Black-White Wealth Gap Continues to Widen in U.S.

Posted by Joshua Holland, AlterNet at 4:53 PM on March 23, 2009.

From Meizhu Lui, writing in the Washington Post:

The euphoria of our gambling spree is over. In the harsh glare of morning, the hangover is tough. And the latest data are from 2007, so they don't even capture the worst of the decline.

The net worth of the average American family is less than it was in 2001. We borrowed more for that trip to Vegas than we brought home. Everyone knows this now.

But here's something being talked about much less: The gap between the wealth of white Americans and African Americans has grown. According to the Fed, for every dollar of wealth held by the typical white family, the African American family has only one dime. In 2004, it had 12 cents.

This is not just a gap. It's a deepening canyon.

The overhyped political term "post-racial society" becomes patently absurd when looking at these economic numbers. This week, experts on asset building in communities of color are meeting with members of Congress to talk about closing the wealth gap. While the government is rescuing failing financial institutions as a short-term measure, those at the two-day Color of Wealth Policy Summit will make the case that the nation's long-term economic future depends on the inclusion of all Americans in opportunities to build wealth.

Why such a big gap? The biggest predictor of the future economic status of a child is the net worth of the child's parents. Even modest inheritances or gifts within a parent's lifetime -- such as paying for college or providing the down payment on a home -- can give a child a lift up the economic ladder. And historically, white families have enjoyed more government support and tax-paid subsidies for their asset-building activities.

The market-worshippers' explanation for the persistence of the racial wealth divide is cultural: people of color -- most raised by those damn single welfare moms -- just don't have the boot-strapitude to make it in our ruggedly individualistic economy.

But as I explained in a piece titled, "The American Dream, or a Nightmare for Black America?," that narrative misses the importance of "inter-generational assistance" in terms of economic outcomes. Check out the highlights after the jump...

While white men's incomes have been stagnant for the past three decades -- for both white and black families, most of the increase in family income was a result of women entering the work force rather than wages increasing -- the current generation of 30-something black men actually earn, on average, 12 percent less than their fathers did in the mid-1970s.

That trend toward downward mobility has an enormous impact on the black middle class. While children of middle-class whites tend to do better than their parents did at the same age, a majority of middle-class African American children do worse than theirs, both in income and in terms of their position on the nation's economic ladder. According to [a study cited], "only 31 percent of black children born to parents in the middle of the income distribution have family income greater than their parents, compared to 68 percent of white children from the same income bracket."

But looking at income alone misses a crucial part of the story. The differences in accumulated wealth -- in net worth -- are far greater than the differences in income, and that impacts black families' prospects of moving up in a big way.

In Being Black, Living in the Red, Dalton Conley, director of NYU's Center for Advanced Social Science Research, showed that white families, on average, had eight times the accumulated wealth of black families who earned the same, and that remained true even when you adjust for education levels and savings rates. It is, as Conley told me in an interview last year, "the legacy of racial inequality from generations past."

Crucial to understanding how that impacts economic mobility is the concept of "intergenerational assistance." That's just a fancy way of saying that your chances to advance economically are very much impacted by whether your family can help with tuition payments, a down payment on a house or seed money to start a business. Conley compares two hypothetical kids -- one from a family with some money and the other without. Both are born with the same level of intelligence, both are ambitious and both work hard in school. In a true meritocracy, the two would enjoy the same opportunity to get ahead. But the fact that one might graduate from college free and clear while the other is burdened with $50,000 in debt makes a huge difference in terms of their long-term earnings prospects.

And that's just one of the myriad ways that parents pass their economic status onto their children. Conley concluded: "When you are talking about the difference between financing their kid's college education, starting a new business, moving if they need to move for a better job opportunity -- [differences] in net worth might make the difference between upward mobility and stagnation." America's limited and fraying social safety net also means that things like temporary job loss, illness or pregnancy can lead to drops in income -- opportunities to fall down the ladder -- that working families in other advanced countries don't face.

Education plays a crucial part in reproducing African-Americans' lower economic status in their kids. Schools are primarily funded through state and local taxes, which leads to dramatic differences in the education available to kids in wealthier and poorer communities. That goes a long way in explaining a phenomenon long observed in American education: Black children excel until the middle grades, and then their achievement levels begin to decline. At younger ages, large numbers of African American kids are enrolled in early childhood programs like Head Start, but by the middle grades, the picture changes. According to the Urban Institute's annual report on the state of black America, black children got 82 cents on the white education dollar last year. You get what you pay for, and twice as many black children as white kids are taught by instructors with less than three years of experience.

The wealth gap in America is the accumulated legacy of generations of institutional racism at work. Black kids are starting from behind and aren't afforded much chance to catch up.

Tagged as: inequality, black america, wealth gap

Joshua Holland is an editor and senior writer at AlterNet.