Finance Some economists want the US government to put up to $50,000 in 'Baby Bond' bank accounts

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The program would help create upward mobility and reduce inequality in the US, they claim.

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(Yuriko Nakao/Reuters)
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  • Two economists have proposed an idea for "Baby Bonds," a one-time deposit into a child's bank account at the time they're born.
  • The program would help create upward mobility and reduce inequality in the US, they claim.
  • Rich families would receive around $500 while poor ones would receive up to $50,000.

Darrick Hamilton and William Darity have a thought-provoking way to help families pay for college: Give every baby between $500 and $50,000 at the time they are born.

Hamilton and Darity, both economists, say these "Baby Bond" accounts could go a long way toward reducing inequality in the US, where a raft of research has found academic achievement is directly tied to familial wealth.

"The key ingredient of how successful you will be in America is how wealthy your family is," Hamilton, an economist at the New School, told Heather Long of the Washington Post.

The solution Hamilton and Darity presented at the recent American Economic Association conference was a federal government program that deposits between $500 for ultra-rich families, and $50,000 for extremely poor families, in an account they can't touch until the child turns 18.

Hamilton and Darity expect the average amount to fall somewhere around $20,000.

The two men claim such a program will cost approximately $80 billion, or 2% of the $4 trillion America's government spends each year. Compared to the existing ways the US tax code tries to promote asset ownership, which cost roughly $500 billion annually, the economists say the Baby Bond idea would be extremely cheap.

In exchange for that investment, they expect to see a leveling of the economic playing field, redistributing money over the long-term from the top 0.1% and 0.01% to middle-class Americans. The conclusion stems from Hamilton and Darrity's belief that wealth is largely a product of luck in the US.

"If you're not fortunate enough to get that down payment or have that resource at a key juncture of your life," Hamilton told the Institute for New Economic Thinking, "you will not have that pathway towards building economic security that somebody else has. You could be a jerk. You could be a good person. It has little to do with the particular individual."

The philosophy mirrors the one found in the basic income community, which has asserted that poverty isn't a lack of character so much as it's a lack of cash. Poor people should be trusted with handouts, they argue, because those in poverty know how to help themselves.

Some research on cash transfers has found people don't often spend the money on things like alcohol and cigarettes; in certain cases, purchases actually decrease.

Caroline Teti, field director for GiveDirectly, a charity currently awarding basic income for 12 years to certain villages in Kenya, said the logic and outcomes are both straightforward.

"People have needs," Teti told Business Insider. "Especially in poor communities such as this, if they get a basic income, it goes directly into those needs."