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. 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.
MB: How does race play into this?
SD: Well, it doesn’t necessarily have to play into this at all. You could have a policy that’s race-neutral, or universal, but it might be race-conscious in the sense that it could disproportionately benefit a group that’s more significantly deprived of the resource. It might go some way toward mitigating the racial wealth gap, but it’s not going to close the racial wealth gap.
DH: Usually, when we talk about the racial wealth gap, it’s examining the median position of a group. Now, it is the case that wealth is so unevenly distributed in America that, at the mean, we would definitely need something specific and even more dramatic than baby bonds if we were to close the racial wealth gap at the mean.
SD: And that’s where I think a program of reparations comes into play, that if your target is the overall wealth gap between blacks and whites, then you need a reparations program. The baby bonds program would not be sufficient.
MB: The Federal Reserve and other institutions have been publishing more and more data on racial disparities in economic outcomes. Is this feeding into the conversation?
DH: It’s a combination of the quality of data and the specificity of certain types of data: Simply having a data point like $8 in net worth in Boston for the typical black household [vs. $247,500 for the median white household there, according to a 2015 report from Duke, the New School, and the Federal Reserve Bank of Boston] can reverberate in many settings, including the halls of Congress. So, when Elizabeth Warren cites that statistic, I’d say that that is an indicator of success.