- Economist Darrick Hamilton has a wild proposal to give all kids born in the US a trust fund of up to $US60,000 at birth.
- The funds would be set aside in federally managed coffers and grow at about 2% each year until the child reaches adulthood.
- Then the money could be used for “asset-enhancing activity,” like pursuing education, buying a home, or starting a business.
- The idea is that the funds would do a better job of levelling the socioeconomic playing field than education alone.
Education is often considered the great equaliser, the tonic that will erase all injustice and inequality. As Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world.”
But an economist is calling for a fact-check on the old advice to stay in school and study hard.
Darrick Hamilton, a professor of economics and urban policy at The New School, believes that a good education won’t get you very far without some cold hard cash to go along with it.
“Wealth is the paramount indicator of economic security and well-being,” Hamilton told a crowd at the TED Conferences headquarters in New York last September, as world leaders were gathering nearby for the United Nations General Assembly.
In the US, Hamilton is advocating a new kind of federal cash-flow pipeline: a wildly ambitious trust-fund scheme that would endow each American baby with a nest egg of cash, retrievable when they reach adulthood. It’s essentially like Social Security in reverse; he described it as “an economic birthright to capital for everyone.”
“Without capital, inequality is locked in,” Hamilton said. “It is time to get beyond the false narrative that attributes inequalities to individual personal deficits while largely ignoring the advantages of wealth.”
He said that what’s “glaringly missing” from our narrative about success is the role of power and capital in society and how they can be used to “alter the rules and structure of transactions and markets in the first place.”
In the US, for example, the top 10% of earners hold about 75% of the wealth in the country, and the wealth gap disproportionately affects people of colour, like Hamilton.
That inequality trickles down from one generation to the next. Today, race is the single greatest predictor of a child’s economic opportunity in the US. And as the economy’s gains in recent years have gone straight to the richest among us, the average American worker’s wages have stagnated.
Hamilton thinks that adding cash to the equation could help push society into fairer territory so the American dream is more accessible for everyone.
The cash could finance things like a private education, a decent healthcare safety net (healthcare costs are among the leading causes of bankruptcy in the US), and a home in a good neighbourhood.
Hamilton said that under his plan, the average endowment would be about $US25,000 per kid, rising to $US60,000 for the poorest children in America. Those born into the wealthiest tax brackets would not be excluded from the trust-fund scheme, and every child in the US would get at least $US500.
The money would be set aside in federally managed coffers, growing at about 2% a year (to adjust for inflation) until a kid reaches adulthood. At that point, they’d decide what kinds of “asset-enhancing activity” they want to invest in for themselves, whether it’s higher education, a new home, or their own business.
The baby-trust-fund idea is not a full-blown proposal at this point, and even Hamilton acknowledged that there were “many details” to be worked out.
But at its essence, it’s designed to be a social safety net that could allow more Americans to take financial risks to reach for their dreams without worrying they might go broke in the process. President Donald Trump certainly benefitted from that kind of system – a New York Times investigation published in October found that he was a millionaire at age 8.
Whether Hamilton’s idea is the best way to combat income inequality is up for debate. A 2008 report from the National Bureau of Economic Research argued that the single greatest cause of rising income inequality in the US was CEO pay that was rising at a breakneck pace not in line with the rest of the economy. Others have suggested that closing tax loopholes for the rich, taxing top earners at a higher rate, or even providing a guaranteed minimum income could help correct the problem.
The cost of Hamilton’s proposal is estimated to be about $US100 billion a year – “far less than the $US500-plus billion that’s already being spent by the federal government on asset promotion through tax credits and subsidies,” he said.
Watch Hamilton’s entire talk here:
Update: This post was originally published on October 3, 2018 and has been updated to include a video of Hamilton’s talk.
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