The Current

Could the wealth gap be closed by giving babies $50,000? Some economists think so

The proposal, called baby bonds, suggests giving every child born in America a lump sum payment of up to $50,000. The money would have to be spent on "wealth building actions" like going to university, starting a business or buying a home.
The proposal suggests giving every child born in America a lump sum payment of up to $50,000; which they could access when they reach adulthood. Some say the idea is well-intentioned, but flawed. (Athit Perawongmetha/Reuters)
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Some economists are advocating a bold way to counter the ever-growing U.S. wealth gap: curb it at birth.

The proposal, called baby bonds, suggests giving every child born in America a lump-sum payment of up to $50,000; richer families would get less, as low as $500. The money would be managed by a government entity and would have to be spent on "wealth building actions" like going to university, starting a business or buying a home.

Darrick Hamilton, an associate professor at The New School in New York, is one of the economists behind the proposal. He fleshed out the idea with William Darity, who teaches at Duke University in North Carolina. They argue success is tied to family wealth and that the bonds would give even the poorest families a chance.

Darrick Hamilton, an associate professor at The New School in New York, is one of the brains behind the idea. He started thinking about it when he was going to college and saw the disparity between students from varying wealth backgrounds. (The New School)

"The savings that's generated in America, unless you're in a top 10 per cent of households, is generated from asset appreciation... the child trust account is intended to give everybody an opportunity to get one of those assets and have that economic security," he tells The Current's Anna Maria Tremonti.

"We need to allow people, if we're going to have a capitalist system, the opportunity to accumulate individual assets for their own economic security."

Bond available after 18

Hamilton started thinking about the idea when he was in college and he saw how some students had better financial resources than others.

"I knew that I had peers that were likely going to receive resources from their relatives, where I understood that I had relatives in need," he said. "I hate to individualize it because that becomes an anecdote, but I know that that narrative is certainly not unique to me."

He hasn't settled on an age yet but the bond would become accessible in young adulthood, sometime after the recipient turns 18. He believes the bond would be an incentive for them to get educated and gain financial knowledge so they can properly use it.

How baby bonds would work

  • $50,000: Highest bond amount, given to extremely poor families
  • $500: Lowest bond amount, given to extremely rich families
  • $20,000: Amount for typical middle-class baby
  • $80 billion: Estimated yearly cost, two per cent of U.S.'s $4 trillion in annual federal spending

Others aren't as optimistic. Economist Fred Lazar, who teaches at Toronto's York University, thinks the plan is "well-intentioned" but has flaws.

"Why aren't you just giving these individuals, your target individuals, up to $50,000 dollars in a mutual fund and leave it invested there? That will generate income over their life," he argues. "The mutual fund will increase in value and that will help deal not only with your wealth gap but your income gap."

Lazar also believes $50,000 is not a realistic amount to buy a house.

"The problem there is you don't have the income to support the mortgages," he says. "To support the mortgage, you have to have an income."

Systemic issues?

Lazar believes there are bigger, systemic issues in poorer communities which need to be addressed first to help lessen the wealth gap.

"There's a lack of mentorship, support, leadership, role models for these children," he says. 

He believes many of these kids mimic what their parents, classmates and friends do.

Hamilton argues that success is tied to family wealth and baby bonds could help level the playing field. 'One thing that is guaranteed is that if you don't have any initial capital, it is pretty unlikely that you're going to have an opportunity to generate wealth over your lifetime.' (Nacho Doce/Reuters)

"If they're not going to school, if they don't see the importance of school, if none of them are starting a business, then you're not going to do these things either," he says. "You have to address the problems at a much earlier age and you have to try to change the mindset, the role models that are available to the young people."

But Hamilton is confident it can work — he's heard of conservatives who love the idea and thinks it can garner widespread political support as it doesn't upend "the capitalist system."

He says the U.S. government already engages in asset enhancement with its tax code.

"If we think about restructuring the way we promote assets with our tax code in a more progressive manner, we can provide every American with opportunity for economic security and mobility."

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This segment was produced by The Current's Rosa Kim.