Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“What is ominous is the ease with which some people go from saying that they don't like something to saying that the government should forbid it. When you go down that road, don't expect freedom to survive very long.”     Thomas Sowell

September 28, 2007

Hillary Clinton: Let’s Start Socialism At The Cradle, Literally

by Doug Mataconis

For all the complaining I do about the Republican Party, there are days like today when I’m reminded of just how bad the alternative is:

WASHINGTON (AP) – Democratic presidential candidate Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 “baby bond” from the government to help pay for future costs of college or buying a home. Clinton, her party’s front-runner in the 2008 race, made the suggestion during a forum hosted by the Congressional Black Caucus.

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home,” she said.

The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

Let’s do some math.

4 million babies x $ 5,000 per baby = $ 20,000,000,000 per year.

$ 20,000,000,000 x 3.47%(the current interest rate on Series EE savings bonds) = $ 694,000,000/year interest.

$ 694,000,000 x 18 years = 12,492,000,000

And that’s just one year’s worth of babies.

Where, exactly, is that money going to come from ?

Update: As the comments indicate, these numbers are approximations and don’t factor in things like inflation, the compounding of interest, or the incentives that might be created by a government program that effectively pays people $ 5,000 to have a baby. If anything, reality would probably turn out to be far worse that what I’ve estimated.

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26 Comments

  1. [...] Doug Mataconis at TheLibertyPapers has scienced out all the math–$12,492,000,000 for a year’s worth of [...]

    Pingback by She Can’t Be Serious : Hear ItFrom.Us — September 28, 2007 @ 4:10 pm
  2. Would the IRS consider that taxable income? :D

    Comment by Greg — September 28, 2007 @ 5:06 pm
  3. Eh, I think you need to re-work the math. You went from $20 bil per year (what it should be) to $20 mil. And interset over 18 years should be calculated by $20 bil x 1.037^18 ~ $40 billion.

    It is, though, really unbelievable what cheap panderers Hillary and the rest of the Democrats are. Every I hear them start to make promises (“We need better healthcare,” “We need better jobs,” “We need to make college affordable,” etc.) I want to punch a hole through the TV screen. It looks like if Ron Paul can’t pull off the nomination, it’ll be another election between a giant douche and a turd sandwich. Sigh.

    Comment by GuyF — September 28, 2007 @ 9:41 pm
  4. “Where, exactly, is that money going to come from ?”

    Well, Bernanke can always print some! By the time the kid is 18 the 5k will be able to buy him some candy :)

    Cheers!

    Comment by MCLA — September 28, 2007 @ 10:20 pm
  5. Look at it from their point of view, it’s $20,694,000,000 that won’t go to Iraq in just the first year! That’s justification enough to the lefties, even if it means hosing the economy and royally screwing everyone who’s under 35 today (more royally than they’re already going to be screwed by the social security/medicare debacle, at least).

    Comment by Quincy — September 28, 2007 @ 11:01 pm
  6. You mean it doesn’t REALLY grow on trees ?

    oh, damn.

    Comment by Tom Gellhaus — September 28, 2007 @ 11:56 pm
  7. I think I’m beginning to feel that same sentiment tax protesters have a had for a long time now. There is a limit to how much socialism one sane person can handle.

    Comment by somebody — September 29, 2007 @ 12:47 am
  8. GuyF beat me to it, but interest compounds.

    Year 1: It spends $20b.
    Year 2: It spends $20b + interest on year before = $20.694b.
    Year 3: It spends $20b + interest on year before + interest on two years before = $21.413b.
    Years 4-17: …
    Year 18: It spends $35.737b.

    By the time the first group withdraws money, which, by the way, will have been deflated annually by an percentage roughly equal to the interest paid, the government will have spent $488b. All for this group of babies to have the purchasing power of ~$5000 in 2007 dollars.

    Comment by Brian T. Traylor — September 29, 2007 @ 4:08 am
  9. Brian,

    Don’t forget that college tuition has been rising faster than inflation for many, many years. So while it will actually be ~$5000 in 2007 dollars, in terms of tuition, maybe more like ~$5000 in 1997 dollars or something.

    Comment by trumpetbob15 — September 29, 2007 @ 8:58 am
  10. Time to start scouting property in Chile…

    Comment by Isaac — September 29, 2007 @ 10:17 am
  11. Trumpetbob,

    Aye. You’re absolutely correct. Check out the Cato Institute’s blog, Cato@Liberty, for frequent posts on education policy.

    FYI, Bush signed the misnamed College Cost Reduction and Access Act of 2007 yesterday.

    http://www.cato-at-liberty.org/2007/09/27/tax-and-spend-101/

    B

    Comment by Brian T. Traylor — September 29, 2007 @ 10:47 am
  12. I’d like to offer some heretical thoughts here. I begin by asking, “Who owns a child?” Let us consider some five-year-old kid. Is this kid the property of his parents? I think not. NOBODY owns the kid, although we agree that the parents have some responsibility for it.

    But do the parents have sole responsibility for the child? Let’s not consider this in terms of vague “God-given rights” or “natural rights”. Let’s just talk about society’s interest in the child as a future taxpayer.

    I’m a taxpayer. I have to pay taxes. If there were lots of rich people, then they could pay some of the taxes and I’d have to pay less taxes for a given amount of government services. So I want to see my country populated with lots of highly educated, talented, hard-working, tax-paying citizens — because that takes some of the tax burden off of my shoulders.

    So, let’s consider this five-year-old kid. Suppose this kid has parents who are dirt poor and can’t take care of him properly. He doesn’t get the best of health care and he doesn’t get a very good education. Here’s the question: if society spends $1 on improving this kid’s upbringing, will it get back more than $1 in increased taxes during the course of the child’s career?

    Well, the answer to that question is complicated — it depends upon a lot of unspecified factors. But I think that everybody can agree that there do exist some conditions under which money spent on the upbringing of children benefits society as a whole. Thus, it is in society’s financial interest to invest SOME money in the upbringing of SOME children. Just keep thinking of them as future taxpayers.

    Now, let’s just set aside all the rhetoric about socialism and the rights of innocent children and the rights of parents and so forth. Let’s just consider it in terms of costs and benefits. If the benefits do exceed the costs, then would it not be desirable to expend public resources on the better upbringing of children?

    Comment by Chepe Noyon — September 29, 2007 @ 11:00 pm
  13. [...] get any smarter, she comes up with a great idea. Scott has a great post about this and links to Doug Mataconis at TheLibertyPapers… where he does the math on the Bond for Babies…or should be called Bondage for [...]

    Pingback by Math for Hillary’s Bonds for Babies — September 29, 2007 @ 11:54 pm
  14. If the benefits do exceed the costs, then would it not be desirable to expend public resources on the better upbringing of children?

    Who decides?

    Comment by Joshua Holmes — September 30, 2007 @ 12:22 am
  15. Chepe –

    You say: Now, let’s just set aside all the rhetoric about socialism and the rights of innocent children and the rights of parents and so forth. Let’s just consider it in terms of costs and benefits. If the benefits do exceed the costs, then would it not be desirable to expend public resources on the better upbringing of children?

    If that were the case, then we would be right to debate the desirability of the plan. However, the benefits would, under no circumstances, exceed the cost, mainly because the plan does not target any need. It’s a blanket payment to any newborn, whether that newborn is dirt poor or filthy rich. If the program were to limit payments to children of families making $30,000 or less with no savings, then the benefits *might* outweigh the costs.

    In addition, Clinton is proposing a vehicle for which the government would have to pay interest, resulting in the following revelation from Brian T. Taylor:

    Year 1: It spends $20b.
    Year 2: It spends $20b + interest on year before = $20.694b.
    Year 3: It spends $20b + interest on year before + interest on two years before = $21.413b.
    Years 4-17: …
    Year 18: It spends $35.737b.

    By the time the first group withdraws money, which, by the way, will have been deflated annually by an percentage roughly equal to the interest paid, the government will have spent $488b. All for this group of babies to have the purchasing power of ~$5000 in 2007 dollars.

    Also, in considering this, we must take into account that to generate the $5,000 to give to these kids, the government is really taking $7,500 out of the economy, just for the initial investment. So, your question of: “if society spends $1 on improving this kid’s upbringing, will it get back more than $1 in increased taxes during the course of the child’s career?” should really be: “if society removes $183,000 from the economy to improving this kid’s upbringing, will it get back more than $183,000 (plus whatever the rate of inflation over the intervening two decades is) in increased productivity during the course of the child’s career?”

    (For the record, the $183,000 per child comes from $488 billion total expenditure/4 million kids, which is $122,000, multiplied by 1.5 to account for government waste and opportunity costs associated with removing the money from private hands.)

    There are ways to spend money so that every child is, as you put it, highly educated … hard-working, [and] tax-paying. (I leave out talented because talent is really an inherent aptitude towards a particular activity, and short of wide-spread genetic engineering, it is out of human control.) First would be making sure every child has access to schools that offer coherent, effective instruction in English, math, science, and history. Such schools exist, but they’re rare. More would exist if schools operated in a free market rather than the district monopoly model of today. Second, eliminate the minimum wage. By cutting off access to the bottom of the economic ladder, we turn many young people from rough upbringings away from being productive citizens. Third, eliminate as much “free money” from the government as possible, as this is another incentive for people not to be productive. (Seriously, why work when you can get a check every month for doing nothing?)

    On a larger scale, you talk about looking at children “as future taxpayers”. I don’t agree with this view, as it’s inherently incompatible with their property rights. In short, you’re making a claim to property they’ve not even produced yet because they’re not even born yet. This idea of passing laws and entitlements that will be paid for “by future generations” is the ultimate form of taxation without representation. A child who has not been conceived cannot be represented by anyone, not even his would-be parents, as he is a total unknown to the planet, yet many Americans see nothing wrong with staking a claim in the earnings of future generations. This, if one takes umbrage to his own property being taxed away from him, is a totally hypocritical position.

    Comment by Quincy — September 30, 2007 @ 12:47 am
  16. Quincy,

    I agree with your thoughts, but I notice one mistake. In arriving at your $183,000/child number, you place 4 million kids in the denominator, when it should be 4 million/year * 18 years (72 million kids).

    That $488b number is the amount the government will have spent by the time the payments for the first crop come due. The payment to each kid at age 18 (in nominal dollars) is around $9,600 – the result of $5,000 compounded at 3.47% for 18 years.

    Theoretically, a trust fund established for this purpose would always have ~$488b in it, as the withdrawals for the current crop reaching maturation should equal the annual $5,000 deposit made in each kid’s name at year 0 plus the interest paid on each kid’s account for years 1-17.

    Comment by Brian T. Traylor — September 30, 2007 @ 2:59 am
  17. Quincy,

    I would add one more item to your list of getting highly educated and hard-working citizens. Eliminate the War on (Some) Drugs. There are many cases where a teenager has to decide between the legal world of working in McDonald’s or the illegal world trafficing drugs. (Drugs seem to win quite often.) Removing the government backed drug profits on things like marijuana and cocaine, teenagers would see less benefit from selling drugs and getting into gang wars.

    Brian,

    I don’t know about a trust fund for children, but government has failed in its “trust” fund for adults, Social Security. Why should we then even consider another trust fund run by the government? (There is a bit of rhetorical-ness in that last question.)

    Comment by trumpetbob15 — September 30, 2007 @ 9:58 am
  18. Joshua asks, “Who decides?” My answer is simple: the body politic. This is something to discuss and debate. Maybe it’s a bad idea; maybe it’s good. I’d like to examine it.

    Quincy, most of your post addresses Ms. Clinton’s plan. My suggestion in no way addresses her plan; the merits or demerits of her plan are irrelevant to my suggestion.

    I agree with your three suggestions, although I’d put a qualification on the third: “free money” from the government to a child has no disincentivizing effects, as the child is not suitable for employment. I would certainly support school vouchers, which are a form of “free money”.

    Lastly, I completely reject your final paragraph. In point of fact, the net effect of each generation is to provide subsequent generations with a better world — it’s the concept of “progress”. Kids today have a cushier life than I had as a kid — and that’s as it should be. Indeed, you completely miss the economic effects of my suggestion: I am proposing that we spend this generation’s money to produce benefits that will not be realized for at least twenty years. The only losers in this scheme are the very aged, who will not live long enough to enjoy the benefits of their contributions. But once the scheme has been operating for a few decades, the net effects can be positive for everybody.

    Comment by Chepe Noyon — September 30, 2007 @ 10:31 am
  19. So let’s just look at history for a moment here. Social Security was created to give Americans the ability to have a retirement fund setup and managed by the Feds to bridge the gap between what employers were paying at the time and what would be needed in the future. How long was it before the lawmakers starting raiding that fund for things it was never intended for?

    I think this proposal will go something like this. The money will be put into a “fund” the first 3-4 years. All of a sudden, Congress will see a big pool of money that is being “wasted”. They will move it to the General Fund and create all kinds of “wonderful” ways to spend this windfall of money. Now 18 years later when the first kid wants to withdraw, there’s no money in the kitty and now Congress has to pass a tax in order to keep the “fund” solvent and to create a “lockbox” for future generations.

    Now here’s the next question. Hillary makes this proposal just as the Baby Boomers are about to retire in great numbers. The current estimates show that Social Security will begin paying out more than it takes in during 2012. The whole system will collapse in 2029 if something isn’t done about it. Should we take this $5000 per kid, dump it in Social Security and call it good? Then instead of failing the seniors, who should have known better and saved for their own retirement, we will have failed the poor, innocent children!

    Comment by Eric — September 30, 2007 @ 11:04 am
  20. Chepe

    You make some good points. One area in which I think libertarianism is morally questionable is in how it treats poor children. But interfering with the market usually doesn’t work, and we often end up with more problems on our hands. For instance, the federal government already subsidizes college tuition, and the prices have shot way up. Then we incentivize kids to pay for college, even though many would be better off not going to a 4 year college.

    The bottom line is, with a (real) national debt of $59 trillion, we can’t just can’t afford to add $40 billion in future liabilities every year. The best thing we can do for the future generation is to pay back our debt so that they don’t have to spend $400 billion on interest every year like we do.

    Comment by GuyF — September 30, 2007 @ 11:20 am
  21. trumpetbob,

    I honestly intended to place trust fund in quotations, because of that very thing you mention. Were the fedgov to create this boondoggle of a program, any such trust fund would never have more than a dime contained within it.

    Comment by Brian T. Traylor — September 30, 2007 @ 11:32 am
  22. GuyF, I’m in total agreement that reducing the national debt would be a major contribution to the well-being of future generations (although I’m not sure that eliminating it is necessary). And I agree whole-heartedly that anything done by government is done badly. Nevertheless, I do think that there are two areas in which the government could supply a beneficial service:

    1. School vouchers. We pay for education anyway, and vouchers would simply obtain more efficient use of the money. I would insist, however, that vouchers be provided by the Federal government rather than the local governments, as this would iron out differences in wealth between different localities. I’d hate to see a future Bill Gates missing his chance to change the world because he just happened to grow up in a poor school district.

    2. Universal basic health care for children. If we leave it to the parents, then some kids aren’t going to get the basic medical care that will insure that they will be productive members of society. Again, I’d hate to see a future Bill Gates miss out because his parents didn’t get his tetanus shots.

    I would add the constraint that such government support should NOT address extreme cases: children with horrible genetic diseases or severe learning disabilities. One of the main things that makes our educational and medical systems so horrendously expensive is that we spend disproportionate amounts of money on the far end of the bell curve, trying to be fair to severely handicapped children. That’s not cost-effective — and it all arises because we get distracted by talk of rights. Let’s avoid that kind of talk and just concentrate on cost-benefit analysis.

    Comment by Chepe Noyon — September 30, 2007 @ 11:51 am
  23. If they administer this handout the way they administer Social Security then the kid may have enough money when they reach college to pay for their books for one semester.

    Dave

    Comment by Dave Nalle — September 30, 2007 @ 1:44 pm
  24. hahahaha

    Comment by oilnwater — September 30, 2007 @ 5:38 pm
  25. Chepe –

    I’m not totally against target spending to help the poorest kids not be confined to abject poverty, once we take away those actions of government that contribute to that situation: bad, monopolistic schools; minimum wage laws that close doors; the war on (some) drugs; and the creation of a victim and entitlement mentality through the use of badly constructed programs like welfare. Get those out of the way, and then re-analyze the situation. It’s the same approach I advocate on just about everything–get rid of the existing government distortions, let society (read: individuals) adjust, and then see where the needs really are. Then we have a situation where we see what needs aren’t being met by the free market, and how our previous efforts distorted the situation (positively or negatively), and then we can make informed decisions on how to move forward.

    You say: Lastly, I completely reject your final paragraph. In point of fact, the net effect of each generation is to provide subsequent generations with a better world — it’s the concept of “progress”. Kids today have a cushier life than I had as a kid — and that’s as it should be. Indeed, you completely miss the economic effects of my suggestion: I am proposing that we spend this generation’s money to produce benefits that will not be realized for at least twenty years. The only losers in this scheme are the very aged, who will not live long enough to enjoy the benefits of their contributions. But once the scheme has been operating for a few decades, the net effects can be positive for everybody.

    Actually, when you view children “as future taxpayers”, you’re doing quite the opposite of what’s been outlined above. I’m one of those kids (mid-twenties) that Californians viewed as future taxpayers when they were passing bond after bond to pay for things. A good chunk of my taxes goes to pay off debts racked up before I was born. I also get the feeling of being a future taxpayer when it comes to Social Security. I’m being forced to pay into a system that, in all likelihood, will not be solvent when I’m ready to retire. In more blunt language, I’m being forced, by the Feds, to invest in a pyramid scheme I know will collapse. Did I ever have a choice in either of these? NO. My vote never counted because I wasn’t even around to cast a vote.

    Clinton’s plan, because it’s made up of bonds instead of straight up spending, is more of the same. If you propose limited spending not financed by debt, then your above statement holds. Anything that involves debt financing, though, involves passing the cost of a benefit (in this case, Clinton solidifying her own power by spending other people’s money) off to future generations.

    Brian –

    You’re right! D’oh! (I really shouldn’t attempt to weave math into comments after midnight.)

    Comment by Quincy — September 30, 2007 @ 7:36 pm
  26. Quincy, each bond program must be analyzed on its own merits. You assert that bond programs saddle you with debt — but you don’t address any benefits. Most public school construction is funded by bonds — were you educated in a public school? If so, then you enjoyed benefits that you didn’t pay for.

    We can argue the costs and benefits of the individual programs all day. I am not defending Ms. Clinton’s plan — I think it has some fatal flaws. I am arguing for the principle that society is prudent to invest in the well-being of its children, rather than leaving the matter entirely to parents.

    Hey, you wanna get REALLY down and dirty? I think that the time has come for the government to require licenses to raise children. Egad! How utterly unlibertarian! Yet even the simplest of libertarian principles (“Your freedom ends where my nose begins.”) supports this concept. A parent who raises a kid who later murders me is really getting into my nose. I think it worthwhile to restrict child raising (NOT child bearing!) to people who have demonstrated basic competence in child-rearing.

    Comment by Chepe Noyon — October 2, 2007 @ 10:13 am

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