Can Baby Bonds Fight the Wealth Gap and Racial Inequality? Connecticut Aims to Find Out.

Yves here. While the Connecticut baby bonds scheme is better than nothing, in terms of giving the poor some assistance, a reality check is in order. First, the amount it is expected to deliver per young adult recipient is $11,000 to $24,000. That would make for a good emergency reserve, which a huge swathe of American households desperately need. But even assuming minimal inflation, it’s not enough to pay for even a half year of college or a cheap new car. It might pay for a couple of years of community college. In other words, while proponents depict the program as potentially life changing, for many recipients, the highest and best use will be the critical capital investment of the best used car they can afford. Or possibly even a rent deposit (most landlords will accept a tenant with no credit score or rental history if he pays six months in advance).

My beef is that patchwork, small bore initiatives like this have the unintended affect of diverting attention from the real drivers of inequality: extreme rentierism in housing and health care, along with the largely-no-longer operative ladder of social mobility, higher education.

By Lynn Parramore, Senior Research Analyst at the Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

Consider a tale of two babies born in the same American city, Jake and Justin. Jake, born into an economically secure white family, is primed for success. His grandparents set up a college savings plan for him. With both parents in professional careers, there’s ample income to secure him a quality education and extra-curricular activities. During college summers, Jake works at his uncle’s real estate firm, eyeing the launch of his own contracting business post-graduation.

Across town, Justin’s story unfolds in a neglected Black neighborhood. Justin’s father, hindered by a prison record, finds only sporadic low-wage construction gigs. His mother, an administrative assistant, scrimps to support Justin’s potential. Despite hurdles, Justin enters college, funding his education with loans and a campus job. Intent on securing a coveted tech internship, Justin juggles extra shifts to support his family when his mother is laid off. Struggling to balance work and studies, Justin eventually drops out of college.

Jake and Justin will carry the indelible mark of their beginnings throughout their lives: Jake’s life will embody security; Justin’s, the stark reality of wealth inequality.

What if, at that critical moment, Justin had resources to reduce his work hours and take that tech internship? What would his life look like?

Connecticut’s baby-bond initiative aims to find out.

America’s First Baby Bonds

Connecticut has made history as the first state to implement a baby bonds program — fully funded for 12 years of babies.

The state will invest $3,200 for each baby covered by HUSKY, the state’s Medicaid program – that’s about 15,000 babies a year and a whopping 36% of the state’s children. Kids are automatically enrolled; no action is required. Upon reaching adulthood (18-30), participants can claim funds for specific wealth-and-opportunity-building purposes like higher education, a home purchase, or starting a business in the state. To receive the funds, they have to be Connecticut residents and need to complete a financial literacy course (hopefully not one funded by self-serving Wall Street firms). The initial $3,200 investment is anticipated to grow to $11,000 – $24,000, depending on when claims are filed.

Turning the idea of baby bonds into reality was a rocky road: the Democratic-led Connecticut General Assembly passed the bill in 2021, championed by former Democratic Treasurer Shawn Wooden. However, Governor Lamont and his team initially opposed the program’s funding, citing concerns over borrowing more than $50 million annually. Internal conflict heated up, as revealed in a January 2023 investigation by the Connecticut Mirror, exposing tensions between Wooden and the governor’s staff. Yet, following the publication, the situation took an unexpected turn. The program became a reality.

The sticking point of funding was solved by a plan to use a $393 million reserve fund established in 2019 during the restructuring of the state’s cash-strapped pension fund for municipal teachers. Originally designed to cover shortfalls in pension fund contributions, this reserve could be repurposed. To safeguard the pension system and meet ratings agencies’ requirements, a $12 million insurance policy was necessary, leaving approximately $381 million available for investment in the baby bonds program.

An Economic Shadow

The wealth gap is the ugly shadow of American prosperity, fueled by historic and ongoing wrongs. Picture wealth as your financial mojo—the sum of all your assets minus debts. It won’t surprise you to hear that white men and white families are more likely to have wealth, and a hefty sight more of it, than women, households of color, or women of color.

Racial wealth gaps reflect the country’s troubled history of discriminatory policies that have barred people of color from growing wealth. The sad fact is that things have not been getting better. The Federal Reserve’s Survey of Consumer Finances shows the racial wealth gap widening during the COVID-19 pandemic. Between 2019 and 2022, median wealth increased by $51,800, yet the gap surged by $49,950. This leaves a significant $240,120 difference between median white and Black households. Meanwhile, child poverty in America started surging as pandemic benefits ended and inflation hit hard: the child poverty rate actually doubled in 2022. The official poverty rate that year was 11.5% overall, but for Black Americans it was 17.1%.

Obviously, this is not a fair playing field. Kids don’t choose their economic circumstances.

Treasurer Erick Russell, who got the Connecticut Baby Bonds Trust rolling, described the program as “leveling the playing field in the sense that regardless of what family you’re born into, or where in the state you’re born into, or what resources your parents have, you have a fair shot at having economic opportunity and growth right here in Connecticut.”

Notably, Russell refers to the wealth gap as “generational” rather than “racial.”

This move acknowledges that while the wealth gap in the U.S. is substantially shaped by racial injustices like slavery, segregation, redlining, and discriminatory lending, it’s a complex issue. Women generally contend with wealth-building hurdles such as occupational segregation, caregiving responsibilities, and restricted access to family planning. Additionally, many whites, including men, encounter barriers to wealth accumulation such as geographic disparities, limited education access, and family structure.

Calling the wealth gap generational is also politically savvy: It makes long-term policy fixes more appealing, taps into family values, sparks empathy among voters concerned about their descendants’ financial future, and garners broader support for anti-inequality measures. Plus, it shifts blame away from individuals and fosters the idea of fair opportunities, a concept voters across the political spectrum can cheer for.

There are several ongoing debates about the details of Connecticut’s program: What if political opponents gain the power to axe it? What happens after the 12 years is up? Might the program further stigmatize children born into poverty? Is it big enough to make a difference?

It will take a lot to address America’s extreme wealth concentration, like fairer tax policies and rigorous enforcement of anti-discrimination laws in housing, employment, and education. But another ingredient is critical: tangible financial resources.

Capitalists Need Capital

One thing is clear: giving children a stake in America’s future is consistent with both a liberal and a conservative economic philosophy. Conservatives believe in limiting government spending, and baby bonds pass the test: a program is pretty cheap compared to other forms of government spending. It’s also consistent with a notion dear to the hearts of free marketeers: baby bonds allow more people the opportunity to benefit from the markets.

Economist Darrick Hamilton, founding director of the New School for Social Research’s Institute on Race, Power, and Political Economy and a key architect of the baby bonds concept, acknowledges the devils in the details of Connecticut’s plan. But he is optimistic that state-level programs, even if imperfect and limited in scope, serve to mainstream baby bonds and help take the idea from theory to action. The ultimate goal for Hamilton is a nationwide baby bonds plan funded directly by the Treasury, akin to Social Security.

When asked about the top issue in addressing the country’s wealth gap, Hamilton responds succinctly: “Capital.”

He underscores the fact that if you lack capital in a capitalist system, you aren’t going to get very far. You can save all you want, but if you don’t have any transfers of resources from your parents or grandparents to help with things like college or the down payment on a house, it’s going to be very difficult to build wealth. “The problem with wealth-building is not how much you actively save,” says Hamilton. “It’s access to capital.” He adds that “most people with wealth generate it from owning an asset that began with some initial capital that passively appreciates over their lifetime.”

In Hamilton’s vision of a federal program, the amount allotted to each child varies based on their family’s wealth, ranging from $500 for affluent families to up to $60,000 for those at the bottom of the economic spectrum. On average, each child would receive approximately $20,000.

Inspired by Hamilton’s work and Connecticut’s plan, state-level proposals have sprouted up all around the country, including Washington, Massachusetts, Nevada, California, and North Carolina. In New Jersey, Newark Mayor Ras Baraka and 2025 Democratic gubernatorial candidate has suggested that baby bonds will be part of his agenda if he becomes governor. In Georgia, the Georgia Resilience and Opportunity (GRO) Fund is piloting a program with a simple slogan: “Wealth begets wealth.”

Undoubtedly, the wealth gap negatively impacts everyone, no matter how affluent you happen to be or what color you are. It shreds social cohesion and economic stability, limits upward mobility, and perpetuates cycles of injustice. It’s terrible for democracy, concentrating political power and paving the way to societal unrest and diminished well-being for all.

Connecticut’s experiment could be an important step in dissipating the country’s shameful economic shadow. And give the Justins a fighting chance.

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  1. Tom Doak

    When my son was in high school, the State of Michigan enacted the “Michigan Promise” scholarship for all students who passed some state-wide test to receive $1000 per semester for four semesters of college, regardless of need.

    After he graduated, he got his first $1000, and then the program was abandoned due to lack of funding. He didn’t really need the $, but some of his friends did. It was a pretty good lesson about government “promises” only lasting until the next election, if that.

  2. JonnyJames

    “…My beef is that patchwork, small bore initiatives like this have the unintended affect of diverting attention from the real drivers of inequality: extreme rentierism in housing and health care, along with the largely-no-longer operative ladder of social mobility, higher education…”

    That sums it up right there. To use a simple metaphor: it does no good to slap a new paint job on a car that has a seized motor and broken transmission. It may look shiny and pretty, but it’s still a broken down pile of junk.

    1. digi_owl

      The education thing was only a ladder thing as long as there was a shortage of accredited people, but an abundance of working class kids.

      Now the nations that has tried to game that ladder has found themselves top heavy, short on kids, and mired in financial shenanigans.

      1. JonnyJames

        Since higher Education Inc. has been financialized, we have folks with advanced degrees mired in debt, working as Uber drivers, and retail clerks. I just read an article by Dean Baker posted on CP that minimizes the debt problem, but I don’t fully agree with him. He seems to implicitly, or even explicitly, claim that JB is somehow better than DT. He fails to point out that the US is not a democracy, but rather an oligarchy. He should know better.

  3. Adam1

    While I am sure some individuals will benefit from this, it’s nothing more than the same old same old. It’s another gimmick to ship money off to the financial world (aka wall street). I mean since I was a pre-teen we’ve replaced pensions with 401k’s funded by “savings”. For those without 401ks we gave them IRA and the Roth IRA’s (and they were so good we gave them to people with 401ks too), all funded with savings. And to fix our healthcare issues we created HSAs and FSAs all funded with savings.

    “…giving children a stake in America’s future is consistent with both a liberal and a conservative economic philosophy.”

    This right here should send you running for the hills!

    All those mainstream economist were hired to convince those liberal & conservative politicians that all that savings flooding into Wall Street was going to fund new plants, equipment and jobs.

    The reality is we’ve got 30+ years of stagnating wages and all that SAVINGS was funded by financial bubbles and crisis’s over that same time period and we’re more economically fragile now than we were before this all started.

    We can “gift” all the savings we want to anyone who deserves it, but if that money is only funding what Wall Street wants, those people may have a nice piggy bank but if on our current trajectory at best that piggybank will pay ONLY SOME of their bills and they’ll still be broke.

  4. KD

    There was a lottery of former Cherokee lands in Georgia to white settlers, so random distribution of significant wealth at the time. Long-term, there was no effect of the outcome of the children and grandchildren of winners:

    The formula for wealth is not hard: i.) high income, ii.) austere lifestyle, iii.) high savings rate, iv.) prudent investment, v.) avoidance of interpersonal trauma. The problem is, few can become high income (which generally requires high education), few have the self discipline to live below their means, few have the capacity to make good investments or choose a good financial adviser, and few are able to conduct their personal lives in non-dysfunctional ways, or choose good life partners. Traditional Calvinism may not get you to Heaven, but its a good means into the 1%. You can also inherit wealth or marry it, of course, but these are limited opportunities.

    If you want to attack income inequality, the means is high progressive income taxes, wealth and inheritance taxes, scrutiny of executive pay, etc., all the things we did away with in the 80’s and 90’s. Tax heavy and spend heavy on redistributive programs. Maybe a sovereign wealth fund or something. Giving people modest amounts of money, while not bad in itself, is not going to do anything to change inequality, and its probably an attempt to distract from the need to cut down the tall trees.


      Since tax is a cost/disincentive:

      i.) high income (don’t tax income or maybe even a negative tax on low brackets)
      ii.) austere lifestyle (tax consumption)
      iii.) high savings rate (don’t tax savings)
      iv.) prudent investment (don’t tax cap gains)
      v.) avoidance of interpersonal trauma (divorce and trouble with law are costly enough)

      That’d create way more savers and thus wealth. Then just throw a cap on it and apply progressive tiers after that point so inequality doesn’t go nuts.

      To your point, far superior to a one time gift to get burned up in a terrible personal finance situation.

      1. KD

        Free higher education paid by the public (since it is a public good) would allow people to increase income/savings rates, and eliminating the health insurance/financial catastrophe with universal health care would also create the correct incentives. This would equalize opportunities for people coming up from more modest backgrounds.

        But its not clear how you would pay for this and maintain the giant American national security foot print across the world without significant increases in taxes (and those that profit from this venture are not going away peacefully). Further, its not clear that your proposal would result in the reduction of inequality, it would likely make it worse.

        Warren Mosler of MMT fame proposes a national real estate tax which is easier to implement and easier to obtain compliance over income tax Singapore charges a much higher tax on second residences or residences owned by corporations than owner occupied residences, so there are ways to make a real estate tax progressive and eliminate speculation in housing markets. In any event, simply giving people assets or income does not translate into an increase in inter-generational wealth. Even if you had a cultural re-orientation toward “bourgeois values,” you have a variety of psychological tendencies, and most people would rather have fun and live it up than live bland lives which after 30 or 40 years culminate in significant wealth (barring catastrophe). You would have to probably package it in some kind of religious framework as a duty imposed by God, which is the traditional way it was sold (if you like Webber).

  5. paulmeli

    Inflation, at it’s root, is simply a transfer of income from the 99% to the 1%
    No money-printing necessary…

  6. .human

    Whatever happened to 5% interest passbook savings accounts? A rhetorical question as we have become subjected to the requirements of the Wall Street founded/funded capitalist financial system and tax law.

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