Baby Bonds: The "Sourdough Starter" of Asset Building
Baby Bonds are a straightforward solution to the complex problem of trying to foster greater economic mobility sooner rather than later in an individual’s life.
Hello Talking About Money Community! I hope that you are taking care of yourself on this 6-month anniversary of the official start of the Great Pandemic of 2020…or whatever name that we give it, as we will talk about into perpetuity.
I want to give a brief disclaimer that this post is slightly tongue-in-cheek, as wealth inequality is more serious that home baking – though you bread-baking enthusiasts out there might squabble at that – so thank you in advance for your indulgence.
Let’s get started:
Question #1: Where does sourdough starter come from? And for that matter, where does most wealth come from?
If you are like me, you like bread. Early in Boston’s lockdown (um, “stay at home” order) I worked up the gumption to don my mask and gloves and head out to my local bakery to buy a loaf of the world’s best ciabatta (and maybe a few cookies). I asked my local baker how business was doing during the lockdown/stay-at-home order. “Great,” she said, “everyone is carbo loading from the stress. Business couldn’t be better.”
[Note to self: When the end of the world is near, sell cookies.]
I have also read on the interwebs that more and more people are channeling their inner pastry chefs and baking loaves of sourdough bread. But where does this sourdough starter come from?
Off to my handy search engine for an answer.
In this useful article on How Stuff Works, I learned that the easiest way to get sourdough starter (do you know that those-in-the-know call it “hooch”?) is to “Get a cup of starter from a friend or another baker. You take a cup of the starter and add flour and water to make more of it. The starter can go on for years.”
Oh thanks, that helps.
That leads me to my second question of this section: “Where does most wealth come from?”
You may think that the answer to this question is, “From rich parents and grandparents, you dolt.” But while intuitive, only 20% of Americans receive an inheritance. That means that 80% of Americans are essentially starting from scratch in each succeeding generation.
A bit trickier was tracking down where else you might find the proverbial sourdough starter if your parents and grandparents have nothing to share. Then I came across a review of a book by Brink Lindsey and Steven M. Teles whose thesis states that four ways in which government policies support people getting rich are through:
Financial regulation (subsidies for the financial sector's excessive risk taking)
Intellectual property (over-protection of copyrights and patents)
Occupational licensing (favoritism toward incumbent businesses through occupational licensing schemes)
Land use regulation (NIMBY-led escalation of land use controls that drive up rents for everyone else)
So while you might think that the wealthy get their wealth through the coffers of the generations that preceded them (and for sure, some of them do), others are harnessing overlooked-by-the-general-public government policies that allow them to capitalize on their participation in financial markets, creation of intellectual property, reliance on professional licenses, and limitations of who uses land for what purpose. (And let’s be real, some people do both.)
Question #2: Where do you get sourdough starter if your neighbor doesn’t have any? And for that matter, how do you generate wealth from the ground up?
On to my second question: How do you make this magical sourdough starter if you don’t know anyone with some “hooch” to share with you?
The answer that I found here is that you do not need anything magical to make sourdough starter, you simply need all-purpose flour and filtered water. And time. Lots of time. Specifically, you will need 5 days. So if you wanted a fresh loaf of bread to serve with your dinner tonight, you are fresh out of luck.
And likewise, if you do not have inherited wealth, existing financial investments, a patent, a professional license, or land, how do you generate wealth from the ground up?
Ah, Grasshopper, I think that you see where we are going with this lesson. You need some raw materials. And you need time. Lots and lots of time.
When using my trusty-ol’ search engine to help me find a source for the answer to this question, you would not believe the number of similar responses that popped up! (Or maybe you would.) What most articles said, like this handy directive from NerdWallet, is to 1) live beneath you means by spending less than you earn (i.e. collect some flour and water), then 2) use that “starter” (Get it? “Starter”? Ha!) to save, then invest in a vehicle that will grow over time, then 3) wait.
And after 40 years you should be fine!
Question #3: Is there a more equitable way to distribute sourdough starter (i.e. is there a more equitable way to distribute wealth)?
Okay, for my third query I am going to skip the sourdough analogy, as getting into the weeds on sourdough-redistribution systems is simply beyond the scope of this humble blog.
Instead let’s delve into the question on how to more equitably distribute wealth, and how to do that right from the start of an individual’s life, as opposed to when you are already a student loan-and-Uber-paying adult.
One straightforward solution is Baby Bonds, introduced in 2019 by U.S. Senator Cory Booker (D-NJ) and Representative Ayanna Pressley (D-MA), with the following features:
Each child would receive a seed savings account of $1,000 at birth
The funds would then sit in an interest-bearing account that would receive additional deposits each year depending on family income
At age 18, account holders could access the funds in the account for allowable uses like buying a home or paying for educational expenses
In a deeper dive by Atlantic writer and blog favorite Annie Lowrey, she reports that Baby Bonds could work to close the current racial wealth gap in the United States by up to 70-80%. This way, young adults, when they reach age 18, would already have some wealth (maybe in the neighborhood of $50,000) with which to invest in education, a home, or a business. Rather than starting from scratch, they would have their own wealth equivalent to sourdough starter!
And who knows, if Baby Bonds are passed, maybe someday one of those bright young adults who benefits from the program will use their funds to start a businesses called “Armageddon Cookies.” I hear that carbs sell when it feels like the end of the world.