Democratizing Wall Street?

With Beltway Democrats flirting with millionaire taxes, Occupy Wall Street is raising a more existential issue: the economic crisis is crushing the hopes of the younger generation.
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With Beltway Democrats flirting with millionaire taxes, Occupy Wall Street is raising a more existential question: the economic crisis is crushing the hopes of the younger generation. Unemployment in 2010 was 9.6%, but it was 15.5% for Americans between 20-24 and 10.9% for those between 25-29. Astonishingly, people in their early twenties face an unemployment rate similar to high-school dropouts.

Most young households don't have a rainy day fund to weather the storm. They own less than a fifth of average household wealth. If you don't have rich parents, you are in deep trouble in today's America.

But that's where the safety net comes in, right? You'd think so, but no. Each state sets its own unemployment insurance rules, and a typical program requires a recent history of sustained paid employment -- precisely the track-record young people lack. Many states also restrict welfare benefits to families, shutting out childless workers altogether.

Only far-reaching reforms can change this bleak picture. Our solution envisions the introduction of a stakeholder society -- in which each high school graduate begins adult life with an $80,000 stake to pursue higher education or otherwise prepare himself for economic success. There are about 3.6 million Americans who would qualify for the stake each year. Based on data reflecting the impact of the current recession, this initiative could be funded by an annual two percent wealth tax on the top three percent of households, holding more than $1.5 million in assets. Our estimate assumes a 28 percent tax evasion rate; if the economic elite prove to be more responsible, their tax rate would be lower.

There is nothing magical about our $80,000/ 2% formula. The crucial issue is moral: America is allowing the children of the rich to thrive while the overwhelming majority are left to struggle against economic forces beyond their control.

The United States was built by citizens of all sorts -- school-teachers and cotton-pickers no less than stock-brokers and entrepreneurs. It needs a new social contract between generations, under which market-winners in one era assure a fair starting point for their fellow citizens who succeed them.

Over the course of American history, the principle of citizenship inheritance has been expressed in different forms -- from homesteading to the G.I. bill. But during the past decade, stakeholding has been gaining ground in America and the world. In her presidential campaign, Hillary Clinton proposed that each child should receive a stake of $5,000 at birth in the form of a "baby bond" which would yield more than $10,000 by the time he or she became an adult. In advancing her proposal, Clinton was building on a striking achievement by Tony Blair, whose government passed legislation granting a "baby bond" to every British child born between 2002 and 2010 that provides a modest economic head-start at 18.

Instead of building on Blair's breakthrough, the conservative Cameron government has recently eliminated future baby-bonds as a "cost-saving" measure. This is profoundly shortsighted. But the best way to respond to the current crisis is to take a bolder step. Instead of deferring the promise of "baby bonds" to young adults reaching maturity in 2030, we should create a stake-holding program for young adults right now. Eighty thousand dollars would keep some in college who would otherwise drop out, and send others to college who can't afford it today.

Others will decide that university isn't for them. But they will use their $80,000 to gain technical education, to pay off debt, buy a house, or otherwise gain a stable foothold in adult life. To gain their citizenship inheritance, they will only be required to win a high school diploma -- thereby providing them with a powerful incentive against dropping-out. Once they reach 21 or so, all high school graduates should be treated as competent adults, with the right to a fair starting point in economic life.

Some people will blow their stakes in Las Vegas and if they do, they should be provided with a minimal safety net. But unlike today, the overwhelming majority will no longer rely on the gap-ridden American welfare state. Instead, they will use their stakes to build up their lives in dignity. In short, the existence of some "stakeblowers" shouldn't deprive tens of millions of others of the stakes they require to cope constructively with the challenges of a globalizing economy.

Stakeholding isn't the only possible response to the existential crisis expressed by the growing wave of unrest. But its vision of democratic capitalism would put Wall Street decisively at the service of ordinary citizens.

Bruce Ackerman and Anne Alstott are professors at Yale and the authors of The Stakeholder Society (Yale University Press).

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