Monday, November 19, 2012

Seven Economist Mistakes About Parenting

This post is a reaction to the post at FoxNews by PhD economist, Gertrud Fremling, “An economist’s seven rules for raising kids.” The fact that I have titled my post here “economist mistakes” implies that I disagree with Fremling but I
WASHINGTON, DC - JUNE 10: Austan Goolsbee, cha...
WASHINGTON, DC - JUNE 10: Austan Goolsbee, chairman of the Council of Economic Advisers, speaks during a discussion on the Economy at the National Press Club, on June 10, 2011 in Washington, DC. Goolsbee spoke to the Committee for Economic Development about the status of the U.S. economy and job creation. (Image credit: Getty Images via @daylife)
should preface that the word “mistakes” is harsh. There are different parenting styles and some work for different parents. I have no doubt Fremling’s choices work for her. My qualms here are, first, that her rules are actually natural, first principles, applications of economic logic but, second, for reasons that relate to the failings of that logic, are unlikely to be of use for many parents. Indeed, they could hardly be described as “parenting rules” in the same way that, say, not leaving a toddler wandering around in traffic is not simply good advice but is a rule.

Let’s begin with posited Rule No.1: “Limit Their Options.” Here Fremling basically says that her kids do not get anything beyond basic needs without having to work for it. No TV, restriction of video games and probably much else. Now it is unclear why this rule is implied. This seems like an imposition of parenting preferences on the preferences of children; something that is usually considered pretty anti-economic and free choice. But as we progress through the rules, you will see that this is essential for the running of a market-based household. The Fremling household creates scarcity and with that creates demand from their children, in terms of what they are willing to work for. Without that, it is hard to get the rest to follow. From this perspective, they start their market economy with a state-run monopoly.

Which gets to Rule No.2: “Economic Incentives — Offer Plenty of Jobs.” The Fremling household is the land of opportunity. Everything is an employment opportunity for which a child can receive a set amount of pay. That sounds like a pretty neat economy but so much can go wrong with pay. I pretty much wrote a book on the basis of the difficulties of applying this to young children. But a recent tweet by former Whitehouse Council of Economic Advisors head, Austan Goolsbee, recounted the time he paid his young son a fee for each cricket he disposed of in his Washington DC home. The arrangement ended when he found his son opening the back door to let more crickets in. But even with unintended consequences, how do you know what price to set? $1 for a dishwasher load? That seems high to me. I can’t imagine having to work this out for every chore and task in the house. So much better to have a broad deal like we have, do the tasks you are supposed to, or else? There’s an incentive. It is a little vague but it does save on transaction costs.

Of course the Fremling household have that covered in Rule 3 “Bidding/Auctions” although that doesn’t seem like a rule but rather a mechanism. They have five kids and so sometimes there can be actual competition to undertake a task. In that case, consistent with good principles of competitive bidding, they let them low ball each other. Sometimes they even have an outsourcing option to compete against their own internal workforce. My kids would never go for all this. The first thing they would do is collude and as they have more time than us to work out these things, they would likely get away with it too.
Now Rule No.4 “Encourage your kids to come up with ideas” is hardly an objectionable rule but it isn’t an economics rule. They let their kids suggest other things they could do to earn money. I’m not going to say more about that here.
Then comes Rule No.5: “Respect for Property Rights.” This hits the economist the minute a child goes to pre-school and there is a broad philosophy of sharing. When a kid proclaims that they were told that they “like to share” I recall vividly the Alex P. Keaton alternative in Family Ties, “I know what’s mine.” In the Fremling household everyone knows what’s theirs. Their kids don’t share, they negotiate exchanges. Having set prices for the work required to get stuff, it is not to hard to set prices to rent stuff to each other. But there is a hint that all is not well here:
Property rights also mean you are free to sell off a game or toy to a sibling, as long as the buyer fully understands the consequences of the deal.
See that last part. I think a bit of exploitation occurred in the Fremling economy at some point and they weren’t free market enough not to impose some judicial oversight on contractual arrangements consistent with consumer protection laws.
The problem here is obvious. If everything has a price, it seems natural to vest control rights with one person. But there is so much in a household that is of a public good nature. Unless you start with everything being privately acquired, there is ambiguity over ownership and in that case you require collective decision-making. Some might argue that that doesn’t prepare kids for the economy. True, not for the pure market economy. But so much of what people do as economic transactions — especially those who work for businesses — is not a pure market economy. Property rights are ambiguous and so kids need to be prepared for that too. To be sure, that can be messy but it is still learning.
Rules No.6 and 7 have to do with contract law. Good parenting involves commitments. In the Fremling household that means parents sticking to contracts and, as it turns out, they have found that hard on occasion. But kids do like these things and I have to admit that this is where the Gans and Fremling households come closer together. To that end, let me quote from anolder post of mine on contracting.
Recently, my 8 year old daughter complained that her mother kept reneging on promises. She would promise one thing and then when the time came to keep the promise, she would change it or move it further away in time. It was, of course, all true.
So we had a discussion as to what to do about it. I suggested that perhaps she would like to get things in writing the next time Mummy made a promise.
“What good would that do?”
“Well you would have a record of what the promise is.”
“So what? She will just change it again.”
“In that case you could point out that it is a binding contract.”
“What does binding contract mean?”
“It means that if Mummy doesn’t keep her promise, the government will step in to enforce it.”
“Really, how?”
“You could take Mummy to Court and a judge would order her to keep her promise.”
With that she whipped up Microsoft Word and drew herself up a contract including her consideration not to complain about the broken promise unless it was broken. Her mother was surprised to get the contract, in duplicate, but signed it anyhow.
Tonight, I found myself being presented with my own contract terms. I had, over dinner, promised to let my daughter stay up late over the Spring break if she went to bed early before it. An hour later I was asked to sit down and sign a contract to that effect, including the standard ‘no complaint’ clause. I happily signed and our signatures were witnessed and the contract was filed away. 
I am a little worried that I have opened a can of worms here. Everything has suddenly gone from informal to highly legalistic. I guess our daughter has a few trust issues. But at the moment I have no complaints. 
The Fremling household has its own “Mom’s Court” but it involves not only contract law but tort law. In their rigorous private property household, infringements occur.
Most families seem to practice “time-out” as punishment. But that requires considerable monitoring and fails to give restitution to the victim. And holding long moral lectures is boring, both for the parent and the child.
Imposing fines instead worked very well. Most cases were trivial and routine. Such a minor offense as saying “bad words” resulted in a quick judgement of a small fine to the household.
When it comes down to it, punishing is hard. There is something hands-free about parenting with set fines and punishments. But it is rarely the case that an infringement does not uncover deeper issues of understanding and getting along. You just can’t avoid hands-on management even if it is long and boring. This is what was borne out in the Planet Money podcast featuring my daughter. Economists like to think that they can offer simple, market solutions to all manner of problems. But within the household as in the real world, things are never so simple and you cannot avoid management by enforcing an economy. The Fremling household has chosen to put their efforts in establishing an economy. I tried that to once but time and again, it is has taught me more about how hard that is and why it is mistaken to think that there are economic rules that can be applied carte blanche to good effect.