Brian Gongol Show on WHO Radio - May 11, 2014
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A modest proposalInequality is back in the news, thanks to the Vice President of the United States and Pope Francis. That's fine; it's a legitimate topic for public debate and discussion, assuming it's done thoughtfully. So here is a proposal to remedy inequality -- or at least to level the playing field sufficiently to give everyone an equal opportunity at success. Rather than waiting for old age to pay out lots of money in Social Security and Medicare benefits (estimated to have a lifetime value of about $600,000), why not give every American an endowment of $250,000 upon reaching their 20th birthday? Seriously.
The reasons are many:
- Some people have a terrible start in life through no fault of their own. This would level the playing field for them.
- It makes more sense to front-load government benefits early on in life when they might have a salutory effect over a person's entire lifetime, rather than waiting until much later, after life has doled out its many abuses.
- Economists recognize the value of consumption-smoothing -- that is, borrowing to enjoy things in one's youth, rather than deferring pleasures until later to keep up with a normal income profile that rises with age.
- Young people have lots of expenses that are far out of scale with their incomes, like student loans and first home mortgages.
- Argued: Young people with a windfall of cash would make stupid decisions. Response: Bill Gates founded Microsoft at about age 20, Thomas Edison undertook inventing full-time at about age 22, and Thomas Jefferson built Monticello at about age 25. Each of those sounds like a case where seed money might have been enormously useful to a youthful venturer.
- Argued: Why should they get benefits they haven't earned yet? Response: Is it less just to front-load their benefits and then recoup the amount (and much more) over a lifetime of paying income taxes than to tax them throughout their working lives to pay for old-age benefits programs that their predecessors voted for themselves without adequately funding?
- Argued: Young people don't know how to handle money. Response: Forcing the issue with a windfall payment only raises the symptom of a problem we have today and (largely) ignore: It's not fair that we send 18-year-olds out into the world as high-school graduates and expect them to pay taxes and follow the law and vote as responsible adults, when we've given many of them nothing useful at all in the way of financial or economic education. We should fix that problem, whether or not we're giving them big endowments. Everyone should graduate from high school with the basic knowledge necessary to manage money thoughtfully, whether they get a big windfall or a small paycheck.
- Argued: Some people would blow the entire endowment on stupid spending. Response: Yes, some would. And then they would have to get to work. And society could look them squarely in the eye and say, "We gave you the best possible shot at success, and you blew it." And while some people would blow the windfall, others would invest it wisely, and many would turn it into a very comfortable nest egg.