March 28, 2006
Three years ago, in a spectacular issue of The Atlantic Monthly (“The Real State of the Union,” done in partnership with the New America Foundation), Ray Boshara wrote a fascinating proposal. What if we gave $6,000 to every American citizen at birth, and invested that money in a safe portfolio until the citizen grew old enough to use it?
Wealth inequality in the US, Boshara pointed out, is much greater even than income inequality:
By the close of the 1990s the United States had become more unequal than at any other time since the dawn of the New Deal—indeed, it was the most unequal society in the advanced democratic world. The top 20 percent of households earned 56 percent of the nation’s income and commanded an astonishing 83 percent of the nation’s wealth. Even more striking, the top one percent earned about 17 percent of national income and owned 38 percent of national wealth. In nearly two decades the number of millionaires had doubled, to 4.8 million, and the number of “deca-millionaires”—those worth at least $10 million—had more than tripled, from 66,500 to 239,400.
And the wealth gap is even more significant than the income gap, Boshara argued. Wealth enables financial security, which promotes planning for the future. Wealth, like debt, is self-replicating, Boshara said. “Compound interest turns wealth into more wealth and debt into more debt. Other things being equal, those with interest-bearing savings accounts will end up richer after a year, and those who must pay interest on credit-card or consumer household debt will end up poorer.”
And the US government already does a hefty amount of wealth distribution, Boshara explained, only 90 percent of it is reserved for the 55 percent of Americans who are already wealthiest. For Americans who already own homes and businesses and retirement accounts, the government provides a number of systems to build on these assets. But for Americans without these things, the government provides only income assistance, thus exacerbating the wealth gap.
So, calling to mind the great American wealth distribution schemes of the past — the Homestead Act and the GI Bill — Boshara proposed his $6,000-for-everybody plan, and even gave it a name ready for prime time — the American Stakeholder Act.
Boshara has retooled his aims some since 2003. Over at AssetBuilding.org, he’s collected a wealth of resources and information on the idea of wealth creation for the poor. Boshara and the New America Foundation crew have thrown their support behind some more incremental approaches to asset-building, like the ASPIRE Act, currently wending its way through Congress (with Bipartisan Support™!). Under this bill, the government would loan every American child $500 to start a savings account, to which they could add up to $1,000 a year. The person would have to start paying off the initial $500 loan once she turned 30.
Clearly ASPIRE is no American Stakeholder Act. But the New America crew hasn’t totally abandoned the $6,000 idea.
I was reminded of Boshara’s article when I read this week’s Wall Street Journal piece (by Bell Curve co-author Charles Murray) arguing for an annual government payout of $10,000 to every American citizen 21 and over, financed by ending all federal welfare programs. A fifth of that would go into a retirement fund. $3,000 would pay for health insurance. And the last $5,000 is presumably for discretionary spending. To find out, I guess we have to read Murray’s new book. You might start by reading this interview.
Murray’s idea seems more sweeping and ambitious, but I prefer Boshara’s focus — the idea that, from birth, every American is given something to tend. I’m guessing Murray’s plan presupposes that most individuals will be spending that last $5,000 every year. In any event, the poorer the individual, the higher the likelihood that the extra money won’t go towards wealth acquisition, but towards staying a bit higher afloat. The annual $2,000 retirement contribution in Murray’s plan mitigates this a lot, though. I don’t know. Snarketeers, your thoughts?