How "baby bonds" could help close the wealth gap | Darrick Hamilton

47,835 views ・ 2019-01-15

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00:13
There is a narrative,
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an idea that with resilience, grit and personal responsibility
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people can pull themselves up and achieve economic success.
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In the United States we call it the American dream.
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A similar narrative exists all over the world.
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But the truth is that the challenges of making this happen
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have less to do with what we do
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and more to do with the wealth position in which we are born.
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So I'm going to make the case that the United States government,
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actually that any government,
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should create a trust account for every newborn
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of up to 60,000 dollars,
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calibrated to the wealth of the family in which they are born.
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I'm talking about an endowment.
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Personal seed capital, a publicly established baby trust,
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what my colleague William Darity at Duke University and I
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have referred to as baby bonds,
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a term that was coined by the late historian from Columbia University,
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Manning Marable.
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The reason why we should create these trusts is simple.
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Wealth is the paramount indicator of economic security and well-being.
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It provides financial agency, economic security to take risk
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and shield against loss.
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Without capital, inequality is locked in.
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We use words like choice, freedom to describe the benefits of the market,
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but it is literally wealth that gives us choice, freedom and optionality.
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Wealthier families are better positioned to finance an elite, independent school
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and college education,
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access capital to start a business,
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finance expensive medical procedures,
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reside in neighborhoods with higher amenities,
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exert political influence through campaign finance,
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purchase better legal counsel
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if confronted with an expensive criminal justice system,
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leave a bequest
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and/or withstand financial hardship resulting from any number of emergencies.
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Basically, when it comes to economic security,
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wealth is both the beginning and the end.
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I will frame this conversation in the context of the United States,
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but this discussion applies virtually to any country
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facing increasing inequality.
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In the US, the top 10 percent of households
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hold about 80 percent of the nation's wealth
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while the bottom 60 percent owns only about one percent.
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But when it comes to wealth,
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race is an even stronger predictor than class itself.
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Blacks and Latinos collectively make up 30 percent
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of the United States population,
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but collectively own about seven percent of the nation's wealth.
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The 2016 survey of consumer finance
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indicates that the typical black family has about 17,000 dollars in wealth,
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and that's inclusive of home equity,
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while the typical white family has about 170,000.
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That is indicative of an absolute racial wealth gap
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where the typical black household has about 10 cents for every dollar
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held by the typical white family.
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But regardless of race,
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the market alone has been inadequate to address these inequalities.
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Even in times of economic expansion, inequality grows.
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Over the last 45 years,
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wealth disparity has increased dramatically,
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and essentially, all the economic gains from America's increase in productivity
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have gone to the elite or the upper middle class.
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Yet, much of the framing around economic disparity
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focuses on the poor choices
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of black, Latino and poor borrowers.
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This framing is wrong.
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The directional emphasis is wrong.
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It is more likely that meager economic circumstance,
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not poor decision making or deficient knowledge,
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constrains choice itself and leaves people with no options
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but to turn to predatory finance.
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In essence, education is not the magic antidote
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for the enormous inherited disparities
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that result from laws, policies and economic arrangement.
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This does not diminish the value of education.
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Indeed, I'm a university professor.
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There are clear intrinsic values to education,
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along with a public responsibility
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to expose everyone to a high-quality education,
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from grade school all the way through college.
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But education is not the panacea.
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In fact, blacks who live in families where the head graduated from college
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typically have less wealth
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than white families where the head dropped out of high school.
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Perhaps we overstate the functional role of education
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at the detriment of understanding the functional role of wealth.
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Basically, it is wealth that begets more wealth.
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That's why we advocate for baby trust.
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An economic birthright to capital for everyone.
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These accounts would be held in public trust
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to be used as a foundation to an economically secure life.
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The concept of economic rights is not new nor is it radical.
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In 1944, President Franklin Roosevelt
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introduced the idea of an economic Bill of Rights.
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Roosevelt called for physical security,
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economic security, social security and moral security.
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Unfortunately, since the Nixon administration,
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the political sentiment regarding social mobility
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has radically shifted away from government mandates to economic security
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to a neoliberal approach
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in which the market is presumed to be the solution for all our problems,
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economic or otherwise.
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As a result, the onus of social mobility has shifted on to the individual.
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The pervasive narrative is that even if your lot in life is subpar,
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with perseverance and hard work and the virtues of the free market,
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you can turn your proverbial rags into riches.
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Of course, the flip side is that the virtues of the market
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will likewise sanction those that are not astute,
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those that lack motivation or those that are simply lazy.
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In other words, the deserving poor will receive their just rewards.
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What is glaringly missing from this narrative
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is the role of power and capital,
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and how that power and capital
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can be used to alter the rules and structure of transactions and markets
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in the first place.
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Power and capital become self-reinforcing.
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And without government intervention,
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they generate an iterative cycle of both stratification and inequality.
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The capital finance provided by baby trust
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is intended to deliver a more egalitarian and an authentic pathway
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to economic security,
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independent of the family financial position
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in which individuals are born.
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The program would complement the economic rights to old-age pensions
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and provide a more comprehensive social security program,
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designed to provide capital finance from cradle all the way through grave.
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We envision endowing American newborns with an average account of 25,000 dollars
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that gradually rises upwards to 60,000 dollars
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for babies born into the poorest families.
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Babies born into the wealthiest families
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would be included as well in the social contract,
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but they would receive a more nominal account of about 500 dollars.
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The accounts would be federally managed,
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and they would grow at a guaranteed annual interest rate
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of about two percent per year in order to curtail inflation cost,
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and be used when the child reaches adulthood
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for some asset-enhancing activity,
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like financing a debt-free university education,
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a down payment to purchase a home,
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or some seed capital to start a business.
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With approximately four million babies born each year in the US,
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if the average endowment of a baby trust is set at 25,000 dollars,
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the program would crudely cost about 100 billion dollars a year.
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This would constitute
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only about two percent of current federal expenditures
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and be far less than the 500-plus billion dollars
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that's already being spent by the federal government
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on asset promotion through tax credits and subsidies.
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At issue is not the amount of that allocation
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but to whom it's distributed.
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Currently, the top one percent of households,
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those earning above 100 million dollars,
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receive only about one third of this entire allocation,
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while the bottom 60 percent receive only five percent.
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If the federal asset-promoting budget
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were allocated in a more progressive manner,
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federal policies could be transformative for all Americans.
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This is a work in progress.
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There are obviously many details to be worked out,
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but it is a policy proposal grounded in the functional roles
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and the inherited advantages of wealth
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that moves us away from the reinforcing status quo
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behavioral explanations for inequality
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towards more structural solutions.
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Our existing tax policy that privileges existing wealth
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rather than establishing new wealth is a choice.
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The extent of our dramatic inequality is at least as much a problem of politics
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as it is a problem of economics.
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It is time to get beyond the false narratives
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that attribute inequality to individual personal deficits
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while largely ignoring the advantages of wealth.
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Instead, public provisions of a baby trust
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could go a long way towards eliminating
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the transmission of economic advantage or disadvantage across generations
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and establishing a more moral and decent economy
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that facilitates assets, economic security
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and social mobility for all its citizens.
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Regardless of the race
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and the family positions in which they are born.
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Thank you very much.
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(Applause)
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Chris Anderson: Darrick.
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I mean, there's so much to like in this idea.
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There's one piece of branding around it that I worry about,
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which is just that right now, trust-fund kids have a really bad rap.
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You know, they're the sort of eyeball-rolling poster children
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for how money, kind of, takes away motivation.
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So, these trusts are different.
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So how do you show people in this proposal that it's not going to do that?
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Darrick Hamilton: If you know you have limited resources
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or you're going to face discrimination,
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there's a narrative that, well,
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the economic returns to investing in myself
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are lower than that of someone else,
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so I might as well enjoy my leisure.
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Of course, there's another narrative as well,
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so we shouldn't get caught up on that,
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you know, somebody who's poor and going to face discrimination,
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they also might pursue a resume-building strategy.
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The old adage, "I have to be twice as good as someone else."
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Now, when we say that, we never ask at what cost,
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are there health costs associated with that.
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I haven't answered your question, but coming back to you question,
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if you know you're going to receive a transfer at a later point in life,
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that only increases the incentive for you to invest in yourself
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so that you can better use that trust.
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CA: You're giving people possibilities of life
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they currently cannot imagine having.
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And therefore the motivation to do that.
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I could talk with you for hours about this.
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I'm really glad you're working on this.
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Thank you.
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(Applause)
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