Universal Baby Bonds Reduce Black-White Wealth Inequality, Progressively Raise Net Worth of All Young Adults

Abstract

The distribution of wealth has grown increasingly unequal, especially along racial lines. Lawmakers and researchers propose to address the issue with universal “baby bonds,” paid to every newborn and preserved until young adulthood. Bond values are tied inversely to wealth up to a $50,000 maximum investment. This study uses longitudinal data from the Panel Study of Income Dynamics on the assets of young adults to simulate contemporary racial inequalities under a counterfactual policy environment in which the United States had administered baby bonds when the current cohort of young adults were newborns. Initial bond values are defined categorically by quintiles of household wealth observed in 1989 and 1994, smoothed across the inverse hyperbolic sine of household wealth, and then assumed to grow at 2% per year through 2015. Without baby bonds, young White Americans hold approximately 16 times the wealth of young Black Americans at the median ($46,000 vs. $2,900). Baby bonds reduce the disparity to a factor of 1.4 ($79,143 vs. $57,845), in the absence of intervening behavioral responses to the policy. The share held by the top decile decreases from 72% to 65%, marginally approaching the more egalitarian societies. Baby bonds considerably narrow wealth inequalities while simultaneously improving the net asset position of young adults and alleviating asset concentration.

Cultural trauma as a fundamental cause of health disparities

“…Examples include restoring disrupted cultural modes and institutions by establishing trusts and educational systems that uplift minority cultures/languages, as in Hawai’i’s Kamehameha Schools that was formed in 1887 to counteract the severe socioeconomic and educational disadvantages facing Native Hawaiians ( Serrano et al, 2007 ). To promote access to cultural lands and other flexible resources, policy interventions may also take the form of equality generators such as baby bonds ( Hamilton and Darity, 2010 ; Zewde, 2020 ), universal basic income ( Haagh, 2019 ; Hoynes and Rothstein, 2019 ), or reparations for culturally traumatized populations including Jewish Holocaust survivors ( Ludi, 2012 ), the Indigenous Sámi of Europe ( Errico and Hocking, 2012 ), Japanese Americans ( Howard-Hassmann, 2004 ), and Africans ( Spitzer, 2002 ).…”

The Contribution of Shareholder Primacy to the Racial Wealth Gap

“…The racial wealth gap persists because, as economist Darrick Hamilton says, "wealth begets wealth." Wealth enables households to invest in their family's future, and positive asset ownership allows families to invest in assets likely to produce high returns (Zewde, 2019). Wealth compounds over time due to intergenerational wealth transmission (Chiteji & Stafford, 1999).…”

“…Another source of the racial wealth gap today comes from wealth strippers-subprime mortgages disproportionately marketed to families of color; higher interest rates on debt; and other forms of financial exclusion (Price, 2020). In addition to its obvious economic importance, wealth gives households social and political power above and beyond its economic consequences (Zewde, 2019). Wealth concentration in a society has a deep impact on the functioning of its democracy (Flynn et al, 2017).…”

Is there wealth stability across generations in the U.S.? Evidence from panel study, 1984–2017

“…There is a growing body of economic policy literature (Darity & Hamilton, 2012; Hamilton & Darity, 2010; Zewde, 2020) that is informing US policy initiatives (Bartscher et al., 2021; Corasaniti, 2019; Darity et al., 2021; Tully, 2020), including those proposed by presidential candidates and members of the House and Senate (Schlesinger & Siddiqui (2020)). This literature and these policy initiatives are explicitly targeting asset components as the foundations of building total net wealth and reducing the rise in intergroup inequalities.…”