In this series we will be publishing short pieces that pertain to our campaign goal of diversity in economics. In this piece, we address the work of Darrick Hamilton and William Darity Jr. on reducing the racial wealth gap that is still prevalent in the United States. Have a read of this short piece, and if you’re interested in finding out more you can find the full articles below.
Addressing the racial wealth gap that prevails in the United States requires innovative policies. Darrick Hamilton and William Darity Jr. observe a pattern of direct and indirect intergenerational wealth transfers which illustrates that racial wealth disparities not only persist, but deepen over time. Hamilton and Darity Jr. propose what has been coined ‘baby bonds’, government policy that provides every child with a publicly funded trust account from birth. They propose that the size of the endowment ought to be proportional to the relative poverty of the family, with the poorest families receiving $50,000 for their children to access when they turn 18, and funding decreasing proportionally with family wealth.
Hamilton and Darity Jr. argue that this would help address the impacts of intergenerational racial inequality, by providing every child with a trust account sufficient in size that would enable them to invest in themselves and their future, regardless of their parent’s financial status. Providing the poorest families with such an endowment, would reduce the incidence of poor families turning to aggressive short-term loans when they are in need of income support. Additionally, the endowment may enable families to send their children to better schools or to college, enabling them to afford a better education.
Naomi Zewde evaluates the baby bond proposal in a 2020 study, demonstrating that there is evidence the policy has the potential to make genuine progress in reducing the racial wealth inequality in the United States. Zewde comments on the efficacy of the proposal, in that whilst it would not fundamentally restructure the distribution of wealth, it has the potential to marginally compress the wealth distribution towards the middle rather than towards the top. Zewde argues in favour of baby bonds for the reason that race neutral endowments would have far reaching impacts on improving systemic racial inequalities through the mechanism of reducing wealth disparities.
References:
Darity, W. and Hamilton, D. (2012). ‘Bold policies for economic justice’, The Review of Black Political Economy, 39(1), pp.79-85.
Zewde, N. (2020). ‘Universal Baby Bonds Reduce Black-White Wealth Inequality, Progressively Raise Net Worth of All Young Adults’, The Review of Black Political Economy, 47(1), pp.3-19.