Civil Liberties

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.

No one old enough to ride a bike or dress up a Barbie thinks presidential elections are about ideas. But sometimes ideas can shape both a campaign and the agenda of the winner. Ronald Reagan won the election in 1980 after adopting the Kemp-Roth tax cuts and pounding them at campaign stops. Steve Forbes lost the Republican nomination in 1996, but he turned into a credible candidate as he relentlessly pitched his plan for a low universal flat tax. That plan never made it to the floor of Congress, but it has crept into the conventional wisdom of tax reform. Even the Democrats, facing the prospect of power in 2009, have started to consider it when they contemplate tweaking the alternative minimum tax and fixing the code.

When Brooks endorsed ASPIRE-style accounts in 2005, he predicted they "would cut across left-right polarities and prove an irresistible political force." It hasn't worked out that way. In their October debates and campaign tours, front-running Republicans Rudy Giuliani and Fred Thompson started saying that Social Security was en route to a collapse and that Americans needed to look, one more time, at private accounts. Democrats howled. Meanwhile, Democrats called for young Americans to start owning assets instead of depending on handouts, and Republicans shoved the idea off the table. Is everybody missing the big picture?

David Weigel is an associate editor of reason.