Why you should care
Wealth disparity is getting worse. Is providing basic assets to everyone the solution?
For 40 years, Robert E. Friedman and his Washington-based nonprofit Prosperity Now have helped millions of people from economically vulnerable communities gain financial security and stability. Income disparity, however, has only grown across the United States. Now, the 69-year-old Friedman is arguing for a macroeconomic fix — and it doesn’t involve the government just doling out cash. Instead, he advocates giving everyone assets like savings, education and homeownership, instituting a system of universal basic assets (UBA). And Friedman isn’t alone.
As cities and countries across the world experiment with the currently in-vogue idea of universal basic income (UBI), a small but growing number of scholars, nonprofits and researchers are beginning to argue for an alternative framework for prosperity. At its heart, they’re pushing for a 21st-century version of the age-old proverb that it’s better to teach a man how to fish than to simply give him fish. Just four years ago, UBA as a modern concept was unknown. Today, it’s emerging as a challenger to UBI as a means to the same goal: less income disparity and greater opportunities for all.
Marina Gorbis, executive director of nonprofit research organization Institute for the Future, has developed a framework around UBA that identifies essential resources every person should have access to, including housing, education, health care and the internet. Lenny Mendonca, chairman of public policy action and think tank New America, and a senior partner emeritus at McKinsey & Co., is highlighting limitations in the UBI concept to argue why UBA is the way forward to end poverty. Economists — from James Boyce of the University of Massachusetts Amherst to Florin Bonciu of the Romanian-American University in Bucharest — are researching the merits of UBA. And Friedman, in his book A Few Thousand Dollars, demonstrates how a few thousand dollars, access to education and homeownership assistance can set people up to save, invest and create their own wealth.
UBA could close the racial wealth divide in my lifetime.
Robert E. Friedman, founder, Prosperity Now
The U.S. already has the funding to make this possible, says Friedman. If the government reallocates the $729 billion it currently spends on tax incentives for homeownership like the home mortgage interest deduction, preferential capital gains taxes and retirement savings incentives, it could give each person in this country $2,200 annually, he argues. This would be different from UBI since UBA legislation would restrict the use of accounts to wealth-building investments like homes, new businesses and retirement savings and require savings matches. Supporters of UBA, such as Friedman, see it as a particularly useful solution to racial wealth disparity.
“People of color [in the U.S.] have just a few cents in assets for every dollar that Whites have,” Friedman says. “But UBA could close the racial wealth divide in my lifetime.”
The idea of helping specific communities and demographics by offering them assets isn’t new. Under the Homestead Act of 1862, President Abraham Lincoln gave American settlers 160 acres of land to encourage migration West. They needed to pay only a small filing fee and remain on the land for five years to assume full ownership. Before the Great Depression, the average mortgage in the U.S. required a 50-percent down payment, with five years to pay the rest. Under President Franklin D. Roosevelt, the 30-year mortgage was introduced, allowing more Americans to buy homes. After World War II, U.S. military veterans were granted low-interest mortgages, free medical care and college tuition stipends, benefits made possible by what is known colloquially as the GI Bill. Individual development accounts were launched as an experiment in the mid-1990s — matched savings accounts that enabled low-income people to save for a home.
But none of those projects were universal in scope. Meanwhile, income disparity has continued to grow. Research published in December 2017 by economist Edward Wolff, using data from the federal Survey of Consumer Finances, showed that the richest 1 percent of American households own 40 percent of the country’s wealth, a proportion higher than at any point since 1962. “We need a GI Bill for the 21st century,” says Friedman.
It’s an idea that has appeal on both sides of the political aisle. Liberals are drawn to UBA’s “provide for everyone” ethos, while libertarians see it as a reason to cut the “safety net” of government subsidies like welfare and unemployment, says Friedman. The bipartisan appeal comes from the notion that asset-building gives people more options, says C. Eugene Steuerle, former deputy assistant secretary of the U.S. Department of the Treasury for Tax Analysis under President Ronald Reagan and co-founder of the Urban-Brookings Tax Policy Center. ”UBA is a middle-of-the-road policy,” he says. “It’s an ideal compromise between left and right because it promotes mobility and opportunity, and less dependence on government.”
Universal Basic Income (UBI), which has roots going back centuries (the idea appears in Thomas More’s 1516 novel Utopia) and has seen a resurgence in recent years, has often been compared to UBA. But there are some fundamental differences. “Giving everyone cash is not progressive,” Mendonca argues in a manifesto he published on Medium in 2016. UBI doesn’t get to the cause of real human needs, like job training, he says. The latter allows for independence rather than reliance. The most important factor for implementation of UBA, Mendonca says, is that it can happen at the state and local level, without waiting for the federal government. “Most examples of social progress begin in tech-savvy cities,” says Mendonca, “because they see the future in front of them.”
It was in one such city that Friedman began comparing UBA and UBI concepts, as the latter entered public discourse in recent years. Friedman, a fourth-generation San Franciscan, found himself asking, “Why are we treating low-income people as consumers rather than producers?” Basic assets, Friedman suggests, provide stock so you have a buffer if things go wrong.
At the Institute for the Future, Gorbis is convinced that assets are a critical determinant of an individual’s resources, especially with the rise of the gig economy where many don’t have access to benefits like health insurance and retirement savings. “When you look at data, a lot of inequality is deeper than income — it’s also about debt,” she says, adding, “for poor people, housing is the main asset.” That’s why Gorbis suggests UBA should start with access to housing, but also include access to public resources like transit. If you can take public transit, you don’t need to own a car, she says. When basic assets were first discussed, the crowning jewel was land — upon which the Homestead Act was based. Then, all eyes turned to jobs as the ultimate means of security. Today, Gorbis says, we should begin to look at data. Access to data — the internet, online education and resources — significantly affects socioeconomic status.
Not everyone is enthusiastic about UBA. While the concept is bipartisan to some degree, some on the right don’t see a big difference between UBA and UBI. “Giving people money is not the same thing as earning money,” says Grover Norquist, president of Americans for Tax Reform. Giving people assets is essentially the same thing, Norquist argues; rather, the government should get out of the way.
George Mason University economics professor Bryan Caplan, a proponent of skills training over formal college education, agrees that UBA is not the answer to wealth disparity. “Anything that’s universal doesn’t make sense,” Caplan says. “It’s stupid to give stuff to everyone because not everyone needs it.”
Still, UBA as a concept is gaining traction, and emerging from the shadows of UBI to challenge it. There’s more than a letter that separates them. At stake is the question of how America goes about reducing its wealth gap.