We the Future
Darrick Hamilton: How "baby bonds" could help close the wealth gap
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Hard work, resilience and grit lead to success, right? This narrative pervades the way we think, says economist Darrick Hamilton, but the truth is that our chances at economic security have less to do with what we do and more to do with the wealth position we're born into. Enter "baby bonds": trust accounts of up to $60,000 for every newborn, calibrated to the wealth of their family. Learn how this bold proposal could help us reduce inequality -- and give every child personal seed money for important things like going to college, buying a home or starting a business. "Without capital, inequality is locked in," Hamilton says. "When it comes to economic security, wealth is both the beginning and the end."
Darrick Hamilton - Stratification economist
Darrick Hamilton crafts and implements innovative routes and policies that break down social hierarchy and move society towards greater equity, inclusion and civic participation. Full bio
Darrick Hamilton crafts and implements innovative routes and policies that break down social hierarchy and move society towards greater equity, inclusion and civic participation. Full bio
Double-click the English transcript below to play the video.
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There is a narrative,
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an idea that with resilience,
grit and personal responsibility
grit and personal responsibility
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people can pull themselves up
and achieve economic success.
and achieve economic success.
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In the United States
we call it the American dream.
we call it the American dream.
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A similar narrative
exists all over the world.
exists all over the world.
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But the truth is that the challenges
of making this happen
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.
in which we are born.
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So I'm going to make the case
that the United States government,
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
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.
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,
a publicly established baby trust,
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what my colleague William Darity
at Duke University and I
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,
historian from Columbia University,
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Manning Marable.
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The reason why we should create
these trusts is simple.
these trusts is simple.
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Wealth is the paramount indicator
of economic security and well-being.
of economic security and well-being.
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It provides financial agency,
economic security to take risk
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,
to describe the benefits of the market,
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but it is literally wealth that gives us
choice, freedom and optionality.
choice, freedom and optionality.
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Wealthier families are better positioned
to finance an elite, independent school
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,
with higher amenities,
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exert political influence
through campaign finance,
through campaign finance,
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purchase better legal counsel
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if confronted with an expensive
criminal justice system,
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.
resulting from any number of emergencies.
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Basically, when it comes
to economic security,
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,
in the context of the United States,
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but this discussion
applies virtually to any country
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
10 percent of households
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hold about 80 percent
of the nation's wealth
of the nation's wealth
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while the bottom 60 percent
owns only about one 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.
than class itself.
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Blacks and Latinos collectively
make up 30 percent
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.
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,
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.
has about 170,000.
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That is indicative
of an absolute racial wealth gap
of an absolute racial wealth gap
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where the typical black household
has about 10 cents for every dollar
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.
to address these inequalities.
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Even in times of economic
expansion, inequality grows.
expansion, inequality grows.
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Over the last 45 years,
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wealth disparity
has increased dramatically,
has increased dramatically,
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and essentially, all the economic gains
from America's increase in productivity
from America's increase in productivity
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have gone to the elite
or the upper middle class.
or the upper middle class.
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Yet, much of the framing
around economic disparity
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,
economic circumstance,
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not poor decision making
or deficient knowledge,
or deficient knowledge,
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constrains choice itself
and leaves people with no options
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
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.
policies and economic arrangement.
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This does not diminish
the value of education.
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,
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,
to a high-quality education,
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from grade school
all the way through college.
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
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.
where the head dropped out of high school.
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Perhaps we overstate
the functional role of education
the functional role of education
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at the detriment of understanding
the functional role of wealth.
the functional role of wealth.
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Basically, it is wealth
that begets more 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.
to capital for everyone.
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These accounts
would be held in public trust
would be held in public trust
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to be used as a foundation
to an economically secure life.
to an economically secure life.
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The concept of economic rights
is not new nor is it radical.
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.
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.
social security and moral security.
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Unfortunately, since
the Nixon administration,
the Nixon administration,
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the political sentiment
regarding social mobility
regarding social mobility
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has radically shifted away from
government mandates to economic security
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,
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.
has shifted on to the individual.
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The pervasive narrative is
that even if your lot in life is subpar,
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,
and the virtues of the free market,
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you can turn your
proverbial rags into riches.
proverbial rags into riches.
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Of course, the flip side
is that the virtues of the market
is that the virtues of the market
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will likewise sanction those
that are not astute,
that are not astute,
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those that lack motivation
or those that are simply lazy.
or those that are simply lazy.
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In other words, the deserving poor
will receive their just rewards.
will receive their just rewards.
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What is glaringly missing
from this narrative
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
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.
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
egalitarian and an authentic pathway
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to economic security,
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independent of the family
financial position
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
the economic rights to old-age pensions
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and provide a more comprehensive
social security program,
social security program,
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designed to provide capital finance
from cradle all the way through grave.
from cradle all the way through grave.
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We envision endowing American newborns
with an average account of 25,000 dollars
with an average account of 25,000 dollars
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that gradually rises
upwards to 60,000 dollars
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,
in the social contract,
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but they would receive a more
nominal account of about 500 dollars.
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
annual interest rate
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of about two percent per year
in order to curtail inflation cost,
in order to curtail inflation cost,
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and be used when the child
reaches adulthood
reaches adulthood
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for some asset-enhancing activity,
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like financing a debt-free
university education,
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,
born each year in the US,
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if the average endowment of a baby trust
is set at 25,000 dollars,
is set at 25,000 dollars,
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the program would crudely cost
about 100 billion dollars a year.
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
of current federal expenditures
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and be far less than
the 500-plus billion dollars
the 500-plus billion dollars
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that's already being spent
by the federal government
by the federal government
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on asset promotion
through tax credits and subsidies.
through tax credits and subsidies.
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At issue is not the amount
of that allocation
of that allocation
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but to whom it's distributed.
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Currently, the top
one percent of households,
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,
of this entire allocation,
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while the bottom 60 percent
receive only five 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,
in a more progressive manner,
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federal policies could be
transformative for all Americans.
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,
to be worked out,
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but it is a policy proposal
grounded in the functional roles
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
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
that privileges existing wealth
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rather than establishing
new wealth is a choice.
new wealth is a choice.
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The extent of our dramatic inequality
is at least as much a problem of politics
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
the false narratives
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that attribute inequality
to individual personal deficits
to individual personal deficits
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while largely ignoring
the advantages of wealth.
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
or disadvantage across generations
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and establishing a more moral
and decent economy
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.
in which they are born.
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Thank you very much.
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(Applause)
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11:03
Chris Anderson: Darrick.
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I mean, there's so much
to like in this idea.
to like in this idea.
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There's one piece of branding around it
that I worry about,
that I worry about,
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which is just that right now,
trust-fund kids have a really bad rap.
trust-fund kids have a really bad rap.
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You know, they're the sort of
eyeball-rolling poster children
eyeball-rolling poster children
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for how money, kind of,
takes away motivation.
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?
that it's not going to do that?
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Darrick Hamilton: If you know
you have limited resources
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
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,
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,
and going to face discrimination,
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they also might pursue
a resume-building strategy.
a resume-building strategy.
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The old adage, "I have to be
twice as good as someone else."
twice as good as someone else."
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Now, when we say that,
we never ask at what cost,
we never ask at what cost,
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are there health costs
associated with that.
associated with that.
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I haven't answered your question,
but coming back to you 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,
a transfer at a later point in life,
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that only increases the incentive
for you to invest in yourself
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
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.
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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ABOUT THE SPEAKER
Darrick Hamilton - Stratification economistDarrick Hamilton crafts and implements innovative routes and policies that break down social hierarchy and move society towards greater equity, inclusion and civic participation.
Why you should listen
Darrick Hamilton is a pioneer and internationally recognized scholar in the field of stratification economics, which fuses social science methods to examine the causes, consequences and remedies of racial, gender, ethnic, tribal, nativity, etc. inequality in education, economic and health outcomes.
Hamilton'ss scholarship and practice, as well as his experience as a professor of economics and director of the doctoral program in public and urban policy at The New School, aligns closely to the work and objectives of The Ohio State University's Kirwan Institute for the Study of Race and Ethnicity. He will assume leadership of the nationally renowned research institute on January 1, 2019. In addition to serving as Kirwan's executive director, Hamilton will hold a faculty appointment in Ohio State's John Glenn College of Public Affairs, with courtesy appointments in the departments of economics and sociology within the College of Arts and Sciences.
Hamilton was born and raised in the Bedford Stuyvesant section of Brooklyn, NY. He is a graduate of Oberlin College and earned a PhD in economics from the University of North Carolina. He completed postdoctoral appointments at the University of Michigan and Yale University, respectively. He is a fellow at the Roosevelt Institute and a National Advisory Committee member of the Robert Wood Johnson Foundation's Policies for Action, Policy and Law Research Program to Build a Culture of Health.
Darrick Hamilton | Speaker | TED.com