How 'Baby Bonds' Might Help Address The U.S. Wealth Gap

WEALTH INEQUALITY—and specifically the yawning racial wealth gap (the median black family has about one-tenth the net worth of a white household)—is a thorny challenge for U.S. policymakers. One solution increasingly discussed by progressive politicians but seen as lacking popular support would be for the government to pay reparations to black Americans for the wealth lost during generations of slavery and discrimination.

- Matthew Boesler

Duke University professor William “Sandy” Darity and his onetime student Darrick Hamilton, currently serving as director of Ohio State University’s Kirwan Institute for the Study of Race and Ethnicity, have proposed an interim step dubbed “baby bonds.” The bonds, averaging $25,000 but rising to as much as $60,000 for the poorest children, would be federally managed to increase by a guaranteed annual rate of 2 percent. The cost of up to $100 billion would be less than 3 percent of the U.S. budget. As they explain to Bloomberg News’s Matthew Boesler, the bonds would seek to minimize the wealth disparity between the richest and the poorest, regardless of race.

MATTHEW BOESLER: What are baby bonds, and how would they work?

SANDY DARITY: The language “baby bonds” is kind of a cute touch that was inspired for us by the late [Columbia University professor] Manning Marable. But really what we’re talking about is a trust account—a federally funded trust account—for each young person that they could access when they reach young adulthood.

DARRICK HAMILTON: It basically is about setting up an account at birth, seeded with an endowment, based on the wealth position one is born into. That can be used when you become a young adult toward some asset-enhancing endeavor, like a debt-free education, or as capital to purchase a home or start a business. The source of inequality is, especially at the median, determined by the fact that some Americans have access to some seed capital to put into an asset that will passively appreciate over their life. And I think the key word is passive. It has very little to do with something behavioral. They have some capital with which they can take part in the financial markets.