Nathan Gardels is the editor-in-chief of Noema Magazine. He is also the co-founder of and a senior adviser to the Berggruen Institute.
A decade ago, the French economist Thomas Piketty published “Capital In The 21st Century,” a blockbuster screed against the rich getting richer. In that weighty tome, he encapsulated the dynamic of steadily increasing inequality with the formula r > g: the compounded rate of return on capital is greater than the rate of economic growth.
In short, the inequality gap inexorably grows over time between those who own capital assets that appreciate in value, especially financial assets, and those who work and live paycheck to paycheck.
In a recent University of Chicago Journal of Political Economy study, Moritz Kuhn, Moritz Schularick and Ulrike I. Steins traced the growth of wealth inequality in America from 1949 to 2016. They pointed out the central importance of portfolio composition in creating the wealth gap. While working families have little savings for investment, middle-class portfolios are dominated by housing, while rich households mostly own business equity.
Former World Bank economist Branko Milanović notes that this concentration of ownership of financial assets has accelerated in most countries since the 1990s, where “a rising share of total income is going to capital. That means total income will become more and more concentrated. With the extremely uneven distribution of financial assets, the wealth of a country is going more and more to only the people at the top and very little percolates downward.”
To boot, a New York Federal Reserve Bank study shows how the concentration of wealth reproduces itself because more time, effort and expertise are put into managing holdings as they grow larger. “Concentration in capital ownership causes a transition to an unequal steady state,” the study concludes. In 2024, the richest 10% owned 93% of all equity in the U.S.
As frequently noted in Noema, this condition will be exacerbated by the innovations of digital capitalism that are increasingly divorcing employment and income from productivity growth and wealth creation, generating an ever-accelerating gap between those who “own the robots” and those who labor for their livelihood.
Policies that respond to this challenge would foster an ownership share for all in the wealth generated by intelligent machines that are diminishing or displacing gainful employment. The aim is to enhance the assets of the less well off in the first place — pre-distribution — instead of only redistributing the income of others after the fact.
In our 2019 book “Renovating Democracy: Governing In The Age of Globalization and Digital Capitalism,” Nicolas Berggruen and I called this concept “universal basic capital,” or UBC. The idea is not just to break up the concentration of wealth at the top, but to build it from below. The best way to fight inequality in the digital age, we wrote, is to spread the equity around.
Enter MAGA Accounts
Who could have expected that it would be a MAGA-dominated U.S. Congress that is blazing an incipient path to universal basic capital in the world’s largest economy as one key way to counter the dynamic of inequality Piketty identified?
The Money Account for Growth and Advancement program was passed into law last month as part of the “One Big Beautiful Bill.” While in most respects that budget package benefits the rich, the so-called MAGA accounts aim to bolster the assets of the rest so that just like the rich, they too can own capital that will grow in compounding value from invested savings.
Starting as early as July 2026, every child under 8 who is an American citizen will be auto-enrolled into an account with a $1,000 deposit from the government. All income from investments for that account held throughout its term — when the child turns 18 — would be tax-deferred, after which withdrawals would be taxed at the low long-term capital gains rate. Families can add up to $5,000 per year to the account.
Distributions are only allowed once the child is 18, at which point account holders are allowed access to only 50% of their funds, and solely for higher education, training programs, small business loans and first-time home purchases.
At age 25, savings account holders are allowed to withdraw up to the full balance of the account, but only for those same specified purposes. Upon reaching 30, account holders can access the full balance for any purpose desired.
“Who could have expected that it would be a MAGA-dominated U.S. Congress that is blazing an incipient path to universal basic capital?”
Texas Sen. Ted Cruz, who championed the program, said of the accounts: “There are many Americans who don’t own stocks or bonds, are not invested in the market, and may not feel particularly invested in the American free enterprise system. This will give everyone a stake.”
Various similar “baby bond” schemes have been underway elsewhere, from California to Connecticut to France and the United Kingdom, mostly geared toward low earners.
The most successful was the U.K. Child Trust Fund. It was launched in 2003 by then Prime Minister Tony Blair and Chancellor of the Exchequer Gordon Brown. In the austerity years of Prime Minister David Cameron following the financial crisis of 2008, the trust was wound down in 2011. In terms of encouraging savings, however, it was a clear success. During its lifetime, 6.3 million new savings accounts were opened. As of April 2023, the total market value of the accounts was 9 billion pounds ($11.4 billion), of which the government contributed only 2 billion pounds ($2.5 billion).
The Big Worry
What is most worrisome about the otherwise worthy MAGA accounts is that some among the ideological right in the U.S. will see it as one day replacing Social Security.
Indeed, last week U.S. Treasury Secretary Scott Bessent actually said of the MAGA program, “In a way, it is a back door for privatizing Social Security. Social Security is a defined benefit plan paid out. To the extent that, if all of a sudden these accounts grow, and you have in the hundreds of thousands of dollars for your retirement, then that’s a game changer.”
Realizing the implications of his musings, Bessent hastened to clarify what he meant on X. What he called “Trump Baby Accounts” are “an additive benefit for future generations, which will supplement the sanctity of Social Security’s guaranteed payments. This is not an either-or question: our Administration is committed to protecting Social Security and to making sure seniors have more money.” Let’s hope that is a sincere pledge and not subject to changing on a whim as so much else in Washington these days.
Paying The Piper
Over the longer term, the question is how such a massive budget commitment can be sustained when U.S. public debt is already 120% of the GDP, or whether it will go the way of the otherwise successful UK Child Trust.
One idea floating around is to make the initial $1,000 deposit a loan, instead of a grant, that would be paid back when the account comes to term without interest. As the MAGA account program matures, this would create a kind of revolving fund to keep it going.
Another notion being floated would use the considerable revenues expected from tariffs to fund the program in a kind of virtuous cycle where the home market for investment opportunities is boosted while generating returns for a broader class of citizens. Even accounting for any slowdown as a result of protectionist measures, the Yale Budget Lab projects $2.2 trillion in government revenue at current tariff rates from 2025-2036.
Whether implemented through MAGA accounts or otherwise, UBC ought to be embraced as a bipartisan agenda. After all, its American patriotic pedigree goes back to Thomas Paine, who proposed in 1797 that every newborn child should be provided with an equal endowment financed by an inheritance tax on wealthy landowners.
As left-leaning Nobel economist Joe Stiglitz and top hedge fund manager Ray Dalio agreed in a Noema exchange, UBC is “neither capitalist nor socialist,” but a practical way to more fairly share the wealth that transcends stale old ideological divides.
