 4:05 am

  19. Devyn and Tom,

    I see the debate shifting here.

    Before, we were debating whether folks like the Freeloaders were a collective “burden” on society.

    Now we seem to to be shifting the debate to whether the Freeloaders will be more of a benefit to society than the Smugs or vis versa.

    Keeping our eye on the prize, we need to be more focused on whether the Freeloaders are a burden, rather than whether they are out-competing the Smugs.

    Comment by Seth R. — June 12, 2007 @ 4:52 am

  20. I don’t think the debate has shifted. Tom did some math that was incorrect so I redid it. I think the net is that the two scenarios are roughly similar from the governments perspective. Honestly, who cares about the math. The important thing is still whether it is right to “take” money from the government just because you qualify to pay for your kids. We have beat that horse to death.

    Comment by Devyn S — June 12, 2007 @ 5:58 am

  21. Yes Devyn. We have.

    Which is why this thread is NOT re-hashing all the shoot-from-the-hip moralizing we’ve already done in threads on Mormon Mentality and here.

    Correct me if I’m wrong, but I don’t think this thread is about whether or not it is generally “right” to take government money. It’s merely exploring whether society gets a monetary net gain or loss from the decision.

    Comment by Seth R. — June 12, 2007 @ 7:06 am

  22. Devyn: Honestly, who cares about the math.

    I do. I honestly want to know the quantitative effects of the two alternatives on society. I’m not trying to figure out the rightness or wrongness of the two alternatives.

    The important thing is still whether it is right to “take” money from the government just because you qualify to pay for your kids.

    This is not a thread about morality. It’s a thread about math. Specifically, it’s about the effects on society of having children early rather than late.

    I’ve moved past the question of rightness or wrongness of taking assistance one could do without, whether it be in the form of cheese or in the form of money for higher education. Since I haven’t seen anybody offer the moral principles upon which their negative judgments are based, I can’t help but believe that the negative judgments are based on an irrational stigma. I’m still agnostic on the question. I’m open to being persuaded one way or the other, but not on this thread. This thread is about math.

    Comment by Tom — June 12, 2007 @ 7:08 am

  23. Correct me if I’m wrong, but I don’t think this thread is about whether or not it is generally “right” to take government money. It’s merely exploring whether society gets a monetary net gain or loss from the decision.

    Right.

    It’s clear that neither the Freeloaders nor the Smugs can be regarded as burdens to society in the long run. They are all assets for many reasons, not just because their monetary contribution to society is net positive.

    But it could still be true that the Freeloaders’ family planning model results in more or less money contributed to society. That math problem hasn’t been solved yet.

    What has not been disputed yet is my assertion that, given identical spending and saving habits, the Freeloader chldren will be in a better position to support their parents as they age than the Smug children will be. If that’s true, then that’s a definite gain for society.

    Comment by Tom — June 12, 2007 @ 7:16 am

  24. Daylan (16),
    Rather than debate rate structures (which, FWIW, a Nephite 20% would likely be unrelated to a marginal 35% rate), realize that, in discussing theoretical tax policy, round numbers are used. “35%” is a shorthand way of dealing with a 35% marginal rate on income over, say, $180,000 (or whatever it the current rate structure is). It’s easier, for illustrative purposes, to imagine a two-rate structure at 20% and 35%, while keeping in the back of your mind that a 35% marginal rate payor is probably paying somewhere around 17% net.

    So, although I disagree with your premise that anything above 20% net tax is inherently too burdensome, you don’t need to worry about nobody blinking at a higher theoretical rate. Because Tom was playing with numbers, as long as he was consistent, it doesn’t matter if he said 2% or 99%; the math would lead to the same result (which seems to be Devyn’s—net, the government gets roughly the same NPV from both, because Mrs. Smug’s frontloaded taxes are worth a lot more today than the Freeloader kids’ taxes 22 years from now).

    Comment by Sam B. — June 12, 2007 @ 7:18 am

  25. Tom (23),
    But, as my wife pointed out, supposing the Smugs put their excess money into 401(k)s and various IRAs and other retirement vehicles, they don’t need their kids to support them, because, again, they’ve frontloaded and invested the money. (I realize that you say assume similar spending and savings habits, but, unless the Smugs seriously outspend the Freeloaders in the first ten years, you have to assume that the Smugs put away a certain amount of money.)

    Plus, as my wife points out, how many kids support their parents in retirement anymore? And how many will be able to afford to in 80 years? I realize that’s the traditional model, but I don’t know that it applies in today’s world. (That said, both my parents and my in-laws help, to some extent, with their parents.)

    Comment by Sam B. — June 12, 2007 @ 7:22 am

  26. Since I haven’t seen anybody offer the moral principles upon which their negative judgments are based, I can’t help but believe that the negative judgments are based on an irrational stigma.

    Tom – what about the moral principle of self reliance discussed by Church leaders? These Church leaders certainly had “negative judgments” against people who relied on governmental assistance instead of providing for their family’s own needs. Additionally, what about the moral principle that when a limited amount of money is available to help people worse off than you are, you should choose to not take that money – even if you are “entitled” to it?

    And as we can see by the scarcity and rationing of WIC dollars in California and in other states, there is both a moral and rational basis for people to decline governmental assistance, even though they may qualify to receive it.

    Comment by ECS — June 12, 2007 @ 7:23 am

  27. I think that one thing that should be added to the equation is the likely case that the freeloaders will have grandchildren earlier who will enter the workforce earlier then the Smugs.

    Also the tax calculation seems off to me. Middle class LDS families end up paying very little in Federal income taxes. The tax code (rightly in my view) rewards those who pay tithing, have a mortgage etc. The Child tax credit of $1000 per kid also really cuts into the actual taxes paid. 25-35% is simply to high for large LDS middle class families under the current tax code. Even with SS, property taxes and sales taxes I doubt that 25-35% is the right number

    Finally I find it unlikely that the Smugs will actually have 4 kids. Usually families like that have 2 maybe 3 at most. Time and age simply catches up with them and the Mom usually keeps working. Then they pay even more in taxes…..

    Comment by bbell — June 12, 2007 @ 7:23 am

  28. bbell,
    Finally I find it unlikely that the Smugs will actually have 4 kids.

    Yes, but we have to make everything besides time of childbirth equal in order to easily determine the effect of that variable.

    Comment by Tom — June 12, 2007 @ 7:32 am

  29. ECS,
    I shouldn’t have said anything about what I thought was lacking in the reasoning behind the condemnation because I want to focus on the question at hand. I’ll respond to your comment on the “The Old Welfare Question” thread.

    Comment by Tom — June 12, 2007 @ 7:37 am

  30. Seth R:

    This thread is just about using different criteria for moralizing about accepting government benefits. You seem to take offense at systems that deontologically declare accepting government benefits as morally repugnant and prefer a more utilitarian approaches like the tack Tom is taking here. Don’t confuse your preference for one moral system as the absence of moralizing on yours or Tom’s part.

    With that out of the way. I spent about ten minutes putting together a spreadsheet to calculate the NPV of the “family” contribution to the government. I changed a few of the assumptions to more accurately reflect real life.

    - Effective tax rate of 20% (after deductions this is actually what the average taxpayer in the $85-115k income range pays in both combined federal and state income taxes).
    - I ignored inflation but given that these hypothetical jobs typically show income increases that outpace inflation I tacked on a “productivity” factor of 1.5%. The result is that when Dad starts his $100k/year job at Y8 he’s actually earning ~$113k. All the other hypothetical jobs behave the same way.
    - Annual government benefits for years where income = $0 I estimated at $25k. That’s meant to account for medical care for the family, nutrition, and rental subsidies. I took national averages to arrive at the $25k but the variance is huge (could be as littel as $11k in Mississippi or as much as $45k in Massachussets).
    - Mom takes a 25% hit in annual income when she re-enters the work force after 18 years.
    - I used a 4.5% discount rate (long-term average yeild on 10-year US treasuries)

    The results (for those who’ve been waiting with baited breath)? It’s a wash. The “Smugs” get a slight advantage (NPV is $835 versus $825) but for all intents and purposes in this scenario both families contribute equally. But move the “Freeloaders” to the Commonwealth of Massachussetts and it’s a different story ($835 v $730) or increase the discount rate to 6% and the “Freeloaders” really start to become a burden on society (and I define burden as taking more than they contribute). The initial assumptions have to become quite fictitious for any scenario to show the Freeloaders actually contributing more than the Smugs. If anyone would like to see the details I’d be happy to email the spreadsheet. It’s built so that you can play around with the inputs to see what results you get.

    Comment by endlessnegotiation — June 12, 2007 @ 7:40 am

  31. Tom,

    An even more interesting comparison would be to compare the Freeloaders with a non-LDS married couple who got married at age 35 and had 1-2 kids. Run the comparison out over 3-4 generations or so. Keep the birthrate for 3-4 generations relatively constant and the timing of the births the same.

    Comment by bbell — June 12, 2007 @ 7:41 am

  32. Tom – don’t worry about responding (we’ve been through this before). I agree with endlessnegotiation’s comment #30.

    Comment by ECS — June 12, 2007 @ 7:44 am

  33. bbell:

    The value of the out-years becomes so inconsequential that any sort of multi-generational analysis becomes superfluous. Really, the dollars after Y30 contribute so little that I could run this scenario for only 30 years and get the same result.

    Comment by endlessnegotiation — June 12, 2007 @ 7:59 am

  34. Enlessnegotiation:
    First, thanks for the numbers.

    Again, which one contributes more over the long run doesn’t determine which alternative is right and which is wrong. I said before that there are much more important factors to take into account.

    . . . increase the discount rate to 6% and the “Freeloaders” really start to become a burden on society (and I define burden as taking more than they contribute).

    Do you mean that the NPV of their family contribution over 60 years becomes negative?

    I’d be interested to see a comparison of just the PV of the family tax payments over 60 years. The difference would be equivalent to the PV of the payments that the government could make to the Freeloaders from t=2 to t=10 before their earlier childbirth starts costing the government more than it benefits the government, right?

    Comment by Tom — June 12, 2007 @ 8:02 am

  35. Also,
    How would one determine what the right discount factor is in this kind of scenario?

    Comment by Tom — June 12, 2007 @ 8:23 am

  36. Although I let the numbers game go over my head (I hate calculations, and although I shouldn’t, I love “black-box” mathematical models), I am finding this discussion really interesting. I admit to being surprised at the results: I wouldn’t have thought that it would be such a wash. Thanks, Tom, for bringing a bit of (semi) objective fact to this (endless) debate.

    And I love the names (Freeloaders and Smugs)–hee, hee. It gives me the giggles to see all the serious math and discussion about “Mrs. Smug” and “the Freeloaders’ kids”.

    Comment by Keryn — June 12, 2007 @ 8:24 am

  37. Keryn,
    It’s all fun and games until someone doesn’t capitalize Freeloader or Smug.

    Comment by Tom — June 12, 2007 @ 8:33 am

  38. Tom:

    With a 6% discount rate the Freeloaders never approach a negative NPV but at that discount rate their contribution to the government amounts to $460k versus the Smugs at %530. The burden to society arises because their choices mean that they contribute less than they otherwise could have done by merely delaying the arrival of their children. The morality of the situation given your chosen moral system is about maximizing the return to government– not about absolute value to government.

    As for the PV of just the inflows between the two families, of course the Freeloaders contribute more in taxes ($942 v $835). But ignoring what they take from the till is like the battered woman who emphatically states, “If you ignore that my husband beats me he’s a very loving man.”

    Comment by endlessnegotiation — June 12, 2007 @ 8:35 am

  39. Tom:

    The discount factor represents the opportunity cost to government of foregoing a dollar in tax revenue. That means that the government would have to borrow that dollar today as opposed to collecting it. Therefore, using a discount rate that centers around government borrowing instruments would make the most sense which is why I used the 10 year treasury note which happens to be the least volitile.

    Comment by endlessnegotiation — June 12, 2007 @ 8:40 am

  40. “You seem to take offense at systems that deontologically declare accepting government benefits as morally repugnant and prefer a more utilitarian approaches like the tack Tom is taking here. Don’t confuse your preference for one moral system as the absence of moralizing on yours or Tom’s part.”

    Oh, I’ll agree that I’m merely substituting one form of morality for another. But I would remind you that that’s what this thread called for. It never tried to say there might be OTHER moral reasonings and calculations that are relevant to the ultimate question of using government benefits.

    Comment by Seth R. — June 12, 2007 @ 8:51 am

  41. I ran another scenario where both spouses worked part-time during the child-rearing years which does three things:

    1) It contributes tax dollars early in the model
    2) Mitigates the 25% hit mom takes when she re-enters the work force.
    3) It reduces government expenditures by half during the years mom alone is supporting the Freeloaders with a part time position.

    The result is that under this scenario the Freeloaders actually surpass the Smugs in what they contribute to the government. Interesting, I think.

    Comment by endlessnegotiation — June 12, 2007 @ 8:55 am

  42. Endless – could you post that as a googlespreadsheet?

    also, I would be interested to see what happens when you take out the welfare/social programs given. Or only go “negative” on EITC contributions.

    I imagine this would have a large impact on the results.

    Other than that I appreciate your methodology endless.

    Comment by Jay S — June 12, 2007 @ 8:57 am

  43. But ignoring what they take from the till is like the battered woman who emphatically states, “If you ignore that my husband beats me he’s a very loving man.?

    I\’m not ignoring what they take. I just wanted to know what the difference in PV was so I could know how much government could contribute to the Freeloader family before their NPV goes below the Smugs. The answer using your numbers: a PV of $942k – $835k=$107k. I would expect the Freeloaders to get most of their support from student loans from t=2 to t=10. They might or might not exhaust that $107k. That educational debt adversely affects their retirement savings, though.

    Comment by Tom — June 12, 2007 @ 9:25 am

  44. With a 6% discount rate the Freeloaders never approach a negative NPV but at that discount rate their contribution to the government amounts to $460k versus the Smugs at %530. The burden to society arises because their choices mean that they contribute less than they otherwise could have done by merely delaying the arrival of their children.

    OK. I would define being a burden as having negative NPV. Both families are assets to the government. But with the assumptions you make about how much government assistance they would take, their choice to have children earlier does “burden” the government to the tune of $70k over 60 years.

    The morality of the situation given your chosen moral system is about maximizing the return to government– not about absolute value to government.

    I don’t think that the morality of the choices is determined by their respective returns to the government.

    Comment by Tom — June 12, 2007 @ 9:33 am

  45. Oh, sorry. The burden at endless’s original discount rate is $10k over 60 years. It’s $70k for the 6% discount rate.

    Comment by Tom — June 12, 2007 @ 9:40 am

  46. Seth: It never tried to say there might be OTHER moral reasonings and calculations that are relevant to the ultimate question of using government benefits.

    Actually, my post said this:

    None of this is to say that the Freeloaders’ choice is better than the Smugs’. There are many other, more important factors to consider when making these decisions than how much money for the government a given choice will generate. But one thing’s for sure: regarding the Freeloaders as burdens to society is short-sighted.

    Comment by Tom — June 12, 2007 @ 9:47 am

  47. Tom

    The morality has to be based on relative rather than absolute outcomes in a utilitarian system otherwise you would have to attribute moral equivalence to all families that produced a positive net income to the government even if that contribution only amounted to $.01. Plus, any family representing a net drain on the government coffers would be considered morally repugnant. Such an apporach completely ignores those who, because of conditions beyond their control, will always represent a net drain to the public till (i.e. the severly retarded, severely disabled, the mentally ill). All in such conditions would be considered morally deficient if we measured them based solely on their absolute contribution. But if we make the morality of the situation about what decisions could be taken that would either increase or decrease an individual’s contribution to the public till then we can more accurately and equitably judge the morality of those decisions.

    The specific example that started this whole conversation is about the choices Mormon grad students take when deciding when to have children and whether or not to accept public assistance in order to facilitate those decisions. Looking at the situation purely from a “contribution” standpoint it’s obvious that, at best, the decision by the Freeloaders to have their kids early is morally neutral. If that’s where you’d like the conversation to end then I think you now have the answer. Personally, I like to try and use a number of different ethical systems when judging a decision. I must admit I fall into the camp of “the Freeloaders are immoral” for a multitude of reasons with the relative contribution to the public till being one of the least important factors.

    Comment by endlessnegotiation — June 12, 2007 @ 10:13 am

  48. I tried publishing at Google Sheets but I don’t think the formulas copied from Excel to the Google ap. Anyway here’s the link.

    http://spreadsheets.google.com/pub?key=pWHHkWRavGAXYyUmpnxO8MA

    Comment by endlessnegotiation — June 12, 2007 @ 10:23 am

  49. endlessnegotiation,
    How many times to I have to say that I don’t think that the net contribution that results from the choices determines the morality of the choices?

    I know that this happens in the context of the debate about whether or not it’s OK to do as the Freeloaders do. The only way this fits into that debate is if one judges the Freeloaders as immoral on the basis that they burden society. This kind of analysis can show whether that specific judgment is valid. But I agree with you that it can’t show which choice is the better one.

    Comment by Tom — June 12, 2007 @ 10:42 am

  50. What is interesting to me is the following.

    You can find GA quotes and teachings that condemn both….

    Delaying children after marriage

    Relying on public welfare when you are able bodied.

    Both the Freeloaders and the Smugs are wrong????

    Comment by bbell — June 12, 2007 @ 11:05 am

  51. They have both temporarily sacrificed pursuing one good for the sake of another good.

    Comment by Tom — June 12, 2007 @ 11:08 am

  52. only way this fits into that debate is if one judges the Freeloaders as immoral on the basis that they burden society.

    A reasonable argument could be made, however, that “burden society” includes driving up the costs of WIC and Medicare.

    Comment by ECS — June 12, 2007 @ 12:26 pm

  53. (Medicaid – not Medicare)

    Comment by ECS — June 12, 2007 @ 12:46 pm

  54. Tom:

    The problem is that your definition of “burden” is meaningless. The burden arises when choices we make result in suboptimal outcomes. With respect to the Smugs and the Freeloaders it becomes readily apparent that under the most reasonable scenarios the Freeloaders are making a sub-optimal choice for society and therefore their decision is unethical. To tie that reasoning back to the Gospel, we’re taught that we will be judged based on our capacity for growth. We’re also taught that not everyone comes to earth with the same capacity. If we knowingly make suboptimal decisions here on earth then we’ll be judged accordingly.

    Further you quip, “They have both temporarily sacrificed pursuing one good for the sake of another good.” Actually, that statement is completely misleading unless you attribute moral value to the absolute accumulation of wealth. The Smugs are sacrificing six years of joy they might experience from having children earlier. The Freeloaders are not making an equivalent sacrafice. In fact they are hoisting a sacrafice onto the rest of society by making a suboptimal decision. Where is it written that it is moral to force others to bear your own burdens?

    bbell:

    I think you set up a false dichotomy my eliminating a vital component of the counsel to avoid delaying reproduction after marriage. I think the counsel falls more in line with warning couples not to unnecessarily delay having children. I think the ability to afford them on one’s own is a necessary condition to making the decision to reproduce.

    Comment by endlessnegotiation — June 12, 2007 @ 1:29 pm

  55. Endless,

    I think it depends on what year and what GA on the delay family question. Its pretty fair to say that there is a body of GA quotes that would back up my post. One big question is how current is the advice………

    I personally think that things are more nuanced then my post suggested.

    Comment by bbell — June 12, 2007 @ 1:43 pm

  56. Endless,
    Both families are assets to society. They can benefit society more or less depending on the choices they make. I already acknowledged that it could technically be said that, using your numbers, the Freeloaders’ decision “burdens” society to the tune of $10k over 60 years. But neither can reasonably be considered a burden to society over the long run.

    With respect to the Smugs and the Freeloaders it becomes readily apparent that under the most reasonable scenarios the Freeloaders are making a sub-optimal choice for society and therefore their decision is unethical.

    I must have missed where this was determined. You called it a wash. And that was assuming that the Freeloaders receive $25k per year in government assistance. But if they don’t receive a PV of $107k in government assistance more than the Smugs, then their decision is “more optimal” and, by your definition, the Smugs’ decision to put off childbirth burdens society and they’re the unethical ones.

    I think it’s best not to make moral judgments based on how a given choice affects the NPV of government receipts over the long run.

    Comment by Tom — June 12, 2007 @ 2:41 pm

  57. We can run scenarios until the cows come home, but the math that matters is that the Freeloaders are taking from the Government, while the Smugs are not in the early years, but over time it equals out to some extent IF you include the children. For me, I don’t care what happens with the next generation – my situation is very different from my parents. Endless makes some great points, but in the end, the Smugs will justify their position and decisions as will the Freeloaders.

    Comment by Devyn S — June 13, 2007 @ 5:20 am

  58. “The Smugs are sacrificing six years of joy they might experience from having children earlier. The Freeloaders are not making an equivalent sacrafice.”

    endless, I don’t know about you, but I consider early childrearing to carry its own sacrifices. There’s a reason why is isn’t very fashionable anymore.

    Comment by Seth R. — June 13, 2007 @ 7:09 am

  59. Moving away from moralizing about the hypothetical situations presented (for the record, I don’t know anybody who has taken either path), and looking at it from the perspective of a citizen concerned about the long-term health of our economy and government, I would say that both family planning models are great. They both end up producing productive citizens and generating a lot of government revenue over the long run. However, looking at all the problems with population decline in Europe, all else being equal, I would prefer that people have more kids sooner if they can do so without incurring excessive costs. (Again, this doesn’t mean that I would judge the Smugs or Freeloaders negatively for their personal decisions, nor does it mean that everyone should have as many kids as they can as soon as they can; I’m talking large-scale, long-term here.) With the long run in mind, I would also support the government taking reasonable measures to facilitate (or at least mitigate the financial risk of) bearing children early in marriage, just like I would support reasonable measures that facilitate getting advanced degrees before one becomes financially secure. I would even support measures that mitigate the financial risk of bearing children early in marriage while getting an advanced degree (gasp!) at the same time.

    Comment by Tom — June 13, 2007 @ 7:59 am

  60. Tom – Europeans have access to free health care, higher education, and generous family leave policies (including) paid maternity leave. Under your scenario #59, European social policies and incentives should increase the European birth rate. Clearly, government benefits are a small (if not irrelevant) factor in choosing an optimal family size.

    Comment by ECS — June 13, 2007 @ 11:54 am

  61. Do we have a good control so that we know what happens without any of those kinds of measures under similar social conditions? Could it be that fertility would be decreasing faster without those measures?

    I realize that creating healthy fertility rates through government actions is complicated business. But it’s worth trying to figure out. A lot of it probably has to do with factors in the broader social climate beyond just financial support. I don’t know if it’s urbanization or materialism or declining real salaries or what that’s causing us to have fewer and fewer children in the developed world, but whatever it is, it has me concerned about the long-term stability and prosperity of our society.

    Comment by Tom — June 13, 2007 @ 12:50 pm

Leave a comment

RSS feed for comments on this post.
TrackBack URI