By Jeff Fuhrer | October 22, 2024
Baby Bonds are an increasingly popular bipartisan government policy in which every child born into poverty receives a publicly funded trust account at birth, providing them with “start-up capital” to pursue fulfilling, productive, prosperous, and self-directed lives. Follow our Baby Blogs series to learn about the vision, politics, and people behind Baby Bonds and their transformative impact on the lives of young people, their families, communities, and our economy.
In this installment of Baby Blogs, Jeff Fuhrer, former Executive Vice President and Director of Research at the Federal Reserve Bank of Boston and author of The Myth that Made Us, discusses why understanding the true sources of wealth inequity in the U.S. is essential to building a more inclusive economy.
By now, anyone who’s interested has likely heard about the enormous disparities in holdings of wealth. Overall, holdings of wealth are highly concentrated, with the top ten percent of families holding more than three-quarters of all wealth. The bottom 50 percent of families hold only one percent of all wealth. Focusing on race and ethnicity, the median holdings of a white family have been five to seven times larger than those of Black and Hispanic families over the past 30 years or more.
My own interest in this topic stems from work over a decade ago while I was at the Federal Reserve Bank of Boston. The Fed partnered with other institutions (notably Duke University and The New School, with key contributions from Darrick Hamilton and William Darity, Jr.) in producing a new survey of wealth in the metro-Boston area. The results were not wholly unexpected, but still striking: Black families’ net worth (assets less debt) was, on average, impossible to distinguish statistically from zero. Hispanic families fared about as poorly.
But my education occurred largely in settings outside of the survey. First, in a seminar for the Fed’s research department given by Hamilton, I began to gain an understanding not only of the magnitude of the wealth gaps, but of the sources of these gaps. Coupled with my involvement in a work group that followed up on the Color of Wealth survey, I learned more and more about the longstanding institutional racism that had systematically denied the opportunity to accumulate wealth to families of color, while simultaneously providing wealth-building programs for white families. I had previously held an uninformed economist’s view: Lower wealth among families of color could be attributed to well-known discrepancies in income, which in turn led to lower savings. Darity, Hamilton, Tom Shapiro and many others schooled me on the facts of our economic history, and they were compelling. Stubborn as I am, I had to change my mind about the sources of wealth inequity.
As I learned more about these critical factors in determining economic well-being, I began to speak more and more about them. As a high-level Fed economist, I was often called on to speak to groups about the state of the economy and the stance of monetary policy. More and more, I augmented these talks with discussions of the truth that lay beneath the aggregate numbers. Sure, our economy is prosperous in the aggregate. But the distribution of our aggregate wealth is horribly skewed, and the skew runs along racial, ethnic, and class lines.
In September 2023, I published a book, The Myth That Made Us, that documented not only the disparities, but their sources in a litany of public policy and private sector behaviors. Importantly, these reflect conscious decisions, not inevitable market forces, to structure the economy so as to deliver these disparities. And critically, those decisions were driven by widely-held false narratives about how our economy works: Individual effort is sufficient for success; we are a post-racist nation in which race and ethnicity no longer play a role in determining economic outcomes; businesses should be lauded for slavishly optimizing profits at the expense of everything else; and government does best when it stays out of the way of “free markets.”
Understanding our history—all of it—is essential if we are to devise programs to close wealth (and other) gaps. Income disparities, while unacceptable, did not cause the wealth gaps, and they will not by themselves close them, certainly not in a reasonable span of time. (In The Myth That Made Us, I reference a number of calculations that suggest that closing income gaps would eventually close wealth gaps, but only after a century or longer.) The only way to effectively close wealth gaps, I believe, is to implement direct wealth-equalizing policies. These of course include Baby Bonds, but also downpayment assistance for potential homeowners and (more controversially) reparations of various forms. Other complementary policies—early childhood education, wage improvements, pathways to employment—are essential to sustain wealth once it is equalized.
We need to work to make Baby Bonds the national norm. Without them and their companion policies, we can fully expect to look back 50 years from now and wonder why wealth remains so inequitably distributed. With them, we have a chance of creating a future in which everyone truly has the opportunity to succeed.
Jeff Fuhrer is a Non-Resident Fellow at the Brookings Institution and a Foundation Fellow at the Eastern Bank Foundation. He was previously Executive Vice President and Director of Research at the Federal Reserve Bank of Boston, where he was also responsible for the bank’s diversity and inclusion functions.
If you missed previous installments of our Baby Blogs series, read them here.
To share feedback on this blog, or for questions about Baby Bonds, email David Radcliffe at [email protected].
To learn more, explore our Baby Bonds resources.