The $6,000 Solution [Archive.org URL]

By the close of the 1990s the United States had become more unequal than at any other time since the dawn of the New Deal—indeed, it was the most unequal society in the advanced democratic world. The top 20 percent of households earned 56 percent of the nation’s income and commanded an astonishing 83 percent of the nation’s wealth. Even more striking, the top one percent earned about 17 percent of national income and owned 38 percent of national wealth. In nearly two decades the number of millionaires had doubled, to 4.8 million, and the number of “deca-millionaires”—those worth at least $10 million—had more than tripled, from 66,500 to 239,400.

In contrast, the bottom 40 percent of Americans earned just 10 percent of the nation’s income and owned less than one percent of the nation’s wealth. The bottom 60 percent did only marginally better, accounting for about 23 percent of income and less than five percent of wealth. The racial gaps are even more disheartening. The typical African-American household had fifty-four cents of income and twelve cents of wealth for every corresponding dollar in the typical white American household. Hispanics had sixty-two cents of income and four cents of wealth.

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But the next step has to be bolder: a Homestead Act for the twenty-first century. Here’s how it might work. Every one of the four million babies born in America each year would receive an endowment of $6,000 in an American Stakeholder Account. If invested in a relatively safe portfolio that yielded a seven percent annual return, this sum would grow to more than $20,000 by the time the child graduated from high school, and to $45,000 by the time he or she reached thirty (assuming that the account had not yet been used). Funds in the American Stakeholder Account would be restricted to such asset-building uses as paying for the cost of higher education or vocational training, buying a first home, starting a small business, making investments, and, eventually, creating a nest egg for retirement. Withdrawals would of course decrease the account; work and saving would build it back up. Family members and others could also add money to the account.

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Americans readily tolerate inequality of outcomes, accepting that it’s a necessary by-product of how we reward the hard work, initiative, and creativity that underpin our much envied economy. But we should not accept inequality of opportunity.