When Senator Elizabeth Warren this week proposed creating an enormous new entitlement program that would deliver free or affordable child care to every American family with a young child, she put the price tag at $70 billion a year.
What makes that sum unbelievable is not that it is so high—although it is more than twice as much as the federal government spends on unemployment compensation each year—but that it is so low. And even more impressive than that is the magical math that the economists supporting her plan used to arrive at such a low price tag.
Start with the basics. There are around four million babies born in the U.S. every year. That means there are approximately 20 million children under school age who could be enrolled in a national childcare program. Moody’s Analytics Chief Economist Mark Zandi and Sophia Koropeckyj, the economists behind Warren’s figures, estimate that the cost of each child in the Warren Centers—or Baby Warrens, as we would inevitably call them–would be $14,500.
This suggests the potential cost of the program is $290 billion per year. Of course, not every family will take advantage of free or subsidized childcare—some will still prefer to raise their young children at home or with relatives. So actual enrollment will be something short of 20 million children.
What share of families will choose family care over Baby Warrens is something we cannot know in advance. But Zandi and Koropeckyj think they do know: about one-third of families will choose to forego professional childcare—around the same percentage as do today. That is the first bit of magical thinking in their evaluation: that this new massive government program will not change the choices of any parents who currently choose to raise their young children at home.
That’s not usually how we understand subsidies. The Warren program promises free childcare to any family with income under 200 percent of the poverty line, around $51,000 for a family of four. All other families get subsidies that guarantee they will not pay more than 7 percent of their income to the Warrens.
Childcare is expensive. Nationwide it averages around $10,000 per child, and runs as high as $20,000 per child in Warren’s home state of Massachusetts. The idea that the subsidies—a family of four with $85,000 of income would receive subsidies worth more than $14,000—would not draw families away from the home and into the centers is implausible.
The marketing campaign for the Warrens would also likely draw families away from home care. In promoting the program, Senator Warren has been touting the alleged benefits of out-of-home childcare, although the social science on this is far more uncertain than she lets on. It’s very likely that families will feel increased social pressure to enroll children—for the sake of the children. We’ve already seen this in areas that offer free pre-school.
It’s very likely that instead of the number of children in childcare centers rising from 6.8 million to 12 million—as Warren’s economists predict–the number would likely be quite a bit higher.
But even if they are right about the number of children enrolled in the program, their math still does not add up. With 12 million children at $14,500 per head, the program would cost $174 billion—more than $100 billion more than what Zandi and Koropeckyj estimate.
How they shave that $100 billion off the cost is partly redistribution and mostly voodoo economics, magical thinking disguised as macroeconomics. Because families earning more than 200 percent of the federal poverty level would have to pay for some of their childcare–but never really more than half–the cost would be reduced. But the size of the subsidy for even very wealthy families is large enough that this doesn’t shave much off the total cost.
The heavy lifting here is in the rosy economic forecasts Zandi and Koropeckyj produce. They predict that the childcare for all program will “quickly lift economic growth” by transferring wealth from the rich—Warren wants to pay for the program with a tax on ultra-millionaires. In the longer term, they see it boosting economic growth because they foresee it boosting workforce participation and the number of hours worked.
That’s some strong “dynamic scoring” juju at work. By Zandi and Koropeckyj’s logic, the Baby Warrens do not quite pay for themselves but they do reduce the cost by nearly 60 percent. And they claim that this estimate probably understates the economic benefits because early childhood intervention will lift educational attainment, lifetime earnings, and decrease the costs of crime. More wealth, more educational, less crime: just put your kids in the Baby Warrens!
To be sure, the program would make it more economically efficient for some parents to work—which is why their 12 million enrollment number is too low. But this does not necessarily benefit the economy at a time when unemployment is so low that many economists believe we are at full employment. The additional workers and additional hours may just put downward pressure on wages by increasing the supply of labor.
Cheapening labor costs while raising taxes on wealth would also diminish the return on capital investment, which would be a drag on productivity—the best driver of economic growth. In the end, we may end up with a diminished economy, families working more hours than before and spending less time with children, and an entitlement program that is much more expensive than anticipated (as entitlement programs tend to be).
Zandi and Koropeckyj tell us that we should believe their forecasts rather than our lying eyes because they are based on something called the Moody’s Analytics model of the U.S economy. But this is the model that told us that President Donald Trump’s policies would throw the economy into a recession, force interest rates and inflation higher, and cause unemployment to rapidly rise. That’s not the track record on which we can safely base the economics of a huge new entitlement.
That’s not to say we shouldn’t do more to make having families affordable in the U.S. A much larger and fully refundable child tax credit would help. Allowing families to reduce their entitlement taxes when they have more than two children—because they are supplying the workers who will pay for Social Security and Medicare—is another idea worth exploring.
But creating Baby Warrens based on the Moody’s Analytics magical math economics is an idea that needs a time out.