HillaNomics

Drudge's splash headline informs us that Hillary Clinton wants to create a new government welfare program: $5,000 for every new baby. The story goes:

"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.

Clinton said such an account program would help people get back to the tradition of savings that she remembers as a child, and has become harder to accomplish in the face of rising college and housing costs.

Hillary does not understand economics. This should be fairly obvious: if you save money for people, it decreases their propensity to save more. This program is unlikely to make people more self-reliant (saving because they need to). Instead, it will make us more government-reliant, spending every penny we have now (and running up credit card debt) because we know the government will be there to take care of us if things go wrong. This is called social insurance, and it's not a bad thing, if your goal is to increase lifetime utility through higher consumption.

There are better ways to induce more savings. A tax break or a subsidy on savings would increase savings. In the long run, dismantling the social insurance structure would also make people save - but at the cost of decreasing lifetime utility and leaving some people destitute.

Or maybe the government should stop trying to tell people how to live their lives.