Free Markets

Fix Family Poverty With Free Markets, For Once

The right and the left are ready to send fiscal conservatism off the rails.


It has been a strange month in the world of family policy. Since Sen. Mitt Romney (R–Utah) floated his child allowance plan, which would replace existing family assistance programs with a monthly payment of $350 for newborns to five year olds and $250 per child for kids between six to 17, the budding alliance between traditional conservatives and left-wing progressives has been startling to watch. The news that New York Times columnist Ezra Klein and our American Enterprise Institute (AEI) colleagues (including Ramesh Ponnuru, Brad Wilcox, and Yuval Levin) have found common ground on this idea is either a sign that great things are about to happen or that things are about to go completely off the rails. We think it's the latter.

Giving parents money with no strings attached in order to reduce child poverty is an idea that has been tried before. The results are hardly ancient history. These policies became part of the federal government's scope as a way to support the children of mostly widowed mothers, and successfully prevented severe destitution for many children. But these successes faded in the second half of the 20th century as the programs expanded and societal behaviors around marriage and childbearing began to change. Unconditional cash aid to poor families led to government dependency and non-contributing absent fathers, eventually becoming widely unpopular among policymakers on both the right and the left.

Advocates for a child allowance believe our situation calls for a return to this approach. Some proponents have tried portraying a child allowance as fiscally conservative. But it is hard to understand how the federal government sending monthly checks to almost every child in the country (except the top 5 percent), for a total cost of $229.5 billion per year, is fiscally prudent, even if that spending is replacing other welfare programs. This kind of top-down, redistributive plan seems antithetical to a free market, small government approach.

Even so, some supposed fiscal conservatives remain intrigued by using the federal government's power of the purse to enact a child allowance in the name of reducing poverty and supporting families. But it is useful to remember that as recently as 1992 almost 5 million, mostly single-mother families were receiving unconditional cash aid from the government, yet 60 percent of children in single parent homes were living in poverty. Even liberal proponents for the poor at the time recognized that the system of unconditional cash payments was harming children by discouraging parental employment and increasing dependency.

The passage of welfare reform in 1996 (along with tax credits that were tied to work) essentially ended the policy of distributing unrestricted cash payments to poor families. Welfare reform required work in exchange for assistance and established federal time limits on benefits. The result was an 18-year decline in the poverty rate for children in single-parent families—a trend that only ended with the Great Recession. In fact, by 2017, the overall child poverty rate declined by more than 40 percent and the gap in child poverty rates by race and ethnicity narrowed substantially.   

Given this history, it is incredible to see folks like Ezra Klein assert that the Romney "proposal would cut child poverty by a third, and the Biden plan by half." If we are to be unconcerned about returning to the pre-welfare reform days, why not eliminate child poverty altogether by just giving people even more money? The answer is because unconditional cash payments from the government have unintended consequences, and those consequences include reduced employment, more nonmarital childbearing, and ultimately higher poverty rates.

But the child allowance is not really just a plan to end child poverty as we know it. The fact that some proposals want the allowance to top out for single parents making $200,000 a year and married parents making $400,000 a year suggests that this is just as much a plan to simply subsidize child-bearing and rearing. The growing natalist movement on the right—which includes but is not limited to religious conservatives—says that it's time we do something about declining fertility rates in this country. Some conservatives are even praising proposals from think tanks with socialist ideas.

It's true that the number of children born in this country has dipped below replacement rate, which could have detrimental effects on both the country's dynamic economy and culture, especially if policies drive immigration rates lower too. It's not only that our entitlement programs will collapse under the weight of too many old people and not enough young ones. Business creation will slow too. If we think parents are too averse to letting kids take risks now, just wait until our families shrink even further.

Natalists assume people are not having more children because of financial constraints. They cite the gap between women's "ideal fertility"—they never ask how many children men want—and the actual number of children they have. Whereas during the 1950s and 1960s many women had more children than they wanted to, now they have fewer. As Lyman Stone (another one of our AEI colleagues) writes, "The share of women precisely achieving their goals has not changed in 40 years. We've swapped out unwanted childbearing for missing babies….Given the pent-up demand for childbearing, governments should target policy to address the preferred fertility rate." Of course, the availability of birth control (and abortion) is the obvious reason that women don't have more children than they want anymore, but the reasons that they have fewer can hardly be reduced to a simple lack of affordability.

One of the main reasons behind the failure to achieve "ideal fertility" is that women wait longer than years past to marry and have children so that they can pursue education and career goals. Add to that the increasing poor health among prime-age people, and there are simply not as many fertile years left. Another factor involves personal choices when people face economic constraints, a reality that will always exist. Instead of more children, families who already have children might prefer a bigger home or a home in a safer neighborhood with better schools. Perhaps both parents want to pursue a career instead of taking several years away from work (and less income) to raise multiple children. Or it may also simply be that children are a lot of work and parents don't have the energy for more children. (We say this lovingly, as the mothers of a combined seven.)

A comprehensive review by researchers at the United Nations supports the view that declining fertility is about much more than finances, and that the affordability problems that do exist are not necessarily solved by more money from the government. In fact, there is plenty of evidence from the international context that giving people more money does not reverse fertility declines. The research findings show that across numerous countries that have tried these policies, financial incentives push parents to have children earlier, but don't reverse overall fertility declines. The policy with the largest impact on completed fertility, meaning the total number of children women have, was actually publicly funded childcare. But that doesn't mean the U.S. should put every kid in daycare, and that's hardly the result natalists are looking for anyway. 

Many on the right defend the Romney plan by noting it would be deficit neutral and replace other anti-poverty programs. The Child Tax Credit, most of the Earned Income Tax Credit, Temporary Assistance for Needy Families, and the state and local tax deduction would all be eliminated in order to pay for the allowance. But there is almost no precedent for such a tradeoff. Just as the idea floated by our colleague Charles Murray that a universal basic income (UBI) would replace all other safety net programs is political pie-in-the-sky, so is the idea that legislators would allow food stamps to disappear when a child allowance is phased in.

Of course, Romney's proposal did not come out of nowhere. There has been a growing sense on the right that the government is not doing enough to help economically strapped families and that the answer lies in more public benefits and greater government involvement. Whether it's a UBI, generous paid family leave policies, or more trade protectionism, the center of gravity on the right seems to have shifted away from the free market policies that used to define it. Many social conservatives and economic conservatives used to think free markets were a pro-family policy by giving families more autonomy from government power, ultimately leading to their ability to put more of their own money in their pockets. But no more.

The Trump years were both a cause and effect of this change. The former president's populist platform needed an intellectual framework to ground it and the folks on the right who were already more populist-leaning saw in these years their chance for political success. And we're told there's no going back. In a recent piece at The Federalist, Dave Marcus celebrates the turn of the Republican Party into one that combines the cultural impulses of Pat Buchanan and the economic aspirations of Ross Perot.

His analysis is true even if the celebration is misguided. Aside from a push for deregulation of certain industries and lowering some taxes, the past four years have not brought us the kind of free market reforms that economic conservatives and libertarians have long advocated (though even those reforms seemed to have fueled quite a bit of economic growth before the pandemic, especially for lower-income Americans). Instead, there seems to be a wide-ranging dismissal of these core ideals, with leaders on the right now echoing the liberal claim that the free market serves only wealthy corporate interests without benefiting families. What's irritating, though, is that many of the best free market ideas for helping working families have not been tried.

What would happen if we actually stopped providing tax incentives for employer-sponsored health insurance? Or if we allowed people to pick less expensive insurance plans that didn't cover chiropractic bills and dermatology visits but did provide the kind of coverage they were most likely to use and would most likely cause them financial strain if they didn't have? The annual savings for the average family from this type of policy change would likely surpass any child allowance.

What if we had occupational licensing reforms and allowed people to run small businesses out of their home without fear that the local health department will shut them down? These would give families another path to upward mobility.

What if we stopped making childcare more expensive through government regulations, such as demanding that daycare workers have unnecessary masters degrees and mandating child-to- staff ratios instead of just allowing parents to decide whom they trust with their children?

What if we changed zoning rules so that families could rent out extra rooms in their homes or allowed extended families to more easily live together? What if zoning rules didn't keep residential properties so far away from commercial properties, in turn requiring that children be driven everywhere?

What if—and here is an idea whose resonance has become even more apparent in recent months—we had real school choice? What if parents didn't have to worry about buying a more expensive home in order to get their children access to a better school district? Or what if we allowed them to choose a charter school or private school when the public schools in their neighborhood didn't perform (or even open in person)?

What if instead of continuing to subsidize the bloated higher education industry, we simply offered flexible vouchers to low-income students, letting them spend the money in a way that would allow them to quickly and efficiently gain the job skills they wanted?

Maybe the alliance on the right between social conservatives and free market fans is over. (It is strange to watch social conservatives run into the arms of progressives if they really are concerned about the ability of American families to grow—such a trajectory, according to the left, would only result in environmental destruction and limits on women's freedom.) Given the political environment, perhaps natalists feel as if they have no choice but to look for other allies. But genuine free market reforms could address poverty and make it easier to raise a family in this country. Just give them a chance.