My initial anti-redistribution reaction to Hillary’s proposal for a ‘baby bond’, a $5,000 bond given to all newborns which matures when they graduate high school, was that it is pretty dumb, but now I think the proposal deserves some consideration. The baby bond is clearly meant as a redistributive measure, so we should ask whether the baby bond would be a better redistributive program than existing programs.

As I have noted before, I like redistributive programs that hand out cash instead of providing free or low cost services because I think that poor folks are able to decide how to use their assets better than outside observers. The ETIC also gives out cash as do food stamps to some extent, so the cash aspect not unique to the baby bond. The most important difference is that the baby bond would pay out only once and in a lump sum, whereas the ETIC pays out continuously and pays out more, the more the recipient works. One advantage to the baby bond could be that it acts as a substitute to credit. I have heard people suggest that the poor lack access to credit because it is difficult for them to prove they are credit worthy, even if they are, which is why many have lauded the emergence of the ‘subprime’ credit market and payday loan companies (the New Economist showcased an interesting paper on that). If this is the logic though, perhaps it would be better to have a program which guarentee’s a portion of loans to the poor.

I do think that $5,000 is a piddling amount, and that if we wanted the baby bond to be a serious redistributive measure, it should be much larger. Does anyone have any other pros or cons?