Should policy assume that people know what is in their best interest? That is a question looming over policy debates around “child allowances.” The American Rescue Plan Act includes a temporary expansion of the child tax credit, effectively creating a child allowance of $3,000 to $3,600 per child set to expire at the end of 2021. The allowance is more generous than the tax credit, paid monthly, and extends to non-workers.
Conservatives, including this author, have pushed back against this proposal (and the ambition to make it permanent) by arguing that it runs the risk of increasing the number of single parents, and more specifically, the number of non-working single parents. A child allowance might reduce poverty in the short-run, but it could stand in the way of increasing upward mobility and reducing entrenched poverty in the long-run.
Many child allowance advocates, however, have taken a different position. So what if more people choose single parenthood or non-work over marriage and work? Who are we to worry? People know best what is in their own interest and in their children’s interests. Why should we make benefits conditional on work anyway?
Apart from the potential costs and consequences of unconditional cash transfers, we should recognize there are also purely principled reasons to object to them. If I could command every taxpayer in America to give me $1, the resulting $150 million would, I’m pretty sure, change my behavior in a variety of ways. I might very well be the best judge of how to live my life in my new circumstances. But of course, there is a non-negligible question: Do I have the right to expect every taxpayer to pay me $1 so I can re-optimize in line with my preferences and my new looser budget constraints?
The notion that public support comes with reciprocal obligations was once so widespread that it was recognized in the concept of the “social contract,” a term that seems to have fallen out of usage. If some low-income families work to support themselves, should their tax dollars subsidize similar families who could support themselves but choose not to? Do people who prefer not to work or to have children without marrying have moral claims on others to financially support their preferences?
Many progressives would seemingly prefer to skip right past these questions in asserting that to reduce poverty we should just give people money because they know best what they need. But just because some families need our help and cannot support themselves does not mean that we should stop expecting most families to support themselves independently.
Good for Me — Good for You?
Principled objections aside, the view that people always and everywhere know what is best for them and their children is naïve on multiple levels. First, what is good for any one person may not be good for others, whether those others are one’s children, one’s neighbors, or one’s fellow citizens. The reason that the social contract is a thing, is that cash without conditions is appealing to individuals but potentially dangerous to society as a whole.
The field of family economics has long recognized what any parent knows, which is that the interests of children and parents do not always fully align. This tension can become especially difficult in challenging circumstances such as when unhappily married parents are considering divorce. Surely most parents in such circumstances give at least some weight to what is best for their children. There is a reason why in the models produced by family economists, children’s “utility” (their subjective well-being) is a consideration when parents make choices affecting their own subjective well-being, but it does not solely determine their decisions.
Even if one parent in an unhappy relationship prioritizes the needs of her children highly, the other parent may not. If a child allowance convinces one parent to leave because his partner can raise a child without him, it matters little that the single mother left behind “knows what’s best” for her children. And there are more tragic circumstances where there is no parent who can or will put their child’s interests first, which is why we have foster care.
The choices of individuals maximizing their own subjective well-being also can impact other people in negative ways. The term used by economists to describe this idea is “negative externalities” — costs that are not fully absorbed by the individual making a choice. If individual choices hurt others, we are rightly less reticent to remain neutral about those choices. Other social scientists are more likely to refer to “neighborhood effects” or “peer effects,” reflecting the influence that people have on those with whom they socialize. When one person rationally chooses not to work, or not to marry because of a policy change, such as more generous government benefits, that can affect the decisions of others too. Even if living in a family where no one works — or in a single-parent family — is not harmful to a child, living in a neighborhood where work and marriage are relatively rare may affect the child more consequentially. By reducing the costs of some choices, policy can be expected to make those choices more popular, particularly if people influence each other with their choices.
Finally, if some people choose not to work or marry because of unconditional cash transfers, that can also affect people far removed from their social circles. For example, if disemployment effects are large enough, economic growth might slow. At the extreme, a universal basic income that eliminated income inequality would crush future prosperity. An increase in non-working single-parent families also could put additional burdens on taxpayers through greater safety net expenditures on existing programs. That might cause more people to choose non-work over work, feeding a negative response loop.
The point is not to assert that the costs of the specific child allowance temporarily created by the American Rescue Plan Act will definitely be large and intolerable. But the view that there can be no costs if people know what is best for themselves is self-evidently silly.
Good for Me?
It should also be self-evidently silly that people always know what is best for themselves or their kids. The bedrock assumption in economics that people generally maximize “utility” in the decisions they make is genuinely useful in modeling choices and illuminating hidden implications. But too many arguments jump to the tautological claim that if someone chooses a certain way, it must have maximized their subjective well-being.
To begin with, allow me to introduce the concept of “regret.” I can only imagine that the most dogmatic economists have none, but most of us can point to decisions in the past that we wish we’d made differently. If every choice we make self-evidently maximizes our subjective well-being, there should be no regrets in life.
If people always maximize utility, how should we think about “unintended pregnancy”? This must be a nonsensical phrase to a certain variety of economist, since all of our choices are utility maximizing and therefore intended. Half of nonmarital pregnancies resulting in a birth are unintended, according to mothers themselves. (Note, by the way, that that means half of nonmarital pregnancies resulting in a birth are intended!) There is ambiguity around the term “unintended,” as many women who characterize their pregnancy as such also report not using birth control. But that hardly suggests that they were carefully choosing the utility-maximizing option when they became pregnant.
Those of us without perfect records in decision-making can point to a variety of excuses — we rarely have all the information we need about the likely costs and benefits of different choices. Prediction is hard, especially about the future. Even the known knowns can involve so much complexity that we miscalculate. Other times, emotion gets in the way of dispassionate rational consideration.
Often, we actually cannot know (even after the fact) whether we chose best, since we do not know what counterfactual outcomes would have looked like. Parents considering divorce, even with their children’s interests prioritized, often cannot know what would be best for them — sticking it out in a potentially unhappy marriage for the sake of their kids, or ending a conflict-ridden situation that nevertheless provides stability for children. It may not be clear to them even years down the road whether they made the right decision.
People also differ in their capacity for making reasoned decisions. Most obviously, those who suffer from depression or other mental illness may see their options through a distorted lens. People who suffer from addiction — to drugs, alcohol, or anything else — may have impaired judgement. Poverty itself can impede rational decision-making; self-control is “depletable,” and the sheer number and complexity of cost-benefit calculations required when resources are scarce can lead to mental taxation and errors. And the set of cognitive skills and personality traits that influence decision-making is not uniformly distributed. It does no one any good in poverty conversations to ignore that many low-income adults have fared poorly in school; the extent to which cognitive skills and personality traits are a cause or consequence of low scholastic achievement matters little for the argument here.
Finally, both the preferences adults have and the constraints that they face in maximizing their utility levels have been shaped by their cumulative experiences. The opportunities faced by 25-year-olds depend on choices made in high school (and earlier). Adolescence is not exactly a time of peak rational decision-making, as anyone who has ever been a teenager can retroactively admit. Adults act rationally only within the opportunity set their teenaged selves bequeath to them. To say that an adult “knows what is good for her” is to elide the fact that the set of things people can choose between and their preferences over those things is affected by their past.
The culture in which 15-year-olds are immersed (and in which 5-year-olds are immersed) affects their opportunities as adults, in part by affecting their preferences, their time horizons, their aspirations, and their ability to assess costs and benefits. And today’s policies influence the cultural milieu of tomorrow’s 25-year-olds by altering the behavior of the adults around them when they are young.
In Defense of Paternalism
There are plenty of empirical debates to be had about the importance of policy for culture, the importance of culture for individual behavior, the importance of individual behavior for culture, and the importance of behavior, culture, and policy for opportunity. But it is not a serious rejoinder to critics of unconditional cash transfers simply to assert people know what is best for themselves.
The lives of low-income families — like the lives of upper-income families — are complex. Many families relying on the safety net do so for temporary support to get through temporary crises. Others struggle with deeper problems. Drawing on his experience administering welfare programs in New York State and New York City, Robert Doar has noted that many of the families served by the safety net “are plagued by difficult and often generational challenges of substance abuse, poor school performance, criminal justice involvement, absent parents, poor parenting, and lack of work.” Doar goes on to write that, “Anti-government libertarians and conservatives don’t want to believe it, and progressives seem to have forgotten, but these at-risk families benefit from the services provided by the existing safety net.”
Before welfare reform, the typical family on the AFDC rolls at a given point in time was projected to spend 13 years receiving benefits. If a child allowance drove more people to such dependency on government benefits, should we really be indifferent or unconcerned? Should we blithely assume that they know best and let the policy conversation stop there?
On the contrary, we should look for policies that give kids more opportunities, whether their parents know what is best for them but cannot afford it, want to do what is best but don’t know how, or don’t or can’t prioritize their kids. Unconditional cash transfers only help one of those groups. We should not pretend that they make all children better off, especially over the long run — including kids not yet born who will be affected by a world created by this policy.
Conservatives once recognized the utility of the social contract and the importance of conditioning government assistance on reciprocal expectations. They once rightly worried about unintended consequences and perverse incentives. Those who — wrongly in my view — believe that fertility has fallen because it has become so expensive to raise children could reform the child tax credit in ways that continue to condition its receipt on work. That would discourage marriage less than would a child allowance. Those who — rightly in my view — wish to reduce child poverty have other means at their disposal that affirm the social contract and run lower risks of backfiring in the end.
Scott Winship is a resident scholar and the director of poverty studies at the American Enterprise Institute.