Incentives Matter: Solving the World’s Population Crises

 

In college, one of the best courses I ever took was “Public Economics.” We studied distortions in the market caused by boneheaded political schemes, determined whether it was more advantageous to get married on December 31 or January 1 (it can make a big difference in your taxes!), and memorized sections of the tax code. At the end of every lecture, the professor flashed a PowerPoint slide with the phrase “Incentives Matter.” If we remembered nothing else from the class, the professor insisted that we never forget that incentives really do affect behavior. If you want more of something than exists at market equilibrium, incentivize or subsidize it. If you want less of something, tax it.

What if you want fewer people?

One solution – China’s solution – is to impose a steep sin tax on the production of people. Since 1979, the Chinese government has enforced a policy

requiring couples from China’s ethnic Han majority to have only one child (the law has largely exempted ethnic minorities).

Depending on where they live, couples can be fined thousands of dollars for having a supernumerary child without a permit, and reports of forced abortions or sterilization are common….Those who volunteer to have only one child are awarded a “Certificate of Honor for Single-Child Parents.”

On the other hand, as India is discovering, fines and forced abortions might not be the only way to slow fertility rates. The New York Times reports on India’s ingenious experiment:

The program…in Satara is a pilot program — one of several initiatives across the country…trying to slow down population growth by challenging deeply ingrained rural customs…In Satara, local health officials have led campaigns to curb teenage weddings, as well as promoting the “honeymoon package” of cash bonuses and encouraging the use of contraceptives so that couples wait to start a family.[T]he district government…pay [s] 5,000 rupees, or about $106, if the couple wait[s] to have children.

But what if you want more people?

Much of the Western world must contend with the threat of extinction. Russia, for example, with its anemic fertility rate of 1.41 children per mother offers cash prizes amounting to 250,000 rubles (about $9,200) to women who give birth to a second child. Is $9,200 enough of an incentive to increase Russia’s fertility rate? Yes, but only marginally. In the four years since the cash for babies policy was implemented, Russia’s fertility rate has risen from 1.28 to 1.41 children per mother.

A more creative solution for all parties involved? India could use its cash-for-waiting budget to subsidize a Russian advertising campaign that entices young Indian families to move to Russia with promises of land grants (Russia’s got plenty of land east of the Ural Mountains). As deal sweeteners, the Russian government could take its cash-for-babies budget to buy each transplanted Indian family a yurt, a cow, and a set of parkas. The result? India decreases its population; Russia increases its. Win-win! Incentives matter!

There are 21 comments.

  1. Member

    Now if we could just get politicians to understand that taxes are a disincentive for whatever is being taxed, maybe we could find a way to get the economy rolling again.

    • #1
    • August 26, 2010 at 3:54 am
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  2. Contributor
    Diane Ellis Post author

    Tom Lindholtz: Now if we could just get politicians to understand that taxes are a disincentive for whatever is being taxed, maybe we could find a way to get the economy rolling again. · Aug 25 at 3:54pm

    Oh, I’m convinced that politicians know that taxes are disincentives. That’s why they tax cigarettes, alcohol, oil, and owning a business.

    • #2
    • August 26, 2010 at 3:57 am
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  3. Member

    I love it. Very creative.

    But I don’t agree with the premise: “Solving the World’s Population Crises”

    I don’t think there is a “crises” when it comes to population.

    • #3
    • August 26, 2010 at 4:05 am
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  4. Contributor
    Diane Ellis Post author

    Jimmy Carter:

    I don’t think there is a “crises” when it comes to population. · Aug 25 at 4:05pm

    Well, in Russia’s case, they’re going extinct. The zero population crowd would have you believe that’s a good thing for Mother Earth. But for Mother Russia? I’d say it’s at least a minor crisis.

    • #4
    • August 26, 2010 at 4:08 am
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  5. Member

    Then it’s a “Russian population crises.” Not a general population crises.

    Now that I think about it, if incentives matter, then why aren’t the liberals fleeing the U.S. to Canada, U.K., or Cuba for their healthcare?

    • #5
    • August 26, 2010 at 4:17 am
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  6. Inactive

    I’m just utterly opposed to using tax law for social-engineering purposes. Taxes are a necessary evil, at best. When legislators use them as carrots or sticks, they become just another weapon in the armory of tyranny.

    As for offering Siberian homesteads to Indians, I can only assume you haven’t spent much time around Russians.

    • #6
    • August 26, 2010 at 4:44 am
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  7. Member

    So Russia has incentivized its People to people the land and got a whopping extension in their gone-in-one-week demographic death-spiral from Tuesday lunch to Wednesday Tea? Doesn’t seem to have really quite worked.

    • #7
    • August 26, 2010 at 4:51 am
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  8. Contributor
    Diane Ellis Post author

    Kenneth:

    As for offering Siberian homesteads to Indians, I can only assume you haven’t spent much time around Russians. · Aug 25 at 4:44pm

    Not as much time as you, but I have. That’s why I suggested homesteads east of the Ural Mountains. No one really lives there except for a few scattered descendants of the Mongol Horde. The ethnic Russians wouldn’t even have to interact with the immigrants.

    • #8
    • August 26, 2010 at 4:56 am
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  9. Moderator

    Nations that wanted to increase their populations with hard-working and adaptable ethnic groups could offer asylum to any Han family in China that feels persecuted (by the one-child policy or by anything else), and also to any North Koreans who managed to escape, I suppose.

    I’m not sure how asylum works, but it’s not a tax, and it might be the humane thing to do anyhow.

    • #9
    • August 26, 2010 at 4:59 am
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  10. Contributor
    Diane Ellis Post author

    Kenneth: I’m just utterly opposed to using tax law for social-engineering purposes. Taxes are a necessary evil, at best. When legislators use them as carrots or sticks, they become just another weapon in the armory of tyranny.

    Could you define “social-engineering purposes”? Would you include using tax law to disincentivize smoking, drinking, gambling, and prostitution?

    • #10
    • August 26, 2010 at 5:08 am
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  11. Inactive
    Diane Ellis, Ed.

    Kenneth: I’m just utterly opposed to using tax law for social-engineering purposes. Taxes are a necessary evil, at best. When legislators use them as carrots or sticks, they become just another weapon in the armory of tyranny.

    Could you define “social-engineering purposes”? Would you include using tax law to disincentivize smoking, drinking, gambling, and prostitution? · Aug 25 at 5:08pm

    Yes, I would oppose it for all those purposes.

    • #11
    • August 26, 2010 at 5:20 am
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  12. Founder
    Diane Ellis, Ed.

    India could use its cash-for-waiting budget to subsidize a Russian advertising campaign that entices young Indian families to move to Russia with promises of land grants (Russia’s got plenty of land east of the Ural Mountains). As deal sweeteners, the Russian government could take its cash-for-babies budget to buy each transplanted Indian family a yurt, a cow, and a set of parkas. The result? India decreases its population; Russia increases its. Win-win! Incentives matter! ·

    Stalin tried this. Not with Indians, of course, and not with cash. But it’s been done. And now it’s slowly coming apart, in Uzbekistan and Tajikistan and all of the ‘Stans.

    • #12
    • August 26, 2010 at 5:29 am
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  13. Inactive

    Let’s put it kindly: Russians are the ultimate xenophobes.

    Of course, given their 2,000 year history of having hordes of xenos trample across their turf, looting, pillaging and raping, you can sort of understand the phobe part.

    • #13
    • August 26, 2010 at 5:46 am
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  14. Member
    Diane Ellis, Ed.

    Since 1979, the Chinese government has enforced a policy

    requiring couples from China’s ethnic Han majority to have only one child (the law has largely exempted ethnic minorities).·

    Am I the only one surprised that China cares about its ethnic minorities? From what I understand, many families just got used to pretending they were Han descendants after Mao, anyway.

    I’m not sure what the Russians really get out of that deal. I wouldn’t think farmers are the greatest source of tax revenue. And, though the Russians might not have to directly interact with the Indians (for a while), Indians would become voters and inevitably affect Russian society in any number of ways.

    What is a nation? Is it a government or a people? If it’s a people (I would say it is), then immigration should be limited so as to preserve cultural unity. Substituting immigrants for native babies to raise the fertility rate doesn’t save the nation; it replaces it.

    • #14
    • August 26, 2010 at 6:18 am
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  15. Member
    Aaron Miller: Am I the only one surprised that China cares about its ethnic minorities? From what I understand, many families just got used to pretending they were Han descendants after Mao, anyway. · Aug 25 at 6:18pm

    Well, let’s think in terms of incentives. If you allow non-Han Chinese families to have as many kids as they like, it incentivizes Han Chinese to inter-marry with members of ethnic minorities and have as many kids as you want. This promotes a Chinese government goal that, if not explicitly stated, is obvious in practice: dilute any and all ethnic minorities in order to promote the “harmonious society.”

    On the broader question of increasing birth rates, I think the Japanese low birth rate example could show that increasing incentives is not as powerful as reducing disincentives. Mandatory parenting leave, allowances for parents and tax cuts for families with children have all been ineffective. Perhaps what is needed is for social and economic costs to be lessened, rather than government deficits to be deepened in order to encourage couples to have more kids and sooner.

    • #15
    • August 26, 2010 at 7:44 am
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  16. Inactive
    Aaron Miller
    Diane Ellis, Ed.

    Since 1979, the Chinese government has enforced a policy

    requiring couples from China’s ethnic Han majority to have only one child (the law has largely exempted ethnic minorities).·

    Am I the only one surprised that China cares about its ethnic minorities? From what I understand, many families just got used to pretending they were Han descendants after Mao, anyway.

    I’m not sure what the Russians really get out of that deal. I wouldn’t think farmers are the greatest source of tax revenue. And, though the Russians might not have to directly interact with the Indians (for a while), Indians would become voters and inevitably affect Russian society in any number of ways.

    What is a nation? Is it a government or a people? If it’s a people (I would say it is), then immigration should be limited so as to preserve cultural unity. Substituting immigrants for native babies to raise the fertility rate doesn’t save the nation; it replaces it. · Aug 25 at 6:18pm

    Bingo Mr. Miller. Wow, I like the question whether a nation is its government or its people. Bravo! An old question, well placed here.

    • #16
    • August 26, 2010 at 8:33 am
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  17. Contributor
    Diane Ellis Post author
    Humza Ahmad

    Perhaps what is needed is for social and economic costs to be lessened, rather than government deficits to be deepened in order to encourage couples to have more kids and sooner. · Aug 26 at 7:44am

    This is a fascinating thought. How do you envision lessening social and economic costs without government intervention (or at least without the intervention of tax dollars)?

    • #17
    • August 26, 2010 at 9:03 am
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  18. Member

    The China one-child policy is mostly “not”. It is like the NBA salary cap- every team is over it. And the basic policy is headed for the trash can.

    http://www.marketwatch.com/story/chinas-one-child-policy-largely-ignored-2010-03-18

    • #18
    • August 26, 2010 at 10:43 am
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  19. Contributor
    Diane Ellis Post author

    Duane Oyen: The China one-child policy is mostly “not”. It is like the NBA salary cap- every team is over it. And the basic policy is headed for the trash can.

    http://www.marketwatch.com/story/chinas-one-child-policy-largely-ignored-2010-03-18 · Aug 26 at 10:43am

    If that indeed pans out to be the case, that’s good news. The policy always seemed like a rather abhorrent human rights violation to me. And human rights violation aside, the policy has created a huge gender gap (or is it sex gap?). From the NYT:

    A bias in favor of male offspring has left China with 32 million more boys under the age of 20 than girls, creating “an imminent generation of excess men,” a study released Friday said.

    In 2005, a new study found, births of boys in China exceeded births of girls by more than 1.1 million. There were 120 boys born for every 100 girls.

    For the next 20 years, China will have increasingly more men than women of reproductive age…“Nothing can be done now to prevent this,” researchers said.

    • #19
    • August 26, 2010 at 11:09 am
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  20. Member
    Diane Ellis, Ed.

    If that indeed pans out to be the case, that’s good news. The policy always seemed like a rather abhorrent human rights violation to me. And human rights violation aside, the policy has created a huge gender gap (or is it sex gap?). From the NYT:

    ……….

    In 2005, a new study found, births of boys in China exceeded births of girls by more than 1.1 million. There were 120 boys born for every 100 girls.

    Aug 26 at 11:09am

    That’s indeed the conventional wisdom word, Diane.

    I did read a story the other day that pointed out that there is a bit more here than meets the eye; it isn’t quite that bad. Many in the provinces simply ignore the rule. One example was a fellow with three daughters who simply paid the fines or had the kids birthed out of the system and sent them to private schools.

    My personal-almost-in-house-expert says that the numbers are nowhere near that unbalanced, and there is also emerging something of a bias toward girls, because they also hold jobs and are more likely to actually care for their elderly parents.

    • #20
    • August 27, 2010 at 2:06 am
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  21. Member
    Diane Ellis, Ed. How do you envision lessening social and economic costs without government intervention (or at least without the intervention of tax dollars)? · Aug 26 at 9:03am

    On the economic side, more internationally open and in general less regulated markets as well as greater efficiencies in the domestic market would reduce costs on the consumer side greatly in terms of housing, car ownership, education financing, travel, consumer goods and a number of different things one has to pay for when they have a child. However, vested interests, and collusion between industries and bureaucrats remain rampant.

    On the social side, I don’t think there is a good way for government to play a role in this regard. Many of the social symptoms of Japan’s postwar boom economy are a result of government programs to change the Japanese lifestyle in a way to maximize economic growth. There does not seem to be a notion in Japan that the government should play less of a role in people’s lives; on the contrary, many individuals assume that it is government’s job to fix the low birth rate, rather than those same people simply having kids themselves!

    • #21
    • August 27, 2010 at 4:48 am
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