Without Capital, Inequality Is Locked In
The extent of our dramatic inequality is at least as much a problem of politics as it is a problem of economics.
The racial wealth gap in America is appalling. Evidence from the 2016 Survey of Consumer Finances reveals that the typical black family has $17,600 in median wealth (inclusive of homeownership), which is nearly $100,000 less than the $171,000 median wealth of a white family. What’s more, that number skyrockets to a $800,000 gap when comparing the mean wealth of a white family to that of a black family.
This is due in large part to the iterative nature of wealth and higher education. Families with financial advantages can “buy” crucial advantages for their children, such as the ability to obtain a college degree without accruing costly educational debts. Lack of wealth — primarily inherited wealth — prevents many black families from accessing this advantage, contributing to a compounding distance between those born with resources and those who are not. As a result, black college students are more likely to take on debt for higher education and more likely to drop out of college because of financial concerns.
Research from the Pew Charitable Trust supports this. Its landmark 2018 study proved that the racial wealth gap has more to do with a lack of assets for black and Latinx families than an abundance of debt. It points to differences in inheritance and other intergenerational wealth transfers as the main culprit. Wealth gives us choice, freedom, and optionality — in essence, wealth begets more wealth.
The good news is that change may be imminent, with noteworthy progress already underway. Younger generations and social movements, such as Black Lives Matter, Occupy Wall Street, and a Green New Deal, are beginning to redefine economic good to incorporate morality, sustainability, and humanity.
But we must go further.
We must recognize the roles of power and initial endowment (e.g., capital), and how that power and capital shape the rules of the game to give an advantage to power and capital. Power and capital are self-reinforcing and, without government intervention, generate an iterative cycle of stratification and inequality, systematically undermining black, brown, and other socially marginalized communities in particular.
Our society is still vulnerable to the pricing and rationing that come about from corporations trying to meet their profit-maximizing fiduciary responsibility to their shareholders. Although we are beginning to see pushback — the U.S. Business Roundtable, for example, issued a statement earlier this summer encouraging companies to move beyond shareholder primacy — it’s unreasonable to believe business in general would voluntarily give up its immense emphasis on profit for broader social objectives of equity and access.
Access to a set of enabling goods and services — such as health care, housing, schooling, financial services, and access to capital — are critical for individual life, liberty, and self-determination. Their quantity, quality, and access should not be determined by corporations. Without access to these fundamental needs, and without real capital, inequality is locked in.
We could take bold steps to meet these challenges.
For example, rather than rewarding a profit-earning private sector with tax incentives, the federal government should initiate the economic right to a productive and quality job with the economic security of a living wage and worker amenities. Not an “employer of last resort” program, but a viable alternative to undesirable jobs with low pay, low benefits, and poor working conditions.
We need policies that allow “public options” to directly compete with and crowd out inferior “private options” that do not ensure a universal and quality access.
We also need to proactively address wealth inequality at birth. So-called Baby Bonds would establish a universal birthright to capital, a privilege generally reserved only for those born into wealth. This program would complement the economic right to old-age pensions and provide a more comprehensive social-security program designed to provide capital finance from cradle to grave regardless of the race and family position in which an individual is born. An average Baby Bond account could be seeded at birth at $25,000, gradually rising to $60,000 for babies born into the very poorest families. Funds would be available when the child reaches adulthood for an asset-enhancing activity like financing a debt-free university education, a down payment to purchase a home, or seed capital to start a business. Naomi Zewde of Columbia University estimates that Baby Bonds could substantially close the racial wealth gap in just one generation.
And they are cost-effective. With approximately 4 million babies born each year, the program would cost roughly $100 billion per year. This constitutes roughly 2 percent of annual federal expenditures and far less than the more than $500 billion already being spent on asset promotion.
There is nothing new or radical about government intervention to ensure economic rights. Seventy-five years ago, President Franklin Delano Roosevelt’s famed 1944 State of the Union address proposed an Economic Bill of Rights. He called for “physical security . . . economic security, social security, and moral security.” Beyond government, philanthropy has a responsibility as well, and we cannot wait for election cycles to spark necessary and immediate change. The philanthropic community must heed the words of Reverend William Barber of the Poor Peoples’ Campaign that “economic justice is a moral imperative.” This mantra should be all the motivation and justification we need to change the paradigm that governs grant making, advocacy, and scholarships today.
We must have a long-term vision to reimagine the society that we want and deserve. We need to move away from the free-market, neoliberal approach that emphasizes deregulation, tax cuts, and tax incentives to cajole or bribe an already flush private sector to provide more jobs and rebuild the nation’s crumbling infrastructure. We must dispel the myth that this will deliver an innovative, dynamic economy that would trickle down to us all. Because, quite simply, it won’t.
Instead, be local. Go into progressive and conservative areas. Fund projects and demonstrations that truly empower people with economic security, dignity, and agency to define and achieve their self-determined goals. Only then will we begin to sow the seeds of a more inclusive economy that works for all.