The economics of childcare

Why don't babysitters make much money?

Supply and demand.

Supply side: it's not skilled labor. It make take talent (like the patience of a saint), but the actual skills of doing laundry, spooning formula into one's mouth, and changing a diaper are not hard to learn.

Demand side: The ratio of childcare workers to small children is necessarily very low--we don't want 20 infants being cared for by one stressed out woman. The economies of scale in toddler care are low, at least if we want the toddlers in one piece at the end of the day. Say you want to pay your childcare workers 40K plus bennies and payroll taxes, a nice but not extravagent salary. Even before any overhead, at a tax rate of 25%, an eight-to-one ratio of children to workers means that you need to earn about $10,000 a year pre-tax per child to cover just the salaries of your daycare workers.

Needless to say, day care facilities do, in fact, have overhead. Given the other expenses, almost any average family with two small kids would be better off having Mom stay home.

The government could subsidize it, of course. But then you'd have to bump all the salaries of those who teach older children, to cover the skill gap. This would be very pricey. It would be pricey even without the bump, because America has a lot of childcare workers. And you still wouldn't attract all that many higher quality workers, because wiping noses is not the sort of thing most women go to college for.

Comments

"...spooning formula into one's mouth"

Hopefully, the day care workers know to mix the formula with clean water and give it in a bottle.

Posted by MH | June 27, 2008 2:30 PM

I have a friends who are looking at day care my employer provides on-site- the cost/year/child is $12,000, and I am betting that some of the cost is subsidized by my employer.

Posted by Yancey Ward | June 27, 2008 2:51 PM

You mean, having mom or dad stay home...

Posted by MP | June 27, 2008 2:54 PM

Yancey - I don't know in what area of the country you live, but your "bet" is probably pretty accurate. Daycare for my newborn is going to amount to about $18,000 a year, although I'm told that will go down considerably as she gets older. If you have even two kids, it's actually cheaper to get an au pair, and it's a pretty close call at just one kid!

On the other hand, I've heard that in some areas of the country, you can find daycare for less than half that cost.

Posted by Mark | June 27, 2008 3:06 PM

Ridgefield/Danbury, CT, Mark.

Posted by Yancey Ward | June 27, 2008 3:14 PM

As part of a two income family with a child in daycare, supply and demand is one part, but the more important economic factor is a cost benefit analysis on the part of the consumer parent. I have no statistical evidence for this, but I suspect most peopele put their children in daycare so that they can go to a job. For a two income household, the cost of childcare becomes to high, one person will stay home. If 100, or even 80% of my salary were going to child care, I would forego employment, spend more time with my kid and my economic situation would not be adversely affected.

On a different note 10K a year over 50 weeks (2 for vacation) works out to $200 a week. At least where I live, professional stand alone daycare with employees costs considerably more than that. Given the numbers quoter, I suspect that many of the professionals reporting income work out of their homes and are possibly part time themselves.

Posted by JoeV | June 27, 2008 3:15 PM

After we had our 2nd child the math on my wife returning to work (as a teacher)netted us about $200 a week after child care, transportation, lunches, etc. She stayed home and I delivered pizzas a couple of nights a week to make up the budgetary slack.

Posted by COD | June 27, 2008 3:35 PM

Needless to say, day care facilities do, in fact, have overhead. Given the other expenses, almost any average family with two small kids would be better off having Mom stay home.

You forgot taxes -- the family has to pay it's highest marginal rates on Mom's 'extra' salary (or Dad's if he's the lower paid parent) before using any of that to pay for daycare. The tax credits don't come close to making up for that. Get rid of the marriage penalty by allowing married couples to file as singles would help a lot there.

But, on the other hand, figuring 80K per child-care worker is a bit excessive. And there doesn't have to be a dedicated daycare facility involved. Hire an au pair to work at your house. As long as the lower-earning parent makes more than an au pair (after taxes), you're good. Or find a small home-based daycare where the people watching your kids don't have the extra overhead of a facility.

Posted by Slocum | June 27, 2008 3:46 PM

"And you still wouldn't attract all that many higher quality workers, because wiping noses is not the sort of thing most women go to college for."

this is a rather interesting thing to say. wiping noses is by far the easiest part of caring for a child and if we were just looking for someone to change diapers and wipe noses we could probably build a robot or some contraption to do that. The reality is that caring for a child requires far more than that. As someone who has two small children I can tell you that my college degrees have been put to use more often than I can count and yet I still find myself having to do research to answer the questions they endlessly present. Childcare workers are paid to wipe noses and change diapers and at their low salary little else could be expected of them. We should however have the most intelleigent, educated people we can find spending such large amounts of time with our children.

Posted by jessie | June 27, 2008 3:57 PM

My daughter made around $120 for a few hours babysitting on New Years Eve. Supply and demand rules!

Posted by KathyF | June 27, 2008 4:44 PM

As you may or may not have noticed, I am back to reading you again after a 12 week absence due to my baby's birth. I have researched the hell out of some day care and yes, it is damn expensive. In Loudoun County, VA where I live (outer suburb of DC), rates for infant care are from $200/week to $550. The lower ranges are for in-home providers, the upper for a Montessori school with an all-day infant care program. The dependent care FSA tops out at $5,000 per family (unlike the $5,000 per person cap for medical FSA). As you might imagine, even though my daughter will only be in day care for 7 months of the year, I'll still spend more than the FSA will shelter from taxes. I don't make a lot, but it's enough to warrant my going back. I don't think the same can be said for when baby #2 arrives in a few years.

By the way, I'm pretty annoyed at my mom who promised me when I got married 5 years ago that she would retire and take care of my children when they arrived. She took a week off of work to care for DD the first week I went back, but she has no intention of retiring anytime soon, and she's 71! So I'm using a woman who has a day care in her basement and charges $225/week. She's excellent, but I'm still annoyed that I have to pay anyone to care for my precious girl when I would gladly stay home with her if we could afford it.

Posted by Christina | June 27, 2008 4:46 PM

My former roommate earned $10 per hour as an entry-level daycare worker, with absolute bare minimum benefits (she would have had to pay $100 per month toward bare-bones health care, had she signed up for it). This was at one of the best day care facilities in our city of 90,000 people here in New Hampshire. I strongly doubt that *anybody* in this field is being paid 40K/year and full bennies, even in big cities.

Additionally, she often complained that the other, older women would take long breaks and leave her watching a room full of 20 toddlers all by herself for long stretches of time, so we're not far from Megan's formula of 20 babies per stressed out woman. She described the women as playing status games based on age (my roomie was in her early 20's at the time) and whether or not they were "certified" child care workers, with the certified women doing the least actual work with the children. Having heard first hand what goes on in these places, if I have kids someday, I would move heaven and earth to avoid putting my kids in day care, even if that meant that I'd have to figure out how to make a living free-lancing from home. I don't know how every day-care kid doesn't end up needing years of therapy.

My roomie also reeked when she got home at the end of the day, especially during the summer. I could smell her as soon as the walked in the door. Plus, she got horribly sick at least once a month with whatever bug was going around. It's miserable, disgusting work, even for people who love kids like she does, and for the most part only the truly desperate will do it. They'll take whatever you offer to pay them. She lasted five months and then moved back to Vermont.

Posted by anonymous | June 27, 2008 4:58 PM

Get rid of the marriage penalty by allowing married couples to file as singles would help a lot there.

You can file as singles if you're married, just file "married filing separately" BTW, the income brackets for married filing jointly are twice as large as the single ones. The reason why the second earners marginal tax rate is higher, is because the first is lower than it would be if you weren't filing married filing jointly.

Posted by JordanT | June 27, 2008 5:10 PM

... I suspect most people put their children in daycare so that they can go to a job. For a two income household, the cost of childcare becomes to high, one person will stay home. If 100, or even 80% of my salary were going to child care, I would forego employment...

This is exactly why the effect of tax increases on employment is much higher on "second income" earners.

I.e., people often argue about the effect of taxes on employment, and whether a tax increase reduces the number of people who work.

The answer is that the effect of an income tax increase on the number of "first jobs" is slight because every household needs a first income and goes for the highest one it can get whatever the tax on it -- but the effect on "second jobs" is high, because the income from a second job substitutes for the cost of hiring a housecleaner, nanny & all the other expenses one must incur to run a household when not there to do it yourself. And because the second job pushes a married couple up into a higher marginal tax rate, as noted above, the second-job response to taxes is magnified.

So the more two-income couples there are, the higher the effect of taxes on employment levels.

Posted by Jim Glass | June 27, 2008 5:19 PM

You can file as singles if you're married, just file "married filing separately" BTW, the income brackets for married filing jointly are twice as large as the single ones. The reason why the second earners marginal tax rate is higher, is because the first is lower than it would be if you weren't filing married filing jointly.

No, "Married filing separately" does not equal "two singles filing separately". For two people making roughly equal salaries, the marriage penalty is exactly that--although there is a marriage benefit to couples with a non-working spouse or one who earns very little.

This a pernicious feature of the U.S. tax system -- it penalizes egalitarian marriages and subsidizes those with a traditional single bread-winner and non-working spouse. See if you can guess what kind of marriage my wife and I have ;)

Posted by Slocum | June 27, 2008 5:31 PM

I might have added just above that as an income tax increase reduces the number of second jobs and increases the number of couples who have someone stay home to take care of the kids, it indirectly reduces the wages of child care workers by reducing the demand for them.

So if you are a member of that union, vote accordingly.

"Get rid of the marriage penalty by allowing married couples to file as singles would help a lot there."

You can file as singles if you're married, just file "married filing separately"

Except Congress hates separate filers for some reason, and has really loaded up the Tax Code to discriminate against them.

Posted by Jim Glass | June 27, 2008 5:33 PM

I would also argue, though I haven't seen a formal study documenting it, that child care wages rise less than proportionately with growth of the number of children needing care due to rising family size, resulting from diminishing demand for average quality of care.

That is, from personal experience...

First child: everything is sterilized, and if anybody in the house sneezes everything is immediately seized and sterilized again.

Second child: bottle drops on floor, pick it up and wipe it on your sleeve.

Third child: bottle drops in cat box, "quit your whining and go pick it up yourself".

Posted by Jim Glass | June 27, 2008 5:44 PM

For two people making roughly equal salaries, the marriage penalty is exactly that--although there is a marriage benefit to couples with a non-working spouse or one who earns very little.

I still don't see what the problem is with filing "married filing jointly" since the tax brackets are effectively doubled. The second earner does have a higher marginal tax rate, but this is only because the first earner has a lower marginal tax rate than if they were filing single. At least for me and my wife, our taxes went down ever so slightly (few $) when we got married, versus when we were each filing single.

Posted by JordanT | June 27, 2008 5:48 PM

You ask, why don't babysitters make much money. Well, I assume you mean daycare workers, since white middle class teenagers do quite well. Daycare workers are poorly paid for several reasons.

1. People think, mistakenly, that parenting is easy. After spending an entire week with my kids, believe me. Blogging is easy. Parenting is hard. I see rookie parents at the mall all the time; they have no clue what they're doing.

2. Traditional women's work is always poorly paid, because men think everything we do is easy.

3. Society wants it all. They want us in the workforce, but they really don't want to pay for it, because they really look down on us for working.

4. Women aren't advocating for more money for daycare workers, because they can't afford to pay it. Or they secretly resent the daycare workers. Or they are too busy with everything else on their plate.

5. Daycare workers are too poorly educated and too abused to actually advocate for themselves.

Until people learn that raising kids takes more brains and talent than a warm bowl of oatmeal, daycare workers (and the kids) are screwed.

Posted by laura | June 27, 2008 6:02 PM

People think, mistakenly, that parenting is easy.

Aren't most of the people paying for childcare, um, parents? Shouldn't they have some clue about the relative easyness of it?

I'll leave the rest of your bizarre and economically clueless statements to others.

Posted by Rob Lyman | June 27, 2008 6:16 PM

And you still wouldn't attract all that many higher quality workers, because wiping noses is not the sort of thing most women go to college for.

Actually...to take this in a slightly different sense, if you want a good daycare service, then by all means look for one in a college town, preferably one where the college specializes in human services type careers such as teaching or nursing. Suddenly you've got a surfeit of capable female workers who generally have their basic needs already funded or heavily subsidized, like working with people, and have only part-time availability and corresponding wage expectations. Voila...

Posted by aMouseforallSeasons | June 27, 2008 6:26 PM

I still don't see what the problem is with filing "married filing jointly" since the tax brackets are effectively doubled.

But they're not -- if two people each making $75,000 get married, they'll pay more in taxes than they did as two singles. They won't pay as much income tax as a single person earning $150,000, but they'll pay more than they did before. And then there's the SS payroll tax. A family with one $150K earner pays payroll taxes on $97,000. A family with two $75K earners pays the payroll tax on the whole $150K. That's a difference of several thousand dollars (depending on how you count the 'employer's share'). And yet the widow who lived a life as a non-working spouse gets to collect social security benefits at her husband's level, while a single women who worked full-time all her life and paid into the system for decades may collect much less. Guess I'm wandering off topic a bit, but the point is there are some perverse incentives regarding marriage and family life built into our tax code.

The second earner does have a higher marginal tax rate, but this is only because the first earner has a lower marginal tax rate than if they were filing single.

But it doesn't balance out. And it wouldn't really matter if it did, because the high marginal rate on the second earner is the disincentive for the second spouse to work regardless of the marriage effect on the first income.

At least for me and my wife, our taxes went down ever so slightly (few $) when we got married, versus when we were each filing single.

Then your incomes must be fairly unequal.

Posted by Slocum | June 27, 2008 8:16 PM

Substitute "teacher" for "daycare worker". Lather. Rinse. Repeat.

Posted by JPC | June 27, 2008 8:16 PM

I still don't see what the problem is with filing "married filing jointly" since the tax brackets are effectively doubled.

The "marriage penalty" -- meaning the extra tax paid by two married persons with equal incomes over that paid by two single persons with the same incomes -- was basically eliminated through the 15% tax bracket in 2005, but remains at higher tax brackets.

But note the "penalty" is subjective depending on one's position -- and that as social standards have changed, the politically popular view of just who is getting a "penalty" and "bonus" through the tax rules has changed too.

Originally the Tax Code treated spouses as two separate taxpayers who had to file their own tax returns. But community property laws in some states let couples in them effectively file joint returns. To equalize filing opportunities Congress created federal joint filing in 1948. Under that law, joint tax liability was simply the spouses' combined income taxed after double-allowing the single standard deduction, using double-wide tax bracket rates, etc. -- Yea! No marriage penalty!

But in that world of single-earner families, that unhappily was popularly perceived as creating a "single penalty -- marriage bonus". Two persons would cut their taxes simply by marrying. Unfair!

To remedy that inequity, Congress created the marriage penalty entirely on purpose in 1969.

But by the 2000s the two-earner couple with similar earnings had become the norm, so now what was the "inequity" reversed -- simply by dint of how many couples in each position were voting.

A great deal of tax law is like this, popularly perceived "justice" is just how many people have that interest.

In economic terms there's a "conflict of justice" in these marriage tax rules too. Two people don't exactly live as cheaply as one -- but the Census estimates they live about as cheaply as 1.4. Thus, eliminating the marriage penalty creates a "marriage disposable income bonus". Unfair!

OTOH, incentives matter too, and eliminating that bonus with higher marginal tax rates for couples reduces their rewards from extra work compared to singles. Unfair!

So the choice is inequitable allocation of disposable income versus inefficient and inequitable incentives at the margin. Pick your tax code poison.

Posted by Jim Glass | June 27, 2008 8:41 PM

3. Society wants it all. They want us in the workforce, but they really don't want to pay for it, because they really look down on us for working.

I don't see what society has to do with anything. It's more of a personal choice to work (for pay) and pay someone else to take care of the kids, work (without pay) by taking care of the kids yourself (you have a spouse with a good job or can live off of savings or royalties or something), or try to work at home (for pay - such as writing) and take care of the kids at the same time. There are also variations like getting the grandparents to babysit.

I guess I would turn your statement around to: "I want to work in the workforce, but I don't want to pay for childcare."

Posted by Nelson | June 27, 2008 9:07 PM

Wow! I thought that the social sciences had long ago learned that correlation does not equal causation.

The idea that married vs. single filing tax rates have any causal relationship with child care pricing is entirely without empirical evidence.

In fact, I am not aware of *any* empirical model in which tax rates *cause* any human behavior whatever. Show me just one neurophysiological study that connects those phenomena at the molecular level.

Correlations are easy. Let's do some real science here before claiming a causal connection between tax rates and child care. Sheesh!

N.B. Perhaps tax rates do cause parents to make child care decisions. Either they do or they don't. My point is that correlation studies from the armchair won't answer the question--only low-level causal models will.

Posted by Daryl Close | June 27, 2008 9:50 PM

But they're not -- if two people each making $75,000 get married, they'll pay more in taxes than they did as two singles

According to the HR Block Tax calculator the single person pays $12,998 on $75,000 and a married couple pays $26,093 on $150,000 using standard deductions. Hardly much of an argument for not working because the marriage penalty is so painful. I know that the payroll tax hits the married couple harder than a single making $150,000, but the married couple will also draw more benefits than the single in the end.

A single making 250K a year send $66,249 to the government and a married couple at $500K a year sends $142,668 to the government. That's a whopping difference of $10K a year on a $500K income if they were single. I hardly think that's a major disincentive to not working or not getting married.

Posted by JordanT | June 27, 2008 10:11 PM

I used to be one-quarter of a home daycare team, and this really does seem to be about the expectations of the market, as well as the usual inability to evaluate performance. Let's do a few numbers: a person making $10/hr full-time will be making $20K/yr. This is not an exorbitant salary. Now, where I live, typically an infant to 4-year-old will be at daycare 45 hrs/wk. Parents simply will not pay $10/hr for care for their children, even here in College Town, even if the provider is a degreed professional. No, we charged $300 to $350/wk, depending on what was provided in the way of diapers, formula, etc. That is, about $8/hr, which isn't far above minimum wage in a lot of places. The reasoning seemed to be that their kids were just 'marking time' until their parents came to pick them up, at which point, the real quality parenting came in.

Now, most parents put a much higher value on _their_ time with their kids, even if they were terrible parents who just propped up the baby between them while watching TV. In fact, _their_ value was rated, conservatively, at about $30 to $50/hr.

So if we paid providers at that rate, you might see more and better-quality care. Not going to happen, of course, for all the usual reasons.

Posted by ScentOfViolets | June 27, 2008 10:56 PM

MM says:

...it's not skilled labor."

...the actual skills of doing laundry, spooning formula into one's mouth, and changing a diaper are not hard to learn."

...you still wouldn't attract all that many higher quality workers, because wiping noses is not the sort of thing most women go to college for
"

Wow! I'm guessing Ms. McCardle is a single, childless, 30-something.

Some don't consider the labor to provide adequate childcare as skilled because...most childcare providers didn't attend an institution of higher learning and take a dozen or so classes to complete a major?

Most of us start learning how to provide care for children when we are still children ourselves. It's a process we all kind of absorb while being the recipient of care when we are born and later in providing basic care to our siblings as we grow up. It doesn't seem like training because we get it 24/7 as opposed to sitting in a few lecture halls for a few hours a week. The experience (skills) we grew up with likely will be the experience (skills) we use if/when we care for children.

Some of us are fortunate enough to have had the benefit of parents or other providers who were interested, caring, skilled (yes...skilled) nurturers. If we were really luck we had providers who were knowledgeable in foods and nutrition and weren't just serving us mac and cheese and fish sticks. Doing laundry may not be rocket science but ironing a pleated skirt properly does take skill.

Others (for some reason Britney Spears pops into mind)... were not not so lucky.

Most of us grew up somewhere in the middle. And we still turned out ok so I guess that does lessen the impression that caring for/raising children really ain't all that difficult.

Some of the worst parents I know are highly educated (aka highly skilled) highly financially remunerated "professionals". People who really had little interest and involvement in their children's upbringing. Fortunately they had the financial resources to pay others for that service - lots of camps and boarding schools were involved.

There are lots of reasons why we place a low monetary value on the labor of childcare outside of strictly supply and demand. I wouldn't expect an economist to necessarily understand these other complex reasons as they are outside of their area of expertise.

I guess our host could, however, talk some of that economist talk about the negative externalities that result from the lack of respect and resources that our culture directs towards the raising of our children.

And as to the notion that only higher quality workers go to college or that what comes out of college is necessarily higher quality workers...well...that is this weeks winner of "Stupidest Thing I've Read".

Posted by Stewie | June 27, 2008 11:07 PM

Given the other expenses, almost any average family with two small kids would be better off having Mom stay home.

Not when you consider the impact to Mom's earning ability.

because wiping noses is not the sort of thing most women go to college for.

You're right. Some women go to college to find meaningful work. Other women go to college in order to get the kind of job that will allow them to land husbands who will support them in the manner their daddies did--and then they'll stay home and wipe the kiddies noses. Or their nannies will.

Posted by Cal | June 27, 2008 11:46 PM

This might be where I can be justifiably classed as a liberal - though I hope not. I suspect there is something to this notion that the way you raise kids has something to do with the way they turn out, starting from a very young age.

And yes, taking care of kids and raising them right takes skill, stamina, and aptitude. I can think of a few kids my daughter knows who would probably be better off being raised professionally. Not your low-rent, lazy types who put their dereliction of parental duties on their kids either, but parents who genuinely think that what they are doing is what is right.

Posted by ScentOfViolets | June 27, 2008 11:56 PM

But day-care workers aren't "Raising them right." They are: keeping them from getting injured, cleaning them, feeding them. That's it. If you don't understand that's what day-care workers are doing, then you don't understand day-care. (you may believe that "sending a kid to day care" is the equivalent of outsourcing parenting, then you need to read the studies. whether or not it feels that way, parents, even FT working ones, are the biggest influence on the outcomes of their small children.)

There's roughly half the population who has "the skills" to do it. There's no aptitude requirement, and the stamina is irrelevant, too, as high turnover in day-care centers doesn't exhaust the supply of replacements.

Posted by mouse | June 28, 2008 1:00 AM

I'm not aware of any infant daycare that has a 8:1 ratio. Childcare is very expensive because you really can't get any productivity leverage out of it. Kids need a lot of one-on-one, and no matter how good someone is, you can't enable one worker to handle more diapers, bottles, sniffles, etc. A day care with 10 babies for one caretaker is a frightening thought. (This is also why education costs far outpace inflation.)

Most parents want as close to one-on-one care for their infants and toddlers as they can afford. The vast majority of childcare is paid in after tax dollars. Due to commutes, most families either need childcare for more hours then they work or need to have one parent with lots of flexibility. This puts a severe cap on what families can afford for childcare. Demand for childcare falls dramatically as pay for caregivers increase. Despite the huge expense, there's a huge stress on the family having two wage-earners. How to manage doctor's appointments? kid's illnesses? grocery shopping? picking up the dry cleaning? Day care doesn't handle that. It's not worth it unless the caregiving parent is bringing in real extra money.

And as Megan says, there is plenty of supply. Childraising is a skill, but it doesn't require a college degree. There are many skilled immigrants - often much more skilled than Americans as they've spent their lives raising children. And many don't have a lot of other options.

Posted by Jenny | June 28, 2008 1:25 AM

The government could subsidize it, of course. But then you'd have to bump all the salaries of those who teach older children, to cover the skill gap. This would be very pricey.

Also: the economic repercussions on local news stations, deprived of their standard 'is your child safe at daycare?' story, would be terrible. Low-rent cheap-ass daycare keeps WBFK-TV in news. How Scandinavian local news coverage survives with its well-paid, respected childcare providers, I do not know.

Posted by pseudonymous in nc | June 28, 2008 1:39 AM

I would disagree with a few of your points.
It is true that most adults can figure out a way to spoon food into a baby but the decision of what, when and how much is actually the field of nutritionists. It is easy to play with a toddler but the field of physical development and kinesiology is one of significant research. Yes it is easy to cuddle a child but the fields of medicine, biology, psychology and mental health are all involved here and the more you know, the better. And yes it is easy to watch a child babble but to stimulate language, to speak at the child's level and just a bit above, to listen attentively and help the child engage in conversation- that is a vital field of research too.
Large group childcare centres are warehouses of mass-treatment of kids. If you think care of kids is low-skill, then any port in the storm will do. But if you think each child is a fascinating blend of skills and interests with unique attention span and language development progression, then 'just babysitting' becomes an illogical expression.
I see taking care of a child as akin to making a hamburger. Anyone can slap meat into a bun. But that's not a very good burger. For the good kind you need a lot more.

Posted by Beverley Smith | June 28, 2008 9:28 AM

But day-care workers aren't "Raising them right." They are: keeping them from getting injured, cleaning them, feeding them. That's it. If you don't understand that's what day-care workers are doing, then you don't understand day-care.

Rather than upbraid you four your usual obtuseness, which is what I usually end up doing, I'll just quote this:

I used to be one-quarter of a home daycare team, and this really does seem to be about the expectations of the market, as well as the usual inability to evaluate performance.

My current partner has a degree in child development, btw, and keeps current on all the research on what children (at the young end of the range) need . . . which apparently is quite a bit more than simply wiping noses and changing diapers. That's what _I_ did, btw; she got to do the fun stuff with marbles and sand and textures and songs and reading and . . .

Jenny is right about the ratios, btw; we took care of seven or eight with two full-time adults. It was, needless to say, labor intensive. And I repeat: parents reluctant to pay $10/hr for daycare somehow have the notion that _their_ time is worth $40 to $50/hr.

Yet another area where economics breaks down.

Posted by ScentOfViolets | June 28, 2008 10:45 AM

As many have noted, there is a limit to the actual volume of output. This volume goes up the older the children are, but seems to be limited to about 5 at the upper end for preschool children (with a limit of about 2 to 3 for infants). Almost no parents can pay even $15 dollars an hour for full time day care. This means that, at a maximum, a daycare worker can bring in $75/hour, or less, and usually a lot less.

This is the reason the pay is so lousy for the majority of providers, even for those who have an abundance of actual high quality childrearing skills.

It is always amusing when someone claims an economic failure whenever people are unwilling to pay more than a certain amount for a good or service. It isn't a market failure, it is simply the price signal indicating what the market will bear for the service. One might as well claim a market failure that people aren't willing to pay plumbers $1000/hour.

Posted by Yancey Ward | June 28, 2008 1:06 PM

SOV -- what the does "Yet another area where economics breaks down." mean? It's like saying you're pissed at the second law of thermodynamics because you have to pour gas into your Prius occasionally.

Economics is what it is -- a description of the choices people make in terms of production and consumption of goods and services.

In small words, if someone has to pay more for a day of childcare than they can make doing whatever else than they WILL STAY HOME AND DO IT THEMSELVES. That puts a firm cap on what the average person will (can) pay. Economics just gives you the tools to explain this instead of being amazed that it happens.

Damn, I can't move faster than the speed of light -- frikin' Quantum mechanics!

Posted by BladeDoc | June 28, 2008 1:12 PM

SoV:
No, we charged $300 to $350/wk, depending on what was provided in the way of diapers, formula, etc. That is, about $8/hr, which isn't far above minimum wage in a lot of places.

That's only a meaningful comparison if you have a one-to-one ratio. But you said your ratio was in the 3.5-4 range:

Jenny is right about the ratios, btw; we took care of seven or eight with two full-time adults. It was, needless to say, labor intensive.

Which is not $8 per hour, but more along the lines of $30 per hour.

Posted by Brandon Berg | June 28, 2008 1:17 PM

But day-care workers aren't "Raising them right." They are: keeping them from getting injured, cleaning them, feeding them. That's it. If you don't understand that's what day-care workers are doing, then you don't understand day-care. (you may believe that "sending a kid to day care" is the equivalent of outsourcing parenting, then you need to read the studies. whether or not it feels that way, parents, even FT working ones, are the biggest influence on the outcomes of their small children.)

Read those studies again. Or read more studies. Or perhaps you should read studies from AFTER the 19th century. Then you can make intelligent comments.

Posted by L2P | June 28, 2008 2:12 PM

Sigh. I'm either over-paying, or underpaying (evil capitalist-pig-dog that I am), or have unrealistic expectations, or ... something. As usual.

There was an interesting article I read a couple of years ago (I'd swear it was in the NYT, but I can't for the life of me find it) estimating the second-salary break-even thresholds for employing a legal vs. illegal nanny. Point of the article was basically that enforcing domestic help hiring laws (no illegals, everyone paying SS and taxes) would take several hundred thousand (mainly women) workers out of the workforce in NYC. I vaguely recall that the difference was a break-even of about $50K/year (for an illegal under-the-table worker making about $12/hour, 50 hours/week) and $80K/year (for a legal worker making about the same take home after everyone pays SS and taxes), but don't quote me.

Posted by Kathryn | June 28, 2008 2:26 PM

Your perfunctory answer, "Supply and demand," to your rhetorical question shows how little you know about economics, despite your job description. The fact that you manage to draw a salary under the job title of "econoblogger" from your uninformed ramblings is prima facie evidence that labor markets are not efficient.

Labor markets are in fact are among the most complex of markets to model, and for that reason there is an entire subfield of economics devoted to its study. It would behoove you to study the current state of knowledge in the field before, once again, polluting the Internet with your misinformation acquired in business school.

Start with the definition of the type of labor being provided. If by "babysitter", we mean a contingent worker, hired to give respite to parents who wish to substitute temporarily for their own child care labor, so as to consume a leisure activity such as a night out on an anniversary, we are purchasing labor in a spot market, where there is imperfect information deficit on the quality of "babysitter". Among the attributes that affect the low wage is that uncertainty about the skill, reliability, and dependability of the babysitter in charge of the child.

If, on the other hand, you are choosing to label the entire activity of child-care by "babysitting"; then you are choosing to demean the whole activity of childrearing by that choice of words. We are also talking about an entirely different market.

A survey of the childcare market would reveal that the prices for infant childcare is more expensive than toddler childcare, which in turn is more expensive than school age (after-school) child care. That price differential reflects the intensity of labor input necessary at each stage of life.

But, in spite of these price differentials, the market for childcare does not clear. Your commenters reveal the difficulty in finding a sufficient supply of childcare at the current market price. To raise the wages of childcare workers would attract a larger supply of talent to the market. What's stopping this from happening? Your favorite stalking horse of government intervention? Or is this a "market failure" necessitating government intervention?

Consider an alternative market scenario: Certification of child care providers reduces the information deficit, allowing parents confidence that they can obtain competent, skilled care. Who does the certification? Could be government, could be a union of child care providers self regulating, could be both.

Ah, but those higher-skilled, certified childcare worker will surely demand higher compensation. Good for them! Will the costs of providing child care rise to reflect the resource input necessary to assure quality? Certainly. How will low income workers afford it? Look to Sweden and other more enlightened expressions of capitalism. Who pays for all this? The financing of social solidarity, beginning with a progressive tax system. We could begin to build such a system and improve market efficiency to boot, by confiscating the salaries of overcompensated, incompetent Atlantic econobloggers.

Posted by Clbetley | June 28, 2008 3:51 PM

Clbetley

Who pays for all this? The financing of social solidarity, beginning with a progressive tax system.

Or, perhaps the Government could just neuter all the poor people...

Posted by Better than Ezra | June 28, 2008 5:43 PM

Well, towards the end we were paying $45000 plus employer-side Social Security plus Kaiser to our nanny, and that was how we fended off the other parents who tried to poach her away from us. So, the market was working! Skill factor: she was absolutely swell, had a wonderful sense of our kids, we were very confident that she was making good decisions with them. That was why others tried to lure her away. Clbetley, she was wholly uncertified. But the mommy network in our neighborhood had figured her out, and everybody wanted her.

My wife's salary is substantially higher than mine, we considered my quitting, however I was making a profit (not much) by going to work. We did it, because if I stepped out of the work force it would be hard as hell to step back in, and because we wanted not to interrupt my pension eligibility.

Posted by dave.s. | June 28, 2008 5:46 PM

SOV -- what the does "Yet another area where economics breaks down." mean? It's like saying you're pissed at the second law of thermodynamics because you have to pour gas into your Prius occasionally.

Oh, gawd, another illiterate refuge from Cafe Hayek, or some other equally unsavory place. Uh, no, the two aren't remotely comparable.

Economics is what it is -- a description of the choices people make in terms of production and consumption of goods and services.

And - of course - we see the inability to discern the difference between description and prediction.

Economics just gives you the tools to explain this instead of being amazed that it happens.

Damn, I can't move faster than the speed of light -- frikin' Quantum mechanics!

Posted by BladeDoc

You need to read before you comment. I made the point that most parents put the value of their own efforts at daycare considerably higher than they do people who do it for a living, professionally, and even have degrees in the subject; that is, they'd say their time with the child is worth $30/hr as opposed to someone else who they would only value at $10/hr - if that.

This despite the fact that they have no evidence to conclude this. Got it now?

And btw, QM has nothing whatsoever to say about the speed of light; in fact, there are entities that routinely exceed it. If you're going to make derogatory comments about someone else's apparent lack of knowledge, it would behoove you to make sure you're actually qualified to make that judgment first.

Posted by ScentOfViolets | June 28, 2008 6:58 PM

That's only a meaningful comparison if you have a one-to-one ratio. But you said your ratio was in the 3.5-4 range:

Why is that not a meaningful comparison?

Jenny is right about the ratios, btw; we took care of seven or eight with two full-time adults. It was, needless to say, labor intensive.

Which is not $8 per hour, but more along the lines of $30 per hour.

Posted by Brandon Berg

Sigh. _The_parents_ will only pay about $8/hr, regardless of whether or not theirs is the only child in your care. They definitely will not pay $30/hr. This isn't hard to understand.

Posted by ScentOfViolets | June 28, 2008 7:12 PM

Of course, all the above discussion misses completely the fact that most people obtain an additional value from the caring for their own children- a value that is repeatedly missed in trying to determine rather or not it makes rational sense to do it yourself rather than pay someone else to do it- even someone considered to be an "expert" at it. This, again, is not a failure of economics but a failure of some people to think beyond the surface of the issue.

Posted by Yancey Ward | June 28, 2008 7:23 PM

It will always be an extremely rare family who will pay $30/hour for childcare - most wage earners will be priced out of the market. If you need care 45 hours a week, the cost per year, before taxes, insurance or any other expense will be $70,200. If your marginal rate is 40% (which is pretty easy to do here in CA), you'll need to earn $117,000 to cover that expense, if you pay under the table. If you pay legally, it will be much more. If that were a per child rate, you'd need to earn $250,000 just to cover your child expenses. Because the vast majority of childcare expenses must be paid with post-tax money, you have to pay your child care a pretty steep discount off of your income to make it work. (And to respond that you then shouldn't have children or you must stay home if you make less than $150,000 is really not a solution.) My solution to raise the pay of childcare workers - abolish the income tax!

Posted by Jenny | June 28, 2008 8:02 PM

SoV:
_The_parents_ will only pay about $8/hr, regardless of whether or not theirs is the only child in your care. They definitely will not pay $30/hr. This isn't hard to understand.

No, it isn't hard to understand. What I don't understand is why you think this is relevant. Parents aren't willing to pay $30 per hour per child, but collectively they're willing to pay $32 per hour for four children.

If parents really claim that their time with their children is worth $30 per hour* (or $40-50 as you claimed upthread), that's just signalling. That number isn't the result of a rational calculation--it's what they think they have to say to avoid being seen as bad parents.

We know that parents don't really think time with their children at $30-50 per hour, because if they did their behavior would be radically different. For one, only about 5% of mothers would work, because that's about how many can bring in $30/hour net of taxes and expenses.

*Cite? Does that mean that they provide $30 per hour worth of value? Value to whom? Or does it mean that they subjectively value time spent with their children at $30 per hour?

Posted by Brandon Berg | June 28, 2008 8:14 PM

Maybe you don't understand because you can't. Parents only value care for _their_ child at $8/hr. They don't look at what other parents are doing. This - again - comes from being a junior partner in a daycare concern. I'm going to go out on a limb here and say you don't have any first-hand experience with this stuff.

We know that parents don't really think time with their children at $30-50 per hour, because if they did their behavior would be radically different. For one, only about 5% of mothers would work, because that's about how many can bring in $30/hour net of taxes and expenses.

Uh huh. No, they place a premium value on it because they think they can do a better job. Do you read before you post? Here is one of my comments again:

I made the point that most parents put the value of their own efforts at daycare considerably higher than they do people who do it for a living, professionally, and even have degrees in the subject; that is, they'd say their time with the child is worth $30/hr as opposed to someone else who they would only value at $10/hr - if that.

Again, this isn't hard to understand. Nor, I think, was I being opaque.

Posted by ScentOfViolets | June 28, 2008 8:29 PM

Here's the math:
I work part-time, so my kids are at day-care two days a week. But I happen to have gotten the rate sheet a few days ago. In the Chicago area, for a daycare center (Kindercare), an infant is $300/week. A two-year old, about $250 a week. An older child is less -- but I'm still going on memory, so I'm not sure how much less.

Anyway, (300 + 250) * 52 weeks is $28,600. $5000 of that is tax-free through a dependent-care account (but not exempt from Social Security taxes, I'm pretty sure). If you're at at 35% marginal tax rate, plus an assumed 3% state tax, that means you have to earn $43,441 pre-tax just to have enough to write the childcare check each week.

(And it's not a marriage-penalty issue -- it's the entire concept of the "marginal tax rate." Regardless of what the total tax bill, what counts is what the rate is that you pay on any additional income. And here you get whacked twice -- a 35% tax rate as the "second earner" but without having hit the Social Security ceiling.)

Add in work-specific costs such as commuting, purchased lunches, and professional dress (though of course, less an issue these days), and, depending on your specific circumstances, you could have a pretty high break-even point.

(And I looked into au pairs, but discovered that, in addition to the "official" costs, you're expected to provide a car for her to use, and a comfortable room and plenty of "extras" -- and I'd hate to see what happens if all her other au pair friends get these things and she has to ride her bike!)

But the point is: why aren't daycare workers paid better? Because, no matter how much parents want to do right by their kids, there is a limit on how much working-class and middle-class families can realistically afford to pay for daycare.

Posted by Elizabeth | June 28, 2008 8:45 PM

And that's exactly right, Elizabeth. Hence the comforting lies about Moms Home Daycare.

Economic law of supple and demand indeed.

Posted by ScentOfViolets | June 28, 2008 8:57 PM

Better than Ezra says:

"Or, perhaps the Government could just neuter all the poor people..."

But then how could the wealthy hire folks to raise their kids for them????

Posted by Stewie | June 28, 2008 9:46 PM

Scent of Violets:
No, they place a premium value on it because they think they can do a better job.

Yes, I understand that.

And if that were true--if parents really valued their child-care work at $30/hour, then the lesser-earning parent would almost always stay home and take care of the kids instead of working outside the home, because unless both parents can earn more than $30/hour net of taxes and work-related expenses, the return on having the lesser-earning parent stay home ($30/hour tax-free and with limited transportation costs) is greater than the return on having a second earner (say, $20 per hour minus taxes).

Also, you may have heard the term "consumer surplus" before. What people are willing to pay isn't necessarily what they think it's worth. Food is worth a great deal to me. If I didn't eat any, I'd die. If someone somehow managed to corner the market on food and raised prices to the point where it'd take $100/day to keep from starving, I'd pay it. But if you were to offer me a day's worth of food for $100, I'd laugh at you, because I can go to the grocery store and feed myself for less than $10. No matter how much it's worth to me, you'll have a hard time convincing me to pay more than the market price.

Likewise with child care. Maybe parents really do value child care at $30/hour (though I find this hard to believe, given that most people just don't have that much money available). Not just theirs, but child care provided by you, too. But why should they pay more than $8/hour, if that's the market price?

Sure, you may have been capable of providing much better child care than the people charging $8/hour, but apparently you weren't able to convince prospective customers that they would benefit from spending more. Maybe that was their loss, or maybe you had an exaggerated view of your ability to make a positive difference in your charge's lives. It's hard to say.

Posted by Brandon Berg | June 28, 2008 10:55 PM

Or you can say - as I do - that this is yet another area where traditional econ 101 falls on it's face. And what something is _worth_ is not what is being paid for it.

This nonsense that what something is worth is just what is paid for it always and everywhere, world without end amen is just that. Nonsense. Some things are terribly over-priced for their value. And some things are terribly under-priced. And some things, most actually, are indeed worth just exactly what is paid for them. But this is an empirical observation, not a law of nature. More like Bode's law than than the second law of thermo.

Posted by ScentOfViolets | June 28, 2008 11:10 PM

Personally, as a parent with a lot of experience paying for daycare, I would never pay $30 an hour to anyone for it, and indeed not pay more than $X (more than $8 in Manhattan), simply because I don't have to pay more than $X. I can get good providers to provide fine-quality care for that much less than $30.

"this is yet another area where traditional econ 101 falls on it's face. And what something is _worth_ is not what is being paid for it.

There isn't an Econ 101 text in the world that says "worth" = price paid.

Worth to the purchaser is almost always > price paid (= in the limiting case). Or one would have no motive to pony up one's money in the exchange. So it's hardly surprising that people don't want to pay say >$8 for something worth $30, that's the norm.

Air is worth the value of life itself in minutes to everybody, but is free in ample supply for all so nobody pays anything for it.

OTOH, air canned from the exhaust pipe of a Trabant is worth zip nothing to 99% of humanity -- in fact probably has a negative worth to most people, who would pay you to keep it away from their noses -- yet it has a certain affection value for some, so you can purchase it for a price over the Internet, if you are one of them.

From which we see that not only does an item's worth not equal its price, but that an item does not even have a fixed objective worth -- its worth exists only in subjective computations in different human minds and differs for everyone.

Posted by Jim Glass | June 29, 2008 12:44 AM

Uh, Jim? There's a lot of people saying that econ 101 says precisely that - that the value of an item is just what someone is willing to pay for it. Why don't you take it up with them? And while you're at it, you can explain what all those texts are really saying.

Posted by ScentOfViolets | June 29, 2008 12:54 AM

SoV:
As Jim points out, this is something that is covered in econ 101--pick up any introductory economics textbook and look up the term "consumer surplus."

Actually, just read it cover-to-cover.

Posted by Brandon Berg | June 29, 2008 12:56 AM

SoV:
"Value" is shorthand for two distinct concepts. One is market value--that is, the price at which you can expect to buy or sell something, as determined by the interaction between supply and demand. The other is subjective value, which is the highest price at which you would hypothetically be willing to buy something if there were no cheaper options available.

This is also econ-101 material.

Posted by Brandon Berg | June 29, 2008 1:04 AM

Uh huh. Why don't you and Jim have a little talk then, seeing as how you just contradicted him.

I'm sure you can sort it out ;-)

And when you do, get back to me.

Posted by ScentOfViolets | June 29, 2008 1:14 AM

"Uh, Jim? There's a lot of people saying that econ 101 says precisely that ..."

There's a lot of people who say they've talked to the dead, ridden on flying saucers, and posed the Loch Ness Monster for tourist photos.

If you are going to claim Econ 101 textbooks say precisely (or even approximately) that, and take responsibility for claiming it, you should maybe visit a library first and see if you can find one that does.

Posted by Jim Glass | June 29, 2008 1:28 AM

Good. Then the next someone here says something to that effect - and it does happen rather frequently - you'll be sure to tell them that's not so, right?

And I won't have to prompt you, will I?

Will I? In fact, you can start by having a little chat with Brandon. But I have a feeling we already know how this is going to work out, don't we ;-)

And since you know this stuff - or say you you do - you could _also_ take this opportunity to say that if an item rises in price, the demand for it could increase. Etc.

Posted by ScentOfViolets | June 29, 2008 1:49 AM

Unless I'm misreading, everything Jim's written above is consistent with everything I've written.

Posted by Brandon Berg | June 29, 2008 5:55 AM

I have to come out for Messrs. Glass and Berg here.

It's been eons since I took Econ 101, but I'm heartened to learn that the basic premises haven't changed. One of them is that, in the field of economics, the market price of some good or service is defined as its aggregate worth or value to both parties in the aggregate -- the buyers and sellers. It's a simple matter of definition.

No claims are made that this market price is moral or ethical or otherwise intrinsically bad or good.

I used to wonder why some of my classmates didn't "get" Econ 101 and failed the class. Some told me they found it bone-crunchingly boring. But I also suspect that others, like SoV above, demanded..., er, "insisted" that economics pass judgment on market participants as morally superior or inferior. They wanted to replace the "law of supply and demand" with the "law of supply and insist."

Posted by MarkG | June 29, 2008 9:50 AM

One of them is that, in the field of economics, the market price of some good or service is defined as its aggregate worth or value to both parties in the aggregate -- the buyers and sellers. It's a simple matter of definition.

This is _precisely_ what I said. That the value was _defined_ to be this way in econ 101. Here, I'll quote:

Uh, Jim? There's a lot of people saying that econ 101 says precisely that - that the value of an item is just what someone is willing to pay for it.

I get the feeling that with some people, if I were to say that the sky is blue, they'd feel to compelled to contradict me and say that it is actually green.

No claims are made that this market price is moral or ethical or otherwise intrinsically bad or good.

I did not claim that econ 101 says, but yes, you will get a lot of people who will say just that. I'm not one of them, and in this particular case I am most certainly _not_ arguing that. Again, look and see what I've actually written, rather than what you wish I had wrote.

I used to wonder why some of my classmates didn't "get" Econ 101 and failed the class. Some told me they found it bone-crunchingly boring. But I also suspect that others, like SoV above, demanded..., er, "insisted" that economics pass judgment on market participants as morally superior or inferior. They wanted to replace the "law of supply and demand" with the "law of supply and insist."

Uh-huh. Some people here have objected to my superior attitude, what they perceive as condescension. I will suggest that when I encounter tripe like this that yes, I think my feelings of mental superiority are fully justified.

No, I am not passing moral judgment, nor am I 'insisting' anything. I am simply noting, since you didn't get it the first, second, third, fourth, or fifth time, that econ 101 does a very poor job of pricing certain things. Labor seems to be one area in which this occurs, and in this particular instance, the labor concerned is daycare.

Do you understand now? If you do not understand, please tell me what you do not understand. Frankly, I'm baffled that you didn't get this in the first couple of iterations; looking back over what I have wrote, I see nothing that would make you come to the conclusions you apparently have - it's all in your head.

Posted by ScentOfViolets | June 29, 2008 10:12 AM

econ 101 does a very poor job of pricing certain things.

I suppose this striking statement is merely a figment of my imagination. Nevertheless, I would point out that Econ 101 is not in the business of pricing labor or anything else. It merely attempts to provide students with an understanding of why prices for goods or services are what they are. It merely explains that the price is the result of the interaction between buyers and sellers.

Furthermore, it ignores the output of critics, philosophers, and pundits unless these are actively participating on the market as buyers and sellers.

Some may find this insufficient, but there's no accounting for personal taste and preference.

Posted by MarkG | June 29, 2008 10:34 AM

Sigh. Randroid, right? No. 'The market' can do an astoundingly poor job at pricing any of a number of things. The 'right' price is not because of some definition offered to students like yourself.

I don't know where you've been lately, but, for example, it's been an item in the news that housing has been overpriced, which has led to certain . . . inconveniences ;-]

You _have_ heard of the housing bubble, haven't you? To riff off master Dynamite, I'm surrounded by idiots. I'm guessing that this is more of a cutting off your nose to spite your face sort of thing, though. I can't believe that you _really_ think that houses weren't overpriced . . . do you?

Posted by ScentOfViolets | June 29, 2008 10:51 AM

I have scrolled through this entire thread and, oddly enough, have not found one single person claiming that under the laws of economics, something's "worth" is equal to its price. Instead, anyone with even the remotest knowledge of economics would know, as Jim Glass said, that "Worth to the purchaser is almost always > price paid (= in the limiting case). Or one would have no motive to pony up one's money in the exchange. So it's hardly surprising that people don't want to pay say >$8 for something worth $30, that's the norm."

All Econ 101 tells us on this issue is that at a given price, there will be a certain amount of demand for the service, and a certain amount of supply for the service. It tells us nothing about the subjective value that individual consumers place on a product or service, and does not pretend to. It does, however, predict that the price people are willing to pay for a good or service will be less than the value they place on that good or service. Similarly, it also predicts that the price at which producers are willing to sell a good or service will be higher than the value they place on providing that good or service.

If the price of a good or service is too low, then suppliers will not provide enough of the service to meet demand at that price. If the price is too high, then suppliers will provide more of the service than consumers are willing to purchase at that price. When a price is at a level where consumers will demand exactly what suppliers are willing to provide, then the market is in equilibrium. While I cannot speak to markets in other areas, my experience in obtaining daycare in this area of New Jersey would suggest that the daycare market is at or near equilibrium, in that the waiting lists for daycare enrollment are not terribly long, but there are also relatively few vacancies. If the price were far too low, Econ 101 would predict massive waiting lists; if too high, Econ 101 would predict significant numbers of vacant daycare slots.

Posted by Mark | June 29, 2008 11:14 AM

At any given moment during the housing bubble, which is in retrospect recognized as overpricing, the prices were optimum for the individual buyers and sellers. Unfortunately, the promise of ever escalating sales prices for housing in many places drew in people willing to leverage debt, buy a house and hold it for a year, and realize a fat profit of 50 percent twelve months later.

It is interesting, too, that many of these speculative buyers were real estate newbies -- unskilled, in other words -- joining the fray of seasoned real estate market experts.

This perfectly reasonable state of affairs, unfortunately, comes to a bitter end once these speculative buyers cease to find new buyers, the whole house of cards falls apart.

Some are now cutting their losses and selling these once overpriced objects with a pessimistic firesale mindset, thereby presumably "underpricing" the very same objects once again.

In any case, the price was "right" at every transaction or it would otherwise not have taken place.

Posted by MarkG | June 29, 2008 11:21 AM

So, are you claiming that prices in the housing market last year were 'just right'? This isn't a hard question.

And you know, this is discussed all the time in econ 102, externalities and such not. Why anyone here has such difficulty in admitting this is beyond me.

Posted by ScentOfViolets | June 29, 2008 11:24 AM

SOV, I think you are conflating two things: Economics, which is a descriptive science (okay, 'science') that attempts to describe what occurs economically around us. It doesn't have a 'right' price for the housing market any more than a supernova has a 'right' density before it explodes.

Separate from economics is, for lack of a better word, laissez-faire economic policy, which, very roughly, believes that the highest social good comes from not interfering in markets in any way.

The two are not equivalent. There are Marxist economists, for example.

The description of Econ 101 above is pretty spot on (as a model), given the definitions. However, ascribing correctness to Econ 101 does not imply that the current market price is the 'best' price for society. First off, the definition of 'best' is entirely subjective and can be based on highest economic outcome for most, for the poorest, for the most talented. The 'best' can be a moral argument - it's immoral for anyone to earn more than 10 times the lowest paid - or it's immoral for anyone to be taxed at all.

Things are made more complicated because a lot of economists are at least somewhat promulgators of "laissez-faire" economic policy, and a lot of non-economist "laissez-faire" economic policy believers claim that economics justifies their claim. An obvious mistake, given that the discipline of economics doesn't justify anything, it merely attempts to describe.

So in the end, I don't see any contradiction between what Econ 101 describes in terms of market price and personal worth, and your belief that the pricing for child-care is not at the optimal level for what you value for society as a whole.

Posted by Tom West | June 29, 2008 12:15 PM