Bryan Caplan  

What Economic Theory Doesn't Say About Family Size

Good News and Bad News on the ... Roundabout Production...
From David Friedman's essay "Laissez-Faire in Population: The Least Bad Solution" (1972):
Additional evidence on consumer rationality can be found in secular fertility trends. Over the long term, the net cost of rearing children has been rising because of the movement away from the use of child labor (especially on the farm), the increasing cost of schooling, the increased opportunities for the mother outside of the home, and the gradual disappearance of the traditional pattern of children supporting parents in their old age. Under these circumstances we would expect rational parents to decrease the size of their families. They did.

Consider also the effect of economic conditions on fertility. At the bottom of a depression, with short term income low and longterm prospects--for both parents and children--bleak, birth rates should fall. They do.
I tremble to correct the micro of a Friedman, but I suspect that David himself will accede to my objections:

1.  When women's wages rise, the cost of kids rises.  But so does wealth!  The income and substitution effects go in opposite directions.  And the fact that they go one of the three logically possible ways consistent with consumer rationality does nothing to confirm consumer rationality.

2. In the first paragraph, higher value of time ("the increased opportunities for the mother outside of the home") is supposed to imply fewer kids.  In the second paragraph, lower value of time ("short term income low and longterm prospects--for both parents and children--bleak") is also supposed to imply fewer kids.  You could say the first is a substitution effect and the second is an income effect, but both effects are plainly both income AND substitution effects.

P.S. I'm pleased to report that David Friedman is going to be hanging out at GMU for much of the fall semester.  If he has any reaction, I'll gladly post or link to it.

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Someone from the other side writes:

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david nh writes:

I wonder if anyone has studied the impact of the percentage of GDP represented by government spending on fertility rates?

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