A Thought Experiment in Endowments
Brian Gongol

Those round figures are very similar to what the Urban Institute recently estimated: Estimate for single man, average wage, retiring in 2011: Estimate for one-earner couple retiring in 2011: Estimate for two-earner couple, average wages, retiring in 2011: So, what if instead of paying out the taxes drip-by-drip in old age, we instead gave a lump sum of $250,000 to everyone turning 18?


ADVANTAGE: Levels the playing field. Nobody could say they didn't get a fair start in adulthood.

ADVANTAGE: Access to education. Nobody could say they'd been denied access to a good education.

ADVANTAGE: Cheap for government to borrow on individuals' behalf. Given average Social Security taxes, you'll more than pay it back. The government currently borrows at almost 0%. This would be like giving everyone a zero-interest loan with a 45-year payback period.

ADVANTAGE: Income smoothing. The irony is that "youth is lost on the young". Young people don't have the money to enjoy the things that would be the most fun while they're young. Those who do are generally spoiled and don't appreciate it anyway.

ADVANTAGE: Boost to the housing market. Apartment owners would hate this idea, but it would certainly give everyone access to homeownership on day one of adulthood. That's clearly our government's policy anyway, what with the mortgage-interest deduction and homebuyer tax credits and Federally-subsidized mortgages, so it's completely in line with our explicit national policy.

ADVANTAGE: Boost to consumer spending. Nothing gets the economy moving faster: GDP = C (private consumption) + I (investment) + G (government spending) + NX (net exports). C was $10.7 trillion out of $15.1 trillion last year.

ADVANTAGE: It's a number that qualifies as "enough to do something, but not enough to let you do nothing". Plus, it's less than what the present system would give them later anyway -- so it would actually represent a net savings for the country.

ADVANTAGE: It would shift the burden of retirement savings to the individual. If someone took $250,000 and invested it at just a 4% rate of return, compounded after 45 years they would have $1,460,000. That would be more than enough upon which to retire. Many people fail to save on their own because they don't know where to start, or they find those first steps too discouraging and early progress too slow. An endowment would do away with those concerns entirely.

ADVANTAGE: Young parents with more resources would be more capable of taking better care of the health of their children.


DISADVANTAGE: What does it say about our relationship with government?

DISADVANTAGE: Some will squander it on liquor and fast cars. Sports Illustrated examined this problem with pro athletes. Look at NFL players: 78% go broke within two years of leaving the league (or at least find themselves in serious financial trouble), and 60% of NBA players are broke within 5. It's a problem so common that ESPN has done a documentary on the subject.

DISADVANTAGE: Some will choose to just sit around and not work.

DISADVANTAGE: A lump-sum program would bring us face-to-face with some unpleasant realities. There are roughly four million children born every year in the United States, a number that has been more or less stable for three decades. Paying $250,000 to each of 4,000,000 people would cost $1 trillion a year. We presently spend $730 billion a year on Social Security, and it is projected to reach $1 trillion a year by 2017. These are huge numbers, and the government is already running trillion-dollar annual deficits.


Even as a thought experiment, this probably sounds downright radical. But what does that really tell us about ourselves?

1. We do not give our kids an appropriate or adequate financial education.

2. We don't trust our kids, even though we call them adults and give them all of the rights (and responsibilities) of adulthood.

3. We don't really care about leveling the playing field -- we care about equalizing outcomes. We're more socialist than we think. If we really believed in equalizing opportunity, we'd do things to ensure that everyone gets a similar chance at a good start in adulthood, rather than promising that they'll have something much later on at government expense.

4. We don't think about the long term, nor do we teach our young to do so. If you knew your kid was going to get a quarter-million at age 18, you'd spend 17 years and 364 days pounding responsibility and risk-reward and prudence into their head. Yet we send them out into the world to earn nearly $2 million in a lifetime and act like it's not worth the effort.

5. We don't really understand how to use incentives. A great big carrot that gets withheld (because the kid commits a felony or drops out of school) can be the same as an enormous stick.

6. We still think we can pick winners and losers. The media goes ga-ga for a "wunderkind" story, and so do government officials. Everyone is hoping to land just one early-phase Facebook, instead of setting up thousands upon thousands of financially sound households and businesses. We'll grant similar amounts in incentive awards to "whiz-bang" ideas, but never to the mundane idea that could actually work soundly given the right execution. The dirty little secret that we rarely talk about is that breakthrough projects like Facebook don't really happen because the kids at Harvard are smarter than college students elsewhere -- they aren't. They just tend to come from a background of economic security that gets reinforced by the "in-group" access that exclusive colleges afford them. Give everyone the same shot at some form of economic security, and far more great ideas would spring up from among the young people who instead are shackled by poverty at home or family obligations or other consequences of bad luck -- not consequences of their own decisions. And while we like a great story about someone struggling to break free of poverty, we waste a huge amount of human capital by forcing people to waste their most productive years toiling with the greatest personal struggle.

7. We radically disrespect the industriousness of youth. Bill Gates founded Microsoft around age 20. Thomas Edison became a full-time inventor around age 22. Thomas Jefferson started building Monticello around 25. Leonardo da Vinci started his workshop around age 25. Ben Franklin started publishing "Poor Richard's Almanac" around 25. Isaac Newton invented calculus and Albert Einstein published on relativity around 26. Young people can do fantastic things, but it's much easier for many young Americans to get ahead if they started with the right parents. If we really trusted in the industry of youth, we would stop imagining we could figure out which of these would become the geniuses and just ensure they had access to what they needed to take off at a young age, so we'd all benefit for the maximum amount of time. Don't try to find the wunderkinds. They'll rise to the top, but it would help if they had access to the right resources.