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IIn July 2023, Connecticut created the nation’s first baby bond by depositing $3,200 into a newborn account.
Over the next 18 to 30 years, the effects of time and compound interest will provide the baby with up to $24,000 to pay for college, make a down payment on a home, start a business or do other things that will shape and build her life. wealth. Connecticut’s baby bond program will automatically enroll about 15,000 babies born each year into the state’s Medicaid expansion program. It’s a modified version of an idea that Darrick Hamilton first described to his thesis advisor, William “Sandy” Darity, some 25 years ago when he was a A new scholar.
Hamilton, 53, a university professor of economics and urban policy and founding director of the New Society Institute’s Institute on Race, Power, and Political Economy, believes some mechanism is needed to break the persistent racial wealth gap, in which the largest and The most enduring economic disparity. He suggested setting up similar trust accounts for government-sponsored children. Economists, he said, have a bad habit of focusing on the role of behavior in creating life outcomes or economic conditions. But policies can also shape behavior and influence life outcomes.
“Wealth is functional in nature,” Hamilton said. “We tend to think of wealth as an outcome, but its true value lies in what it can do for you.”
The racial wealth gap in the United States is huge. In 2022, the median wealth of white households was six times that of black households. The average racial wealth gap is much wider. In 2022, the median difference in wealth between black and white households was about $240,000, while the average difference was four times that, at $1.15 million.
Darity and Hamilton had some useful debate about what a baby bond program should look like. Why focus on babies and not young adults? Why not give low-income parents cash when their children are born or when their children grow up? Should wealth gap proposals focus on median or mean differences between groups? All of these approaches have some advantages, Hamilton said. These people implemented a domestic baby bond program in which the government would deposit an account for every baby in the country, with the largest amounts going to children from the wealthiest families. These accounts will be held in government custody until the child reaches adulthood and then transferred to activities that help build wealth.
Hamilton and Darity knew they might face resistance. Researchers found that white voters often oppose programs or services for poor people because they believe they benefit black people, even though the programs might help their own families. However, since baby bonds will become commonplace, Hamilton and Darity think they can solve the problem. They also argue that baby bonds have the potential to bypass the political practices of blame, shame and punishment that often define U.S. social policy debates.
“No one can claim that these babies were in any way responsible for their family’s financial well-being,” said Darity, 70, a distinguished professor of public policy and economics at Duke University’s Sanford School of Public Policy. “So it’s an innocent argument or tactic.”
In addition to Connecticut, California and Washington, D.C., have approved different types of baby bond programs, which Hamilton and his team consulted on. The team is also working with lawmakers in 12 other states that have introduced some type of baby bond legislation since 2021. Hamilton attributes the momentum in part to a federal bill introduced by Sen. Cory Booker and Rep. Ayanna Pressley calling for universal baby bonds. The plan has not progressed since Booker first proposed it in 2018, but has continued to gain co-sponsors each year.
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