why baby bonds, instead of UBI, are the way to truly transfer wealth in the U.S.
With the AI-driven future in sight, UBI has surfaced as a way to compensate for the reduced employment. I personally have always been drawn to the idea of UBI and admired people like Andrew Yang and Jack Dorsey who have been backers of it. It seems like the simplest way to cover people’s basic necessities so that they can focus on developing, whether it’s finding a fulfilling, stable job or improving their health and home situation. However, UBI has not been successfully implemented long-term in the U.S., and it’s also not enough to bring people out of poverty.
The idea of UBI dates back to Thomas Paine’s “Common Sense,” where he advocated for independence from Great Britain, but also commented on what should be done with the surplus of government funding once it becomes reserved for the American people instead of being spent in other ways. He proposed that it primarily be paid out to the elderly and parents of young children. Though much more limited than today’s idea of UBI, which is understood to be distributed to all, it espouses cash payments as a “right” to all those who “may feel it necessary or comfortable to be better supported, then they can support themselves.” Today, many UBI experiments continue to be run in different countries. The world’s largest basic-income program is implemented in Kenya, where around 5,000 people have received an extra $22 a month since 2017. These cash transfers have made Kenyans less likely to get sick or go hungry and more likely to start a business. However, this doesn’t translate to the U.S. as easily. There are two main problems with UBI in the U.S. — 1) it’s expensive and 2) it’s ineffective.
Providing $1,000 a month to every non-retired American adult would cost $2.3 trillion a year ($1000 x 12 x (260 million adults - 70 million social security beneficiaries)), about a third of what the government spent in 2023. UBI proponents argue that UBI spending would eliminate other costs, but it would not replace the largest categories of current government: defense, social security, and health insurance. If anything, it would reduce crime rates and financial strife and optimistically replace 10% of government funding.
Various experiments in the U.S. have shown improved quality of life for cash transfer recipients, but not financial freedom. Recipients of the guaranteed income pilot (SEED) in Stockton, California, for example, used their their allotments primarily on food, home goods and personal clothing, and utilities. Some of the recipients used their additional cash to pay off car payments and payday loans. However, this was not enough to cover recipients’ outstanding debts. The problem in the U.S. is that Americans have to deal with outsized college bills, healthcare costs, etc. that financially squeeze families and leave them with no disposable income. University graduates owe an average of $33,500 a year after they leave school and families owe an average of $4,393 a year in out-of-pocket healthcare costs. Most parents can’t afford to have childcare, but for those who need it, that’s an average cost of nearly $16,000 yearly. Given those costs, a total UBI payment of $12,000 yearly helps pay some bills, but not all. It merely makes a dent in the financial burden of being part of the American economy.
Why is this the case in the U.S.? Why are our costs so high? This is because the government spends relatively low on welfare and social benefits, transferring much of basic financial responsibilities to citizens. Our taxes are low and incentivize economic growth and unrestricted capitalism. College is extremely expensive and most of our tuition payments go towards college endowment funds. We also spend a lot on defense — more than 10 countries combined, including China, Russia, and India. Much more than other countries, the wealth in the U.S. is concentrated in capital. College endowment funds, growing companies, retirement investment funds, etc. And where does this wealth end up flowing to? To those who have access to capital in the U.S. — not the lower or middle income classes, who live paycheck by paycheck. This leads to the higher socioeconomic classes gaining wealth exponentially, while others miss out on growth and even lose wealth due to inflation. This is what has lead to the stark socioeconomic gap in the U.S.
Instead of UBI, Americans in the U.S. need to be given capital. The way to do this is through baby bonds. Under proposed baby bond bills, every child born in the U.S. would be provided with a government-funded savings account with seeded and annual deposits based on income. At birth, each child would receive $1,000 with an annual supplement of up to $2,000, with children from the lowest-income households receiving the maximum amount. This way, people of underserved backgrounds would be given participation in the growing American economy. When they reach adulthood, they can use the funds for wealth-building activities such as purchasing a home or starting a small business. An initial foundation of wealth would also allow people to avoid taking out loans and accumulating debt in the first place. Baby bonds would cost a fraction of what UBI would cost, and if they had been implemented 25 years ago, children from underserved communities today would have a median account balance ranging from 20,000 to 30,000.
Some U.S. states are already working on implementing baby bonds — Connecticut passed legislaton in 2021 to provide eligible babies with $3,200 in investment accounts. Many other states, including Washington D.C. and California, have initiated or proposed baby bond legislation, and these programs have received widespread bipartisan support.
If we continue down this legislative path, we might be able to tackle the racial and economic disparities that plague the U.S. today. While our economy continues to grow, all future generations of Americans will have a chance to own a share of this growth, and will be able to have financial freedom.
