Tribal Economics and Welfare

Many young couples are told to wait to have children until they graduate from college and get good jobs and careers. Of course, this is the employment model of income, and assumes that children are liabilities which keep us from our work and earning money. In the tribal model of income, children are assets in the family business, which is an extension of the family farming model. I have created a Microsoft Excel spreadsheet (less than 1 MB) to help explain what happens to a family’s standard of living over time under this model. If you don’t have Excel, you can download the free office suite from www.openoffice.org, or install any other spreadsheet program of your choice. Most programs should open Excel files.

Most of the spreadsheet is protected from changes so that you don’t accidentally break it. The key user variables are in the upper left corner of the first sheet (”Calculations”). Their functions are as follows:

• Spacing: How many years between babies.
• Father: Age at which a husband becomes a father.
• Mother: Age at which a wife becomes a mother.
• Finish: Age at which a mother stops having babies.
• Work: Age at which a person becomes economically productive.
• Retire: Age at which a person stops being economically productive.
• Start: Starting wage in U.S. Dollars. Don’t confuse this with the legal minimum wage. This is how much value a person can create in an hour, not an arbitrary compulsory wage.
• Raise: Percent increase in hourly wage each year.
• Hours: Number of hours worked per day.
• Days: Number of days worked per week.
• Interest: When the family has surplus income, they invest the surplus at the given rate.
• Expectancy: Age at which a person is expected to die.
• Year: Not used; included for a future function.
• Children: Not a user variable; This tells how many children a couple will have given the other variables entered.

The Basics

These are a lot of parameters to play with. If you scroll to the right far enough, there are a couple charts which summarize the results of your variable choices. The first chart expresses a family’s standard of living over time. This standard is compared to the poverty guidelines for the United States. In other words, a living standard of zero doesn’t mean an income of zero; it means an income equal to the poverty level. Not a dollar more, and not a dollar less. A positive living standard means a certain income beyond the poverty level. You can re-interpret the graph based on criteria of your choice.

The second chart shows what percentage of the family is economically productive in each year of the family’s life. Before having children, of course, it would be 100%. With the first child, it drops to 66% as the mother and father work to provide for the non-producing infant. The percentage, and also the living standard, continue to drop until the first child is old enough to be economically productive, and then both indicators rise steadily until the last dependent infant becomes productive.

Beyond the Basics

The first four columns in the Calculations sheet show the father’s and mother’s ages and income levels as their family grows. Note that they can choose to divide the work however they wish. The chart shows an equal division of income, but the results don’t change very much if the father works twice as many hours and the mother works none. It changes somewhat if there is an age difference, and therefore a wage difference, between the father and mother.

The fifth and sixth columns show the age and income, respectively, of the first child. Likewise, the following 48 columns show the next 24 children (if applicable). A mother who has her first child at age 20, and continues to have a child each year until she is 45, could have 25 children. In general however, spacing usually tends to increase over the mother’s fertility period and most mothers will not have 25 children, no matter how they try. I don’t recommend any number of babies. The chart includes up to 25 children in order to test the limits of the model.

Columns BD through BF contain the data for the second chart: number of family members, number that are economically productive, and the percentage of employment. This does not account for the fact that older family members will earn a higher wage than younger family members due to education, experience and training.

The following six columns compare the family’s income with the United States poverty guidelines. The middle section shows number of family members again, then the poverty level for that family size, and finally the percentage necessary income raise between different sizes. The living standard section contains the data for the first chart as explained earlier.

The next three columns show what happens if a family lives at a poverty level standard of living and invests their surplus at the interest rate entered in the variables section. If the family is below the poverty level, then they are borrowing the difference and paying interest on it. If they are above the poverty level, they are investing the difference and collecting interest.

The last section in this sheet shows the hourly wage at each age level based on the raise schedule entered in the variables.

Data Sheet

There is a second sheet included in the file called “Data.” It is mostly functional rather than informative. The first section lists the poverty guidelines for various family sizes. The next section is a repeat of the age/income/wage information.

The section after this is more interesting. It contains extrapolations from actual government data about average incomes at different ages. The government data is in a table farther to the right. The three columns show actual average raises received in the general population. The next column, “Extrapolate,” takes these actual percentages and applies them to the user-variable wages, followed by a column that shows the difference.

The government data table is based on 1992 U.S. dollars, so we can expect actual incomes to be higher. But that isn’t important here. The use that I put these numbers to was determining percentage increases, which don’t depend on the relative dollar value.

Finally, there is a chart showing actual income over time.

Limitations of the Model

Actual incomes do not rise by steady percentage points over a career. There are many sudden jumps, and the biggest jumps occur early in the career. It is a function of diminishing returns. During a person’s second year of work, he doubles his work experience. The third year, he increases his experience by only 50%. The fourth year, it is 33%. And so on. During the first twenty years, the person’s income increases by an average of over 5% per year. After that, raises are less than 2% per year.

What this means is that the actual results of the tribe will be better than the model predicts because early increases in income will be much larger, at the same time that the family’s size increases are much larger. As the family grows, there are diminishing increases in costs along with diminishing returns on having more babies. Similarly, there are diminishing returns in terms of work raises through increased career experience of the parents. The youngest members of the family will of course continue to have the highest percentage raises until they graduate from their nuclear family and begin their own families.

As mentioned earlier, although younger members will have larger raises, their actual wages will be lower than older members. This is not reflected in the percent employment chart, but it is reflected in the more comprehensive living standard chart.

Observations

The family’s standard of living declines to its lowest level just before the first child becomes economically productive. After that, the living standard steadily increases until there are no more non-producing dependent children. With everyone earning income, the standard continues to increase as lower-earning young adults leave to start their own families while mom and dad become increasingly alone with their substantially higher incomes. When the last child leaves home, mom and dad are at their highest income levels, and have their lowest living costs.

If you take the integral of the “Standard of Living” graph, the surplus achieved after the children become economically active overwhelmingly outweighs the deficit suffered in the early stages. This means that if a family could borrow their needs in the early stages, they could more than pay it back later. Nobody needs to live below the poverty level at all. This would be a type of welfare program, but rather than attaching a stigma to it, it would be seen as an entitlement to be payed back later. Indeed, the Scandinavian countries and some European countries, sensing their demographic crisis from low population growth, actually provide large cash incentives for women to have babies. The danger, however, is that an entitlement program could provide a perverse incentive to be nonproductive during this period. If the family was forced to endure the hardship of poverty during the early stage, it would be more motivating to work harder to overcome that poverty sooner. I draw no conclusions here; it is worth some experimentation.

The results achieved in this model aren’t available in the standard employment model of income because children under a certain age are not allowed to go work for other companies. This is because other people have no incentive to treat an inexperienced child employee fairly and ethically. It works in the family business model because the child’s own family has every incentive to take care of the child’s interests. The future of the family depends on the child growing into maturity and eventual leadership. Every member of the tribe, of any age, is an irreplaceable resource for the present and the future.

Human resources are not only measured in terms of factory production or money income. They include innovations, artistic contributions, social contributions, and intellectual resources. Indeed, the intellectual resources commonly produce the greatest value. An ounce of good theory can be worth a ton of practicing a wrong theory.