One of my favorite progressive writers is Mark Schmitt (formerly editor of TAP, and now a senior fellow at the Roosevelt Institute) because he commands to an unusual degree a combination of policy chops, practical political experience, a strong understanding of history, and the analytical skills to synthesize it all into a clear story. These traits are amply displayed in Schmitt’s contribution to the July/August issue of the Washington Monthly, “Michael Sheradden’s Compounding Interest.”
Mark tells the all-but-forgotten story of the 1990s-era “asset movement,” a once-strong bipartisan coalition united in promoting the insights of “an obscure academic” from Washington University named Michael Sheradden who wrote about the need for, and the possibility of, wealth accumulation by people who might otherwise be trapped in poverty:
Sherraden made four points: First, poverty was characterized not just by a lack of income, but by a lack of assets, such as small amounts of savings that could cushion a financial setback. (Disparities in wealth by race were, and still are, far wider than disparities of income.) Second, poor people, with help and encouragement, could save and would be far better off if they did. Third, the existing safety net contained significant traps, in the form of asset limits that prohibited recipients from saving much or even owning a reliable car without losing food stamps or other benefits. Finally, he demonstrated that government programs to encourage assets were not new, but were overwhelmingly tilted toward the middle class and above, in the form of the home mortgage interest deduction, Individual Retirement Accounts, and dozens of other policies.
Sherradon’s insights attracted early support from across the political spectrum, notably from Clintonian liberals interested in supplementing traditional income-maintenance programs and “empowerment conservatives” (e.g., Jack Kemp) interested in introducing the poor to the world of capitalism:
Sherraden’s ideas had broad implications for policy, but they were distilled into a specific proposal, the Individual Development Account. Modeled on Individual Retirement Accounts, IDAs would help low-income families save by using public or philanthropic dollars to match small savings in accounts that could later be used for homeownership, self-employment, or education.
A big part of the concept was that small, matched savings could produce big payoffs for the poor via the power of compounded interest. Small demonstration projects mainly funded by foundations showed IDAs could work, and the “asset movement” produced other applications, most famously children’s savings accounts (CSAs), better known as “baby bonds,” a big policy initiative of Tony Blair’s Labour government in Britain. But the asset movement soon fractured in the U.S. when conservatives began linking IDAs and similar initiatives to major reductions in the publicly-financed social safety net (just as bipartisan interest in expansion of tax-preferred retirement accounts became linked to Social Security privatization). More recently, interest in IDAs, often tied to the goal of expanded homeownership, suffered from perceptions that poor people were taking on debts (often extended via predatory lending practices) they were not equipped to sustain.
But, argues Schmitt, empirical evidence suggests more strongly than ever that more carefully structured asset-building for the poor (along with reforms in lending practices) is the only way to ensure that future economic downturns do not create permanent poverty traps for many millions of Americans.
It’s time, suggests Schmitt, for the asset movement to make a big comeback. He leaves open the question of whether conservatives hell-bent on exposing the poor to unregulated market forces will be interested in rejoining.
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