My Cato Unbound exchange with my critics is over, but something's still bugging me. In her critique, Betsey Stevenson suggests that kids could easily be inferior
goods:
Caplan
is entirely focused on the substitution effect: having kids becomes cheaper
relative to buying TVs. So he says buy more kids, and fewer TVs. But what about
the income effect? As people become richer, they tend to "buy" fewer
children, not more. So there's an offsetting income effect.
It's a common view, but is it true? I decided to check
with the General Social Survey. On the surface, there's a marginal case
that Betsey's right. Results from a regression of number of children on
log income and a year trend:
The main problem with regressing anything on income, though, is that income,
education, and IQ are all highly intercorrelated. Like look-alike
siblings, income, education, and IQ endure endless mistaken identity issues. So what happens
if we run a horse race? Results from a regression of number of children
on log income, years of education, a ten-question IQ test (WORDSUM), and a year
trend:
IQ turns out to be a red herring, but look: log income and education, though
highly correlated, push in opposite directions - a classic "masking
effect." Controlling for education, higher income predicts higher
fertility. (Adding age as a control variable slightly reduces the magnitude,
but not too much). The simplest story is that the elite values typical of
the well-educated depress fertility - but regardless of your values, the higher
your income, the more kids you want.
I've heard several people claim that kids are a normal good for men, but an
inferior good for women. Does this hold up? No. Results for
men alone:
Results for women alone:
It
is true that education depresses female fertility more, and income
boosts female fertility less. But it looks like kids are normal goods for
both genders. If you're prone to futurist speculation, trying
re-imagining
Idiocracy.
The twist: in the real world, the most fertile people aren't those with low IQ;
they're people who
counter-stereotypically combine low education with high
income. Plumbers shall inherit the earth!
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I say this as a card-carrying economist: It makes me feel a little queasy to be talking so casually about what type of "good" kids are.
I don't see how you can validly split the decisions of men and women - they generally don't get to make the decision alone.
Fascinating results Bryan. I hope others will try to confirm similar results using other data, or other methods.
Anecdotes aren't data, but my wife sells little businesses and has run into guys who own body shops, garages, junkyards, etc - and they all have big families (ie, > five kids).
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You seem to have generated a high profile response over at freakonomics: http://www.freakonomics.com/2011/06/10/the-rich-vs-poor-debate-are-kids-normal-or-inferior-goods/ but I can't for the life of me figure out how their post is responsive.