The Big Squeeze
08.25.14 9:45 AM ET
Free Market Failure: Raising a Kid Is a Rigged Game in the USA
Feeling squeezed financially? It’s not just you. Even five years into our alleged “recovery,” half of Americans can’t afford their house, whether they own or rent. More than 15 million Americans eat unhealthy food because nutritious meals are too expensive. A growing number of middle-class Americans are too broke to retire. In 31 states, childcare has a higher price tag than a college education.
In fact, it takes more than $48,000 a year just to live sustainably in the cheapest parts of the United States. It’s a salary that many working-class Americans fail to reach, and more than double the poverty line for a family of four. Why is America such an expensive place to live? Republicans are always arguing that the free market, unfettered by government regulation, will make everything cheaper. It’s exactly this trust in the market that is emptying Americans’ wallets.
Indeed, these Republican philosophies—and fantasies—are making it almost impossible for average Americans simply to raise their children. Last week, the U.S. Department of Agriculture tallied up the costs of raising a child born in 2013. The result: an eye-popping $245,340. That, incredibly, excludes the costs of the mother’s pregnancy and of a college education.
The single biggest expense was housing. Though that varied greatly by region, it made up nearly a third of the total cost. It was followed by childcare and education. Food came in fourth. Which means that quarter of a million dollars figure isn’t what it takes for families to buy fancy toys and family vacations: That’s how much it costs to provide basic needs throughout the child’s first 18 years.
Our federal and state governments don’t do much to reduce any of these costs. Instead, they try to help people who can’t afford the essentials by giving them vouchers. The problem is, the programs that are supposed to help never keep up with costs, they’re politically unpopular, and they don’t assist everyone in need.
Take childcare. States expanded programs to provide childcare vouchers in 1996, when the federal welfare-to-work law passed and freed up money to do so. States provide money to low-income parents, usually mothers, based on the number of children they have and their incomes, and leave mothers to search for childcare themselves. How much the vouchers are worth, and how much women are expected to pay out-of-pocket, depends on what state they live in. In general, even the most generous vouchers cover less than 75 percent of the market price for childcare. So, women have to shop for bargains. Daycare centers and individual childcare providers vary in quality, and about one-fifth of children whose care is paid for with vouchers are in unregulated settings, which means they probably aren’t getting the best quality care.
Also, programs designed to help low-income families are always the first on the chopping block when state revenues go down. The childcare vouchers were slashed or frozen in the economic downturn, leaving many families worse off. Half of the states have a waiting list for parents. Only about 17 percent of families who are eligible receive the subsidies—and they don’t even cover the full cost of childcare for those who are lucky enough to get them. Meanwhile, childcare costs continue to rise faster than inflation, which means that the free market isn’t doing much to either drive costs down or ensure quality.
This program also only helps the poorest of the poor. To qualify for most of them, households can’t have an income much higher than the poverty line—which is not quite $24,000 a year for a family of four. That leaves the families who make between that and the sustainable-wage level of $48,000 to struggle paycheck to paycheck. It also means that if a working mother gets a raise or a promotion, she runs the risk of suddenly earning too much and losing her childcare benefits, thus finding herself suddenly unable to cover the costs of keeping her children in daycare. Many parents can’t afford childcare without the subsidies, so they have to give up promotions, forgo wages, or leave work entirely, which keeps them from moving up the income ladder. It also makes the total cost of raising a child a heavy burden for most families.
What could the government do? It could do what every other developed country does and actually work to ensure families can afford these services. In Germany, every parent has the right to take parental leave, and every child has a right to a slot in daycare after his or her first birthday. The German government paid $16 billion to make sure there would be a slot for every child. In France, parents pay for their childcare on a sliding scale based on their income—the rest is subsidized by the government. In Sweden, a child-rearing wonderland, every mother and father has access to generous parental leave and round-the-clock childcare. The cost to parents is capped at 3 percent of their income and, of course, the rest is subsidized by the government.
Yet in the United States, driven by a low-tax, anti-government policy, many Americans pay more for their childcare than they do for rent. There may be some reason to hope that this will become an issue in the next presidential election—there have been a number of calls for Hillary Clinton to embrace paid family leave. Let’s hope she does, because this conservative version of capitalism helps corporations, not people. When we have to pay so much for basic goods and services, someone at the top is pocketing the profits. Families with children, or young people who are wondering whether they should even have one, know, in the words of Massachusetts Senator Elizabeth Warren, that this game is rigged.