Two economists have a proposal that they say would help to lessen income inequality in the United States: Give every baby thousands of dollars when they’re born.
The proposal was presented by Darrick Hamilton of the New School and William Darity of Duke University at a conference held last weekend by the American Economic Association.
Hamilton said by email that the proposal envisions giving babies born in the U.S. an average of $20,000 — and up to as much as $60,000 — that can be accessed once they turn 18. The money would be managed by the federal government and would be invested throughout childhood, to be used in adulthood for asset-building endeavors like purchasing a home, starting a business or financing a college education.
Hamilton and Darity called them “baby bonds” — which essentially creates a trust account seeded with an amount of money dependent on the wealth of a baby’s family. The poorer a baby’s parents, the more money he or she would receive.
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“The top 1 percent hold close to 40 percent of America’s total wealth, amounting to somewhere in the vicinity of $36 trillion in 2016. $80 billion (the estimated cost of the program) would be less than 0.5 percent of that,” Darity told The Star.
The aim is to close the gap between wealthy and impoverished American families.
But some are skeptical about funding the program.
“My first instinct in thinking about baby bonds is: How are you going to pay for it?” economist Veronique de Rugy told the Washington Post. She’s a senior fellow at the Mercatus Center, a free-market-oriented think tank.
Critics also worry about the government getting too involved in people’s lives and spending decisions, the Post reported.
“People, even poor people, know what is best for them,” de Rugy said, adding her distaste for “paternalistic” government programs.
But the baby bonds idea is far from new, and it has gained traction in some corners of the world. Britain implemented “The Child Trust Fund” program in 2002, giving babies between 250 and 500 pounds that can only be used after they turn 18.
The program, however, was killed amid funding concerns during the Great Recession.
Hillary Clinton, during her campaign for president in 2007, advocated a baby bonds program, albeit scaled back from Hamilton and Darity’s proposal.
“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 down payment on their first home,” Clinton said.
Such proposals come in an era in which inequality has become so bad that one must return to the 1920s for comparable gaps in wealth, according to the Pew Research Center. In 1928, the top 1 percent of families earned 23.9 percent of all the nation’s income, but by 1944 their share was down to 11 percent.
However, the richest families’ share of income has steadily climbed since the 1970s and was back to 22.5 percent by 2012. Also that year, for the first time ever, the bottom 90 percent of earners’ share of income fell below 50 percent, according to Pew.
Recently, Deutsche Bank released an 80-page report illustrating the growing problem of income inequality, showing stark realities for younger generations, who are seeing declining wealth compared to older generations.
“The bottom line is that inequality is increasing in most countries around the world and there are no signs of this changing anytime soon,” the report said.
Torsten Slok, Deutsche Bank’s chief international economist, said inequality may be to blame for rising populism in the world. Wall Street circles were caught off guard by “Brexit” and Donald Trump’s election, the Post reported.
“Inequality is likely a key source of populism in many countries,” Slok said. “Many of our clients in the U.S., Europe and Asia are asking us: What is the next populist step if these inequality trends are not reversed? What kinds of candidates are we going to see? ... There is no Holy Grail. There is no easy answer to inequality.
But Hamilton believes baby bonds would be a step in the right direction.
He said that $500 billion in federal dollars is already spent each year on tax subsidies and other programs that disproportionately favor the rich. “More than half of these benefits go to the top 5 percent of earners,” he said.
The baby bonds program would cost $80 billion to $90 billion per year, Hamilton said, a figure that amounts to 2.2 percent of annual federal spending “and far less than the $500 billion dollars already being spent on asset promotion.”
He and Darity argue that the choices people make are less important in determining the wealth they accrue than how much money their parents have. And income inequality disproportionately affects minority families, with white households holding 10 times as much wealth as black households.
“A capitalist society that denies segments of its population access to capital is a cruel society that locks in group-based inequality,” Hamilton said.