Baby Bonds Are Anything But Childish

are, as you probably know, in the midst of the worst pandemic in a hundred years. It has caused the worst economic crisis since the Great Depression, and, oh-by-the-way, the George Floyd murder has triggered a wave of protests for social justice unmatched since the turbulent 1960’s. The thing that each of these is exposing is how already disadvantaged populations — particularly people of color — are the hardest hit.

Minorities are disproportionately catching and dying from COVID-19. They’re more likely to have lost their jobs and, if not, to not be able to work from home. And, of course, the Black Lives Matter protests center around how our law enforcement and judicial systems treat people of color much more harshly.

It’s easy to attribute these problems to systemic racism, and there is certainly some truth to that. But it may be more accurate to attribute them to the vast wealth gap that exists in our country. The good news is that, while racism has proved difficult to get rid of, the wealth gap may — surprisingly — be easier to address.

The solution may be something called Baby Bonds.

Now, unless you were paying close attention to Cory Booker’s Presidential campaign — and, let’s admit it, too few of us were — you may not have heard about Baby Bonds.

Simply put, the idea is to give every child a certain amount of money to be invested (either a lump-sum or a series of annual payments), with the money able to be redeemed when the child becomes an adult. The amount invested is inversely related to family income, so that poorer children get more money. The accrued amounts could only be used for specific purposes, like education, buying a house, or perhaps to fund a start-up.

Economists Darrick Hamilton and William Darity are the thought leaders behind the Baby Bonds concept, proposing it in 2010.

It is worth noting that Baby Bonds are not racially-driven, advantaging one race or ethnicity over another. They are a function of income, advantaging all children of low incomes in the same way. It is only the inherent racial inequalities of our existing wealth gap that would help more people of color.

Senator Booker’s proposal gave each baby $1,000, with annual deposits of up to $2,000 based on family income. He estimated that someone born in a family under the federal poverty level would have $46,000 by the time he/she reached 18, versus only $1,700 for those over 500% of FPL. It wouldn’t wipe out the wealth gap, but it’d help put a dent in it.

A more radical version, put forth by Naomi Zewde of CCNY, would give poor babies $50,000 and rich ones only $200. Her analysis indicated it would close the wealth gap between young white adults and young Black adults to “only” 40%, versus some 1600% currently.

Let’s look at why this matters so much. The Pew Research Center found that:

  • “Economic inequality, whether measured through the gaps in income or wealth between richer and poorer households, continues to widen.”
  • “The wealth gap among upper-income families and middle- and lower-income families is sharper than the income gap and is growing more rapidly.”
  • “The richest families in the U.S. have experienced greater gains in wealth than other families in recent decades…the wealth gap between America’s richest and poorer families more than doubled from 1989 to 2016.”

Of particular note, a Brooking Institute report found:

A close examination of wealth in the U.S. finds evidence of staggering racial disparities. At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.

Perhaps even more confounding, Brookings pointed out: “the racial wealth gap remains even for families with the same income.” Their report quotes Professors Hamilton and Darity that the largest reason for this are inheritances and other intergenerational wealth transfers; even equal incomes do not offset such lump sum advantages. For example, The Urban Institute estimated that Blacks and Latinos were five times less likely to receive large gifts and inheritances.

Baby Bonds are, in a way, society providing an inheritance to help counterbalance these inequities.

In her related story for The Atlantic, Professor Hamilton told Annie Lowrey: “At the root of the racial wealth gap, and wealth inequality in general, is capital itself. Baby bonds are specifically aimed at giving people that seed capital, that asset that passively appreciates over their lifetime.”

Senator Booker estimated the cost of his proposal at $60b annually, while Professor Zewde calculated hers at $80b. Neither is trivial, but are still much less than the preferential tax preference on capital gains, while mostly benefits wealthy people. As Senator Booker told Vox when he introduced his bill, “A lot of aspects of our tax code, the benefits are usually used by the wealthy. It’s time we start to give less-wealthy families the same opportunity.”

It is way past time.

Some are calling for reparations as a different approach to bridge the racial wealth gap. It is a worthwhile topic for discussion, but gets tricky in the details. If we’re doing reparations for slavery, what about reparations for the many legal and other barriers Asian immigrants faced? More to the point, there is perhaps no group more deserving of reparations than our indigenous peoples.

Baby Bonds at least have the advantage of not requiring the debate about how we got to our sorry state of affairs, or deciding who has suffered the most. They simply require us to look at families’ current financial situation. They won’t solve all of our existing disparities and injustices, but they could be a good investment towards lessening them.

There are many things about Baby Bonds that could prove problematic. Many low income people are unbanked, so where would the money be invested? There would be tremendous opportunity for fraud or excessive fees. And there’s no assurance that accumulated funds would be spent wisely once available.

The biggest problem, of course, is that it will take a generation for the funds to accumulate, and our problems are now. But, as the old saying goes, the best time to plant a tree is twenty years ago; the second best time is today.

Baby Bonds are a way of planting that economic seed.

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Curious about many things, some of which I write about — usually health care, innovation, technology, or public policy. Never stop asking “why” or “why not”!

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Kim Bellard

Curious about many things, some of which I write about — usually health care, innovation, technology, or public policy. Never stop asking “why” or “why not”!