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