FROM THE GI BILL AND BABY BONDS TO THE STUDENT BORROWER BANKRUPTCY RELIEF ACT OF 2019, ONE MONEY EXPERT WEIGHS IN ON WHAT IT WILL TAKE TO BREAK THE CYCLE OF “BROKE”
On November 12, 2019, Kara Stevens writes on Essence:
Numbers don’t lie, but they are ill-equipped to adequately articulate the nuance of our collective wealth. The African-American money story is rooted in a fight for fairness, access to resources and a restoration of our humanity. And at the heart of this story is a desire for this nation to finally make good on the material returns it promised African-Americans in exchange for centuries of sacrifice, service and servitude.
According to the Institute for Policy Studies, the median wealth of Black families is just 2 percent of the median wealth of White families—that’s $3,600 for Black families compared with $147,000 for White families. In other words, White families possess 41 times more wealth than Black families.
Unlike income, which is earned in the labor market, wealth is built primarily by the transfer of assets across generations, thus making it possible to possess a high income and little wealth or low income and significant inherited wealth or any other combination along the wealth–income spectrum. The reality is that Black households with median wealth near or below zero pass down generational poverty, while White households with substantial resources bequeath generational wealth.
Conversations around reversing the racial wealth gap often begin and end with a narrative that is equally as pernicious as the wealth inequalities it tries to explain away: The wealthiest in our country earned their riches fair and square, and by the sweat of their brow; on the other hand, our poorest and most vulnerable are deadbeats and deserve their wretched lot due to weak morals and bad decision-making. But this is a lie.
A quick look at our country’s economic history will reveal that White wealth is more a function of U.S. government-backed supports aimed at ensuring White success rather than the dishonest narrative of individual grit, smarts, exceptionalism and hard work. After World War II, for example, veterans were offered federal aid through the GI Bill to purchase homes, farms and businesses; get jobs; and pursue an education.
Though this was a race-neutral policy on paper, it’s been documented that Black veterans received far less assistance and access to these benefits than their White counterparts. In fact, upon their return home, thousands of Black veterans were denied admission to colleges, turned down for loans for housing and business, and excluded from job-training programs throughout the Jim Crow South as well as the North. Seventy-five years later the GI Bill has served to establish, strengthen and expand the White American middle class while simultaneously destabilizing the Black American one.
If public policy has been leveraged to create wealth for select Americans in the past, it can be leveraged again— this time to produce riches for all Americans.”
If public policy has been leveraged to create wealth for select Americans in the past, it can be leveraged again—this time to produce riches for all Americans. One 2020 Democratic presidential hopeful, Senator Cory Booker, has proposed the passing of a baby bond bill with this end in mind. Originally the brainchild of economists Darrick Hamilton and William Darity, Jr., baby bonds would be federally managed accounts set up at birth for children and endowed by the federal government with assets that will grow over time.
There would be a sliding scale to determine how much each baby would receive based on the parents’ wealth. Children of rich parents would receive $500 in support, while the poorest would get $50,000. The average middle-class child would receive $20,000. As with the GI Bill, when the child reaches adulthood these funds would be used for education, to purchase a home or to start a business.
While baby bonds won’t replace lost generational wealth, it’s a bold and thoughtful attempt to level the playing field for young adults. Another notable approach to possibly eliminating the racial wealth gap includes Senator Elizabeth Warren and others’ proposal to introduce the Student Borrower Bankruptcy Relief Act of 2019. The bill would eliminate the section of the U.S. bankruptcy code that prevents federal and private student loans from being dischargeable.
If passed, this act would free our young, gifted and Black students to begin their lives without being hobbled by decades of debt repayment. Naming the institutionalized root cause of the racial wealth discrepancy doesn’t negate the role personal choices around money play in contributing to its eradication. It just manages our collective expectations about how effective these measures truly are in generating wealth for the average Black family.
Individual and community-based decisions to create investment clubs, receive financial coaching and pursue side hustles build positive money habits and financial confidence, and remind us of the power of personal agency. Yet as helpful as these practices are, they are limited and insufficient without structural wealth reform—the ultimate equalizer.
Without such reform, many Black people will be fooled into thinking that the racial wealth gap is a mess of our making and, by extension, our sole responsibility to clean up. It’s way past time to retire this particular lie so that we can create generational wealth of our own.
https://www.essence.com/lifestyle/money-career/what-will-it-take-to-rehabilitate-black-wealth/
Gary Reber Comments:
Economic inequality boils down to who OWNS productive capital assets and how much does each person or family OWN.
The vast majority of Americans ARE NOT OWNERS of productive capital assets that create wealth and produce income. In stark terms, they are job serfs, serving at the pleasure of the 1 percent, who do OWN America.
With the growing concentration of capital asset wealth and power in fewer and fewer hands, and with more and more people unable to meet their wants and even needs adequately without government assistance, the demand has increased for State involvement in the economy.
At the same time, as technology advances, the productive capacity of machinery continues to far outstrip that of human labor where it is employed in production. Those who already own capital assets have access to financial mechanisms and the demand for collateral to constantly acquire more and more productive capital assets.
The solution is to empower EVERY child, woman and man to employ financial mechanisms to build personal wealth, using capital credit to acquire new formations of productive capital, solely repayable with the future earnings of the investments, and with no requirement of past savings to collateralize loan risk.
Money can be created as needed by backing banknotes — new money — with the value of existing or future wealth. The only thing holding back economic development and production is the lack of financially feasible productive projects and the demand for collateral to ensure the creditworthiness of borrowers so that the new money can be repaid and cancelled.
This should be obvious to everyone that anybody can afford to buy productive capital assets (a catch all term for the non-human means of production) that are doing Americans out of a job if permitted to pay for them with the future earnings of the assets themselves. Thus, to finance new capital formation, it is entirely feasible — and is almost always done — to increase production in the future, that is, to let the new capital finance itself.
The idea of commercial and central banking is that if someone has a “financially feasible” capital project (meaning one that has the potential to generate its own repayment), then “pure credit” (interest-free) can be extended based on the value of the capital project itself, thereby creating the money to finance the capital: “self-financing.” Money created in this way is non-inflationary because it can only be created when it is backed by the value of private sector assets, and it is cancelled when the credit is repaid.
What has prevented the vast majority of people from becoming capital owners throughout history is not lack of financially feasible projects, the desire to be productive, or even the lack of savings, but lack of collateral, the money you need to make money. No reputable banker is going to create money, putting the bank on the line to make good on it, without getting some assurance that the money will be repaid so it can be cancelled. That usually means that a borrower must have enough money or other wealth set aside to repay the loan if the capital project does not succeed.
Collateral is thus a form of insurance for a banker. That being the case, why not use actual insurance as collateral? Instead of forcing people to scrimp and save for decades to accumulate enough money for collateral or to purchase capital outright, why not have a bank create money for capital projects now, but use the so-called “risk premium” charged on all loans as the premium on a capital credit insurance policy?
In this way, it wouldn’t matter whether a particular borrower was “creditworthy.” Using newly created money to finance new capital formation and collateralizing loans with capital credit insurance can make the project, not the borrower, creditworthy. Every child, woman, and man could become an owner of capital in this way, thereby freeing economic growth from the slavery of past savings and creating a true personalist society.
Senator Cory Booker, a Democratic presidential hopeful, is referenced in this article for proposing a baby bond bill which, when enacted, federally managed accounts would be set up at birth for children and endowed by the federal government with capital assets that will grow over time. The endowment is assumed to be taxpayer supported. The bonds would not be distributed equally but there would be a sliding scale to determine how much each baby would receive based on the parents’ wealth.
Instead of a reliance on taxpayer endowments, a far better solution provides that every child born today would receive every year an allotment of self-repaying interest-free capital credit equal to that of every other citizen.
This annual credit would be used exclusively by citizens to invest in corporations (both established companies and viable start-ups) seeking to grow. Thus, as corporations add new capital, every citizen will have an equal opportunity to acquire new ownership shares in those corporations. The dividends generated by the new shares, after being used to pay off the citizens’ capital loans, will become a second source of personal income (other than a job), thus enabling the economy as a whole to grow in a more just and sustainable way. To better understand how this would work see https://www.cesj.org/just-third-way-feature/projected-citizen-wealth-accumulations-under-capital-homesteading/
There are, of course, a few little details that go along with this solution, but you can fill them in for yourselves by going to the Center for Economic and Social Justice Web site (www.cesj.org) and reading up on it and monetary justice and the proposed Capital Homestead Act (aka Economic Democracy Act). It is, however, enough to give you the idea, and change the mantra from “jobs-jobs-jobs” to “ownership-ownership-ownership.”
Support the Agenda of The JUST Third WAY Movement (also known as “Economic Personalism”) at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/ and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version at http://www.cesj.org/wp-content/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/learn/capital-homesteading/ch-vehicles/capital-homestead-accounts-chas/
For an in-depth overview of solutions to economic inequality, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at www.foreconomicjustice.org/?p=11.
