‘Trump accounts’ and how to spread America’s wealth
Political stability in the US requires it — the question is, pre-distribution or redistribution?
Rana Foroohar
© Matt KenyonThe wealth gap is a big political issue for Americans.
According to a Gallup poll held in March, half of the country worries “a great deal” about how income and wealth are distributed.
Perhaps that’s because about the same share of the population doesn’t have the resources to afford all the basics, like housing, food, medicine and healthcare.
The winner-takes-all AI economy has only exacerbated these concerns.
That’s one reason that Donald Trump rang the bell for both the New York Stock Exchange and Nasdaq at the White House last week to promote his new “Trump accounts”.
These would give every child born between January 2025 and December 2028 a one-time $1,000 Treasury contribution, as a way of, as Trump put it in his press conference, making a lot of kids “very, very rich”.
Will it?
In a word, no.
With a 5 per cent real annual return, that $1,000 would be $2,400 by the time the child is 18.
Nice, but by no means transformative.
Still, the fact that even Trump (who has done his personal best to increase the wealth gap in America) is concerned about the issue confirms the larger debate in the US over what some political theorists and economists call the “pre-distribution” as opposed to the “redistribution” of wealth — at a time when inequality is greater than it has been since the Gilded Age.
Democratic socialists and many progressives would like to see redistribution, mainly in the form of wealth taxes.
Conservatives and some middle-of-the-road Democrats argue that “pre-distribution” — meaning giving more people a bigger stake in equity markets and housing wealth up front, rather than aiming for mass redistribution via taxation — is a better idea.
Personally, I think some mix of both will be necessary to preserve social cohesion in a country that feels increasingly like an emerging market in terms of its wealth bifurcation.
But in the short term, pre-distribution may be more politically tolerable.
The US is, first and foremost, an asset economy.
Markets are the tail that wags the dog, and more Americans are invested in them than ever before.
Still, the top 10 per cent of the population owns 93 per cent of equity wealth.
The asset wealth of the richest (who do most of the consumer spending) fuels inflation in crucial areas like housing.
This is only going to get worse, as all the new AI multimillionaires drive prices up even further, particularly in the top markets.
If we read our Thomas Piketty and assume that the growth of asset wealth will almost always outpace the growth of income wealth, ultimately creating major political stress fractures in societies, we must think about ways to bring more people into the market in a bigger way.
The alternative is Hobbesian.
The only question is how best to do it.
One-time government contributions with voluntary additional contributions by families tend to simply replicate existing inequality: rich families can and will put more into the pot.
Research has shown this to be the case with, for example, the UK’s now-abandoned Child Trust Fund.
Although admirable, it did nowhere near enough to tackle inequality, according to the Institute for Fiscal Studies.
Ditto similar experiments in Canada and Australia.
The sort of pre-distribution that really moves the needle on inequality involves the ambitious transfer of productive national assets to a broad swath of the population, not small, universal government grants and voluntary family contributions.
Think of postwar land reforms in South Korea, Taiwan and Japan, which got rid of subsistence tenant farming, increased farmers’ purchasing power (which drove other areas of the industrial economy) and reduced overall levels of inequality.
One might also point to Singaporean housing policy as a good model of paradigm-changing pre-distribution — the state-driven model of near-universal home ownership increased intergenerational mobility significantly.
There is also the sovereign wealth fund model.
Alaska’s Permanent Wealth Fund, for example, helped reduce poverty by sharing annual income from oil revenues with all state citizens.
The obvious productive asset to divide up today is intellectual property and data (which represents the bulk of corporate wealth) and in particular AI, which represents all net corporate capex.
Big Tech’s wealth is based on information extraction from humans.
So, it is no wonder that middle-of-the-road Democrats like California governor Gavin Newsom are calling not for universal basic income, but universal basic capital — or UBC — perhaps in the form of technology-based sovereign wealth funds of the kind proposed by OpenAI, the Berggruen Institute and others.
This would give citizens a piece of the massive AI wealth being created today.
As Newsom put it at an event in May, “We don’t need charity, we need ownership.”
The last time America heard this much about the “ownership society” was back in the mid-2000s, when George W Bush pushed for broader home ownership.
That ended in tears, as poorer, less creditworthy borrowers became the hardest hit in the financial crisis when those easy loans reset to nosebleed rates.
Pre-distribution, if it is to work, must not be about throwing the public a bone in the form of a one-off baby bond or a variable-rate mortgage.
It must be about spreading the wealth in a bigger and much more sustainable way.
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