Democratic presidential candidate Sen. Elizabeth Warren (D-MA) unveiled a plan last week for universal child care. Despite her good intentions, her plan would restrict competition, raise prices, and reduce options for parents in need.
Warren begins by sharing her own experience as a working mother unable to find child care. Exasperated, she called her “Aunt Bee” and “between tears” told her, “I couldn’t make it work and had to quit my job.”
Fortunately for Warren, her aunt came to the rescue and moved in with her to provide the much-needed child care she couldn’t find.
Her personal framing of the issue provides some moral gravitas. She doesn’t think parents should face the hard choice between caring for their children and cultivating their careers. Throughout her plan, it is clear that she believes society — the state in particular — has a duty to do better.
After her personal anecdote, Warren then transitions to her policy proposal: “Finding affordable and high-quality child care has gotten even harder since my children were growing up — and not everyone is lucky enough to have an Aunt Bee of their own.”
The senator’s plan is admirably thorough. A former Harvard law professor, Warren’s policies stand out from the other candidates in her attention to important, wonky details. Indeed, whether or not she wins the Democratic nomination, she will likely influence the policies of whoever does.
So what is her plan? In her own words,
- The federal government will partner with local providers – states, cities, school districts, nonprofits, tribes, faith-based organizations – to create a network of child care options that would be available to every family.
- These options would include locally-licensed child care centers, preschool centers, and in-home child care options.
- Local communities would be in charge, but providers would be held to high national standards to make sure that no matter where you live, your child will have access to quality care and early learning.
- Child care and preschool workers will be doing the educational work that teachers do, so they will be paid like comparable public school teachers.
And here’s the best part. The federal government will pick up a huge chunk of the cost of operating these new high-quality options. That allows local providers to provide access for free to any family that makes less than 200% of the federal poverty line. (emphasis original)
Despite her good intentions, I see three potential problems with Warren’s plan, in addition to those noted here last week.
First, subsidies increase prices. We’ve seen this with subsidized loans for higher education, and Dan Hugger recently pointed out the same trend regarding housing subsidies. From an economic point of view, this makes sense. If you subsidize child care, more people will be able to afford it and, thus, demand it. When demand increases, prices increase.
Second, increased costs decrease supply. Warren has promised to raise the pay of child care workers “so they will be paid like comparable public school teachers,” while also requiring those workers to provide educational services (and presumably demonstrate that they are competent to do so). Thus, her plan introduces a price floor for wages and increases barriers to entry into the labor market for those workers. This means that despite wanting to increase child care options for working parents, her plan might actually reduce them. Furthermore, this compounds the first problem. As Ryan Bourne put it for the Cato Institute, “This would restrict supply further while the subsidies induce demand, raising underlying market prices – higher prices now overwhelmingly paid by taxpayers.” Decreasing supply also increases prices.
Third, Warren’s proposal for funding her plan wouldn’t pay the bill. She claims, “The entire cost of this proposal can be covered by my Ultra-Millionaire Tax.” Unfortunately, as I explained two weeks ago, many European nations that had similar taxes in the 1990s have since abandoned them. “[D]espite including a broader base of wealthy households” than Warren’s tax, I wrote, “they raised little revenue. The taxes were effectively pointless.” So the big bill for “free” child care might just increase deficits in the midst of our debt crisis, an additional economic and moral complication.
Stopping here is not enough, however. Warren is correct to point to this problem as a moral matter, even if speaking in terms of rights, as she does, might be going too far. We should care about the plight of parents who can’t afford or find child care for their children. She’s right that “not everyone is lucky enough to have an Aunt Bee of their own.” So what could be done, on the level of policy, to produce outcomes that better serve Warren’s good intentions?
The supply of child care is already artificially limited by government regulations. As Bourne pointed out, “Warren’s subsidy response amounts to a classic case of government restricting supply through policy, on the one hand, and then labelling the resulting high prices a ‘market failure’ that needs to be corrected.”
Reassessing child care regulations, and removing those that are unnecessary, would lower barriers to entry for new competitors, increasing supply and quality and decreasing prices. That’s how competition works.
As more providers entered the market, they would need to find ways to stand out from others. Thus, a child care center that provided the educational services Warren wants could use that as a competitive advantage over others. It could become a point of marketing, like how healthier cereals sometimes put “no high fructose corn syrup” right on the box to signal to concerned parents that this is the cereal they are looking for. With the increased revenue the best centers would bring in, they could afford to pay their workers more as well.
Another way to stand out is to provide a comparable product for lower prices. More competition would incentivize child care centers to find innovative ways to provide a quality service with a lower price tag, while still making a profit.
That said, most of the regulations currently restricting supply are a matter of local- and state-level laws and licensing. It doesn’t seem like there is a federal solution to be had at all. Warren wants to partner with local providers. Subsidiarity would dictate that doing so may require less — rather than more — state action in this regard. Lower level politics and activism seems like a better place to focus for those who share Warren’s good intentions.
Of course, this alternative proposal would fall short of Warren’s goal that all child care providers have the same high level of quality care, but it would hit her goals of increasing options for parents, decreasing prices, and increasing quality overall. It would thus be a more prudent path to serving the common good.
Photo attribution: John Gresham at James River ES Head Start classes Photos by M. Bozyk