Bonds for Babies

Democrats discover the Ownership Society

You probably missed it, but there already was an “idea primary” in the 2008 election. It lasted two weeks and nobody won.

In September, Sen. Hillary Clinton (D-N.Y.) strolled into a Congressional Black Caucus forum, belted “Brooklyn’s in the house!” to rev up some of her backers from New York, and fielded a question about Social Security. Clinton, who typically clings to her script as if it were the last raft off the Poseidon, got a little too comfortable and started to improvise.

“I like the idea of giving every baby born in America a $5,000 account that will grow over time,” she said, “so when that young person turns 18, if they have finished high school, they will be able to access it to go to college.” There were no more details; she mentioned the idea, and then she moved on.

Immediately, the Clinton campaign remembered why their candidate usually sticks to her lines. The Drudge Report mocked the idea in a yelping banner headline: “A BOND IN EVERY BASSINET: HILLARY PROPOSES $5,000 FOR EVERY U.S. BABY.” “Should Clinton become the Democratic nominee,” declared Larry Sabato, the ubiquitous pundit who directs the University of Virginia’s Center for Politics, “she may have handed a powerful issue to the Republican candidate.” One Republican candidate, Rudy Giuliani, announced that his rival thought “the American people are stupid.”

Ironically, Clinton had been poaching in a traditionally Republican territory. After all, she was proposing a bond that a child would own, something that would give him or her some sense of responsibility. This was not part of the traditional menu of Democratic ideas. Indeed, it has roots in an idea popular in free market circles.

In 1962 the libertarian economist Milton Friedman proposed a negative income tax, under which welfare bureaucracies would disappear and the government would simply send checks to people under a certain income level. Charles Murray, author of the seminal welfare critique Losing Ground, offered an updated version of Friedman’s proposal in his 2006 book In Our Hands. Both concepts started as thought experiments, and both reached the same conclusion: The recipients of transfer payments can manage that money better than a welfare state can.

Stung by the wide-ranging criticism, Clinton backed down. On October 9 she said baby bonds were “on the back burner,” and the next day her campaign staff assured reporters that the bonds were “off the table.” But another version of the idea was percolating in Congress: A few days later, Clinton’s colleague Sen. Chuck Schumer (D-N.Y.) held a press conference to introduce the ASPIRE Act. This legislation would create “KIDS accounts”: an initial endowment of $500 for each American child, to be funded by taxpayers and administered by the Treasury Department. Schumer had introduced an identical bill three years earlier with three Republican co-sponsors: Sen. Rick Santorum (R-Pa.), Rep. Phil English (R-Pa.), and Rep. Tom Petri (R-Wis.).

Schumer’s accounts would be tax-free, and the owners—every kid born in 2006 or later—could start tapping into them at age 18 to pay for their education, to buy a home, or to set up a retirement account. Children below the poverty line would be eligible for an extra $500 for their accounts. Wealthier kids could receive dollar-for-dollar matches for the first $500 they invested each year.
When I asked Hill Republicans about Schumer’s proposal, the reaction was indifference. “I’m not familiar with this,” replied Rep. Mike Pence (R-Ind.), a prominent conservative. “But I’d say, generally, if Chuck Schumer is introducing it than I’m not going to like it.”

Murray doesn’t like the idea either, despite the superficial similarities to his proposal in In Our Hands. The KIDS accounts, like Clinton’s baby bonds, would be a brand new entitlement, he points out, not a replacement for the present welfare state. “Add-ons to the current system will keep all the bad features of the current system,” he explains. “All of the dynamics among families and communities that would make my plan work are destroyed if the present system of transfers is maintained.”

Michael Tanner, director of health and welfare studies at the libertarian Cato Institute, agrees that ASPIRE-style accounts are “the wrong answer.” But he also credits their supporters for asking “the right question.”

Baby bonds, Tanner argues, are a sign that Democrats finally recognize the role personal investment can play in battling inequality. The conservative New York Times columnist David Brooks goes farther: ASPIRE-style accounts, he wrote in 2005, are a worthy idea that anticipates the coming entitlement crunch and adapts to it. Such “asset-based welfare,” he declared, “might pave the way for other asset-based programs designed to give young people a better start in life, not just secure their retirement.” Today, by contrast, “people in the bottom half of the income scale don’t get to join in to take advantage of compound interest. They don’t get a share of the growing national economy. They don’t get the psychological benefits of ownership.”

That, you’ll recall, was the thinking behind Social Security privatization. Privatizers wanted to change the way people thought about Social Security: Instead of pooling their wealth and getting some back when they retired or needed aid, they would build their own assets over the course of their lives.

Even if they don’t replace the current Social Security system, “baby bonds” could have a transformative political effect. The kids who own those bonds won’t just be counting on the government and the Social Security Administration to take care of them. They’ll be investors. They’ll see what happens to their accounts, they’ll look at what’s happening to the transfer payment system, they’ll make the obvious comparison, and they’ll be less likely to vote for the traditional welfare state.

Such ideas have affected Republicans’ political calculations. Grover Norquist, a vocal supporter of private Social Security accounts, argues that “every American who owns his own mutual fund is decreasingly susceptible to the siren call of class warfare” —and transfer payments.

But Democrats are making political calculations of their own. Clinton clearly thought asset building could fit snugly into a plan to lift up poor Americans. She brought it up to get some applause at a meeting of black, mostly urban Democrats. Similarly, Schumer recognizes that ownership is an idea that sells. Slowly, incrementally, the idea is traveling from the right side of the political spectrum to the left.

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  • ||

    In 1962 the libertarian economist Milton Friedman proposed a negative income tax, under which welfare bureaucracies would disappear and the government would simply send checks to people under a certain income level.

    If we're going to have a welfare state, that would be the way to go. Rather than have all those bureaucrats in the system, they too would just get a check each month.

  • KipEsquire||

    The idea behind typical "conservative" variants of baby bonds was that each competent (physically, mentally, emotionally, etc.) citizen would receive a very large one-time lump sum payment, perhaps at age 18, but with the understanding that there would be no subsequent access to any form of public assistance after that. If you squandered the money or otherwise screwed up your life, then too bad so sad -- rely on private charity.

    That was hardly Clinton's proposal.

  • ||

    I was wondering if anyone else was going to notice that she copped that idea from the libertarians.

  • ||

    KipEsquire,

    1. Any "let's give people money" policy is, by definition, going to be a compromise on the part of conservatives.

    2. From the liberal P.O.V., dependency on public assistance is a function of a lack of economic opportunity. By providing people which such bonds, they will have said opportunity, and this will drastically reduce the number of people who will require public assistance. Which is to say, the liberal and conservative positions on this are starkly different on the level of principle, but not so very far apart in practice.

  • ||

    I suspect that if we could magically divvy up the country's money supply and capital, take all the money in circulation and value of everything and give each citizen an equal share, within 20 or 40 or 60 years we'd have the same distribution of wealth as we have now.

  • ed||

    funded by taxpayers and administered by the Treasury Department

    This is a "libertarian" idea how?
    Is it "libertarian" simply because Friedman or Rothbard mentioned it?
    Is it a good idea to compromise on an inherently bad idea?

  • kingfisher||

    "I'm not familiar with this," replied Rep. Mike Pence (R-Ind.), a prominent conservative. "But I'd say, generally, if Chuck Schumer is introducing it than I'm not going to like it."

    with thoughtless, knee-jerk reactions like this, is it any wonder nothing good comes out of Washington?

  • ||

    You're probably right, Lamar.

    But this proposal is not about levelling. It's about providing a baseline and a foundation.

  • Senator Larry Craig with a str||

    "But I'd say, generally, if Chuck Schumer a man in a bathroom stall is introducing it [into my mouth] than I'm not going to like it."

  • ||

    joe, I'm not totally against it. A big GOP slogan is equality of opportunity and not equality of results. It would seem that this type of proposal would fit that slogan.

  • Episiarch||

    with thoughtless, knee-jerk reactions like this, is it any wonder nothing good comes out of Washington?

    I thought the same thing, but he is talking about Chuck Schumer.

  • ||

    Shut your mouth!

  • ||

    A $5000 bond at birth--to be accessed under fulfillment of certain conditions at age 18 is on e of the best ideas I have heard from anyone in any party. Too bad she didn't follow up.

  • ||

    with thoughtless, knee-jerk reactions like this, is it any wonder nothing good comes out of Washington?

    I thought the same thing, but he is talking about Chuck Schumer.



    And who didn't feel that way about Jesse Helms?

  • ||

    No one's brought up the question of whether the bond would be backed by gold yet?

    And I thought this was a pro-Ron Paul forum. ;-)

  • ||

    But this proposal is not about levelling. It's about providing a baseline and a foundation.

    Right. A Democrat proposing a redistribution of wealth targeted to get votes from an audience of poor urban blacks isn't about leveling. Are you really that naive, or are you hoping the some of us are that gullible?

    Oh, and calling the negative income tax a "libertarian" idea because it came from Milton Friedman, who made a point of describing himself a conservative Republican, would be like calling George Bush a proponent of ending the WOD because he recently pardoned one dealer.

  • ||

    What Would Pinochet Do?

  • ||

    What Would Pinochet Do?

    Throw Hillary Clinton out of a plane.

  • The AntiHumanist||

    While providing every newborn with tax-financed assets might provide for the common good, is it fair? Should my ADDITIONAL tax dollars fund another person's children at the cost of my own? Or, are only the "wealthiest Americans" supposed to pay for it, thus making it more politically-acceptable to me? I probably sound selfish, but "baby bonds" seem like another coercive government program to social engineer at my expense. Maybe some people aren't meant for college. Maybe some people shouldn't own homes (recent history provides ample evidence for it). Maybe some people should have to struggle and WANT to succeed, rather than expect so because their government promises to hold their hand once more. The reason that we have the leviathan government that we do is because the Founding Fathers, fools that they were, included a spirit of the "common good" in the Constitution. It's this spirit that has plagued us ever since.

  • ||

    You know, in China its tradition to give bars of gold to your kid when he or she is born, followed by a bit more gold every Chinese New Year. Then, the kid gets to own the gold when he or she gets married.

    If we were smart enough to have this tradition, we wouldn't need to be discussing this.

  • ||

    "Throw Hillary Clinton out of a plane."

    Danny DeVito and Billy Crystal, right?

  • ||

    Danny DeVito and Billy Crystal, right?

    No, Pinochet really did throw people out of planes.

  • ||

    Hey! Check out Matt Drudge taking Ron Paul out of context...

  • ||

    I suspect that if we could magically divvy up the country's money supply and capital, take all the money in circulation and value of everything and give each citizen an equal share, within 20 or 40 or 60 years we'd have the same distribution of wealth as we have now.

    Isn't this pretty much what Coase's Theorem says? Didn't he win a Nobel for it?

    But this proposal is not about levelling. It's about providing a baseline and a foundation.

    Well, since the money to fund it will be taken disproportionately from the rich, there will be some element of redistribution/levelling involved. Add in the inevitable means-testing, and it becomes even more levelly!

  • ||

    Taktix, do you have the link handy to Paul's entire quote? I can't watch youtube at work.

  • ||

    How do we make this a "one time only never to be increased and no more welfareof any kind no matter how much the whining" type of thing? If that could be guaranteed, maybe some libertarians would back it just to put the ever-expanding welfare state behind us once and for all. But I dream.

  • ||

    Perhaps it is, RC Dean. I didn't see it that way at first, but perhaps it's Coase with a sociological angle....

  • ||

    Never mind, Taktix, the crack staff here at Reason are on the case...

  • ||

    I didn't see it that way at first, but perhaps it's Coase with a sociological angle....

    I'm no economist, so I'm probably mangling it.

  • ||

    The thing that bugs me is that whenever Ron Paul is on one of these shows, they only ask him about other candidates.

  • ||

    Isn't a baby bond actually pretty fair for a country running a budget deficit? By running a deficit our current overspending or undertaxing leads to higher taxes for the young and unborn. Therefore, we owe them something as long as we run a deficit.

    Granted, to make these bonds, we're borrowing more, but I'm looking at this from a purely philosophical point of view.

  • Scrooge||

    Are there no prisons? Are there no work-houses?

  • Shannon Love||

    I'm not sure how just giving people money really alters their behavior in positive ways. Trust fund babies do not seem to reliably grow up into productive citizens. Why should we think that a government program will have a better outcome?

    Modern poverty isn't about a lack of money. Its largely about individual dysfunction and poor choices combined with government interference. Immigrants routinely arrive on our shores with nothing but the shirts on their backs and rise to the middle class with a decade or so while native born recipients of government money languish generation after generation.

    Will baby bonds or even a negative income tax do much to provide incentives to people to alter their behavior from short term to long term thinking? I really don't see it.

  • ||

    The author says, "Meanwhile, Democrats called for young Americans to start owning assets instead of depending on handouts . . . "

    Huh? The proposal was about handing out assets. I think the conclusion misleads.

  • Paul||

    The recipients of transfer payments can manage that money better than a welfare state can.

    Isn't that precisely why the welfare bureaucracy will never be abolished?

  • Paul||

    This legislation would create "KIDS accounts": an initial endowment of $500 for each American child

    Already done in my home. And believe me, I'm broke. So why do I need the government to do this for me?

  • Juan||

    I thought Videla was the throw-people-out-of-airplanes guy, while Pinochet was the shoot-people-at-stadiums guy...

  • ||

    prolefeed writes Right. A Democrat proposing a redistribution of wealth targeted to get votes from an audience of poor urban blacks isn't about leveling. Are you really that naive, or are you hoping the some of us are that gullible?

    I like the way you don't have to know anything about a subject, other than the demographics of the people talking about it, to form an opinion.

    What if she'd pitched it to Latvians? Would that be leveling? Please, help me out here, I just too naive to properly match up policy objectives with ethnic groups.

  • ||

    Look, Pinochet would hook Hillary Clinton up to a car battery on the Esmirelda. Happy?

  • ||

    RC,

    As I learned it, leveling was about enforcing economic equality. Not all redistribution is leveling.

  • ||

    "They'll be investors."

    How will they be investors, more like I will be the investor in this deal. Same song difference dance, take money from x give it to y and z.

    Why the fuck not. It's not like they won't already owe a lot more than that to the national debt which just topped 9 trillion.

    This idea is so fucking good we should extend it to the rest of the worlds babies as well.

  • LarryA||

    From the liberal P.O.V., dependency on public assistance is a function of a lack of economic opportunity.

    From the (current U.S.) liberal P.O.V., dependency on public assistance should be universal. "Individuals make bad decisions. They should depend on the government to do everything."

    "I'm not familiar with this," replied Rep. Mike Pence (R-Ind.), a prominent conservative. "But I'd say, generally, if Chuck Schumer is introducing it than I'm not going to like it."

    with thoughtless, knee-jerk reactions like this, is it any wonder nothing good comes out of Washington?


    How is this thoughtless? Given that Sen. Schumer has never seen a gun control law he didn't like, I'm pretty sure I'm not going to be happy with his next proposal on the subject. Of course, Hell could freeze over, so I'll give it a read. Rep. Pence didn't rule that out either.

    A $5000 bond at birth--to be accessed under fulfillment of certain conditions at age 18 is on e of the best ideas I have heard from anyone in any party. Too bad she didn't follow up.

    The fellows from Nigeria have similar offers. I'd bet that the "bond" would be the same IOUs found in "our" Social Security accounts. Note that they won't mature until long after Hillary is out of office.

    Will baby bonds or even a negative income tax do much to provide incentives to people to alter their behavior from short term to long term thinking? I really don't see it.

    In the present welfare system the government makes all your decisions for you. Instead of budgeting for food, you get food stamps. If you shop carefully and don't spend all your stamps, you can't legally use them anywhere else. Instead of comparing apartments you get approved public housing. Instead of making day care decisions, you get a voucher for the government contractor.

    Any system where you have to actually take responsibility is an improvement, even if you merely learn something by screwing up.

    Unfortunately Congress will expect recipients to spend the money "responsibly." Hillary's proposal, even if adopted, would come to a screeching halt as soon as some of the first cohort used their bonuses to purchase FLRCs. (Fast Little Red Cars)

  • ||

    While an ownership society is desirable, rewarding people for increasing the population is not the right thing to do in the face of population stress on the planet. The really right thing to do would be to remove the tax deduction beyond the first child to promote population reduction, which would be the best way to reduce green house gases. Fat chance any candidate would have the balls to propose that, though.

  • ||

    I heard this idea before and dismissed it out of hand. Last time I drove by a kid's soccer game, I noticed that over half the parents cars consisted of SUVs. Now, if the parental units can afford big vehicles and the pricey gas they drink, they can afford to put $5000 into their own kid's account.

  • Daniel M. Ryan||

    Call me suspicious, but I have a hunch that wealth-based entitlements are going to pave the way for wealth taxes. That kind of 'balance' seems to appeal to the middle-class liberal who thinks that the alpha and omega of H.L. Mencken's thought is his "comfort the afflicted" maxim.

  • Adam||

    A $5000 baby bond will look cheap compared to the tax payer cost of a baby born under socialized health care. I have to agree with Dan Barthel's proposal, stop with the tax incentives for multiple children. If you can't afford 'em don't have 'em. Subsidize birth control, not babies.

  • nfl jerseys||

    brgf

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