Free & Clear: April 2013

Time to tend to family business
By John Hood

In public-policy debate, economic and social issues often follow separate tracks. But when it comes to the family, the tracks converge. While people can continue to disagree about the religious or moral foundations of family life, there is simply no room for debate about the larger consequences of family stability. Higher rates of divorce and out-of-wedlock births raise the cost of government and, thus, act as a drag on economic growth.

In Raleigh and Washington, liberals and conservatives debate at the macro level whether taxes should go up or spending should go down to balance budgets, but they tend to miss the bigger story. Government is becoming a means of transferring money from one pocket to another rather than building productive assets such as infrastructure and a skilled workforce.

Social Security, Medicare, Medicaid, food stamps and unemployment insurance subsidize immediate consumption, not long-term investment. Entitlements and public assistance now account for the majority of federal spending and an increasing share of state budgets (primarily through Medicaid and unemployment benefits). They are growing far more rapidly than spending on education and infrastructure. In North Carolina, total state and local expenditures more than doubled during the last three decades, after adjusting for inflation and population growth. But that’s only an average. Medicaid and other health and human-services spending more than tripled, while highway spending grew at half the average rate — and actually declined in real terms in the past decade.

Two traditional roles of the two-parent family were to rear children and care for elderly parents. In the past, multigenerational households were common. The savings rate was much higher as working adults planned for their family responsibilities. As rates of divorce and single parenthood rose, so did demands for public assistance. More than 40% of North Carolina children now are born out of wedlock, roughly double the rate two generations ago. Two parents earning modest incomes of $25,000 each can form a middle-class household even when they produce multiple children. If the parents split up, or never get married in the first place, child support can’t make up the difference.

When people graduate from high school, work full time, wait until marriage before having children and avoid addiction, the likelihood they will spend significant time in poverty is minuscule — less than 2%. For every deviation from these rules of upward mobility, a household increases its poverty risk. Violate all of them, and your chances of living in poverty rise to nearly 80%. According to the Washington, D.C.-based Brookings Institution, almost all the increase in child poverty since the 1970s is attributable to rising out-of-wedlock births.

Some say such talk constitutes blaming the victim. Others throw up their hands and say poor people deserve what happens to them. Still others try to design government programs to combat divorce and single parenthood. None of those responses work. When we observe that young people often make poor decisions that affect the course of their lives, we’re not blaming the victim but recognizing something basic about human beings — that we’re flawed creatures who make mistakes, particularly when we lack experience, information or a long-term perspective.

As for the elderly, Social Security and Medicare were attractive deals when created in 1935 and 1965, respectively. That’s because the ratio of taxpaying workers to recipients was high. So both seniors and their adult children came to associate retirement with independent living. But the math doesn’t work anymore. If you are 45 today, you can expect to receive less in Social Security and Medicare benefits when you retire than you’ve paid in. If you’re younger, you’ll lose even more on the deal. If government responds by raising taxes to prop up the programs, that will further hamper economic growth.

It was a mistake to think government programs were fit substitutes for family members taking care of each other. The attempt has sometimes done more harm than good by facilitating family breakup or estrangement and has proven to be prohibitively expensive. I’m not inventing or idealizing a mythical past. Even when families were stronger, people fell through the cracks. Some needed help. But the government’s function as a safety net for the truly destitute who lacked family support was far more limited and affordable. It didn’t crowd out private investment (through higher taxes) or public investment (through ravenous entitlement programs) to the extent we see today. If our goal is a stronger economy, we will need stronger families that can produce healthy, productive children and care for aging relatives, thus imposing fewer costs on the public sector. It’s a challenging problem, admittedly, but an inescapable one. 

John Hood is chairman and president of the John Locke Foundation. You can reach him at jhood@johnlocke.org.