The Astonishing Collapse of Black and Latino Household Wealth
Photo Credit: Shutterstock.com/Kuzma
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Despite growing economic inequality and mass unemployment, Washington is focused on austerity. Politicians and pundits debate how much to cut and how much revenue to raise rather than creating jobs or alleviating the suffering of millions of people. What also gets lost in the dominant discourse about the economy is the suffering of the black community. The Great Recession has increased racial inequality and set back the modest socioeconomic gains of the civil rights movement.
Recently, the Urban Institute released a study on the racial wealth gap titled "Less Than Equal: Racial Disparities in Wealth Accumulation." The study found that, while the racial wealth gap has existed for decades, it's drastically expanded during the last 30 years. It says the "average wealth of white families was $230,000 higher than the wealth of black and Hispanic families in 1983." In that year, white families had an average wealth of nearly $300,000 in 2010 dollars. Wealth for all families increased, but not evenly.
The 2007-2009 recession devastated the American economy and all families suffered decreasing wealth. However, African American and Latino families were hit the hardest. According to the study, "between 2007 and 2010, Hispanic families saw their wealth cut by over 40 percent, and black families saw their wealth fall by 31 percent." In comparison, white family wealth "fell by 11 percent."
The average wealth of white families, in 2010, was $632,000 but $110,000 for Latino families and $98,000 for African American families -- a wealth gap of over half a million dollars. Median wealth shows the same trend: $91,000 for white families versus $10,000 for Latinos and $11,000 for African Americans in 1983; for 2010, it's $124,000 for white families, $15,000 for Latino families, and $16,000 for African American families. These are all in 2010 dollars. Therefore, between 1983 and 2010, the racial wealth gap nearly tripled.
The largest sources of wealth within black and Latino communities are homes and retirement. White families derive wealth from their homes and many other sources, such as stocks and other financial investments. Moreover, one needs to have a certain level of disposable income to make such investments. Low-income families have to spend their income on rent, supporting their families, and other necessities just to survive. As a result, they don't have enough excess cash to save and invest. Those with higher incomes can afford not only to take care of themselves but have enough money to save and invest. Since white families have higher incomes than black and Latino families, they have more money to invest, hence their larger amounts of wealth.
The housing bubble seemed to provide an opportunity for blacks and Latinos to build up wealth, enter the middle class, and achieve the "American Dream." However, this proved to be a ruse. Black and Latino communities were targeted by major banks, such as Wells Fargo and JPMorgan Chase, for subprime mortgage loans, even if they qualified for normal prime loans. Subprime is a form of risky, high-priced lending to people with poor credit histories, giving the loans higher interest rates.
According to a 2009 NAACP study, "even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans" than whites. This drove up home ownership in those communities but the foundation was on a flimsy stack of cards. When the housing bubble burst and the recession hit, black and Latino communities were hit the hardest.
The Urban Institute study is not the only one to point this out. Other studies, such as a February 2013 study by Brandeis University and another by Pew Research Center in July 2011, while using different methodologies and coming up with different numbers, show the same trend -- the racial wealth gap was large to begin and grew exponentially after the recession.
As shown in the studies, the racial wealth gap is not new. It has deep historical roots and current policies perpetuate and exacerbate it. Black African slaves were first imported from Sub-Saharan Africa to North America by European slave traders in the early 1600s. European colonists used African slave labor to work on plantations growing profitable cash crops like cotton, indigo and sugar. African labor was appealing to European colonizers because, unlike native Americans and indentured white European servants, it was plentiful (if one died, they could be replaced by another African), Africans had no connections to Americans land, and Africans knew how to grow cash crops, like cotton and sugar, that grew on the African continent, the Caribbean, and southeastern United States. Thus, the trans-Atlantic slave trade, which lasted from the early 1500s to mid-1800s, saw the importation and exploitation of anywhere between 12 to 30 million African slaves to European colonies in the Caribbean, South America and North America.
The trans-Atlantic slave trade built the foundation for modern capitalism and current racial inequality. Wall Street itself was a slave trading market with many companies and financial institutions profiting from it, including the Royal Bank of Scotland, Bank of America, Aetna Insurance, now-bankrupt Lehman Brothers, Wachovia, and J.P. Morgan Chase, with lawsuits against many of them for their role in slavery. Banks, particularly predecessors of Wachovia and JPMorgan Chase, Bank of America, accepted slaves as "collateral" and issued loans to slave owners. If a slave owner defaulted on his loan, the slaves, since they were "property," became owned by the bank. Aetna Insurance had a policy compensating slave owners for their loss of property, such as when a slave died. Slaves also produced commodities that were sold in international markets for profit, which is characteristic of modern capitalism.
The exploitation of black African labor by white slave owners transferred wealth from black African slaves, and their descendants, to white European slave masters, their progeny, and other whites who benefitted from the system. Since African slaves were not financially compensated, they had very little chance to accumulate and pass down wealth in their communities. Even after slavery ended, that transfer of wealth ensured that blacks would remain socioeconomically subordinate to whites for future generations. This is how the present racial wealth gap was formed.
Just as there were laws protecting slavery, many policies, practices and institutions maintain the racial wealth gap. According to the Brandeis study, "homeownership, income, college education, inheritance, and unemployment" are the "major drivers of the racial wealth gap." The study points out that "for many years, redlining [denying or raising price of insurance or other financial services to particular neighborhoods based on race], discriminatory mortgage-lending practices, lack of access to credit, and lower incomes have blocked the homeownership path for African Americans while creating and reinforcing communities segregated by race." Many of these practices are perpetrated by the financial sector -- the same sector whose roots go back to slavery.
Practices in employment and education also contribute to the racial wealth gap. Currently, black unemployment lies at 13.8%, while 6.8% for whites. According to a Center for American Progress study, the weekly median earnings of African Americans (in 2011) were $674 compared to $549 for Latinos, $744 for whites, and $866 for Asian Americans. Much of this is due to "long-standing patterns of discrimination in hiring, training, promoting, and access to benefits" that make it "much harder for African Americans to save and build assets," said the Brandeis study. In addition, neighborhoods are deeply segregated by class and race. This leaves many lower-income students, particularly students "isolated and concentrated in lower-quality schools, and less academically prepared to enter and complete college."
The latest emphasis on austerity disproportionately harms African Americans, as well. Cuts to government spending forces the public sector lay off workers. This hurts African Americans since they are 30% more likely to work in the public sector than the general workforce, according to a United for a Fair Economy study. The private sector has a long history of racial discrimination against African Americans, which is why the public sector has been more reliable for black workers. Austerity, therefore, has a detrimental impact on African American employment. It curtails their ability to accumulate wealth, thereby, reinforcing the racial wealth gap. The latest round of sequestration will only exacerbate this trend. This comes at a time when corporate America and Wall Street recovered very well after the recession, experiencing high profits, while the rest of the country still suffers unemployment, low wages, slow job growth, and poverty.
Wealth provides communities with a stable economic foundation. During hard economic times, when employment is difficult to find, possessing wealth helps people stay economically afloat. People can also have income from certain kinds of wealth, like stock or property, meaning that they can make money without working, simply by owning stuff. In addition, wealth can be passed on to future generations, which makes it easier for one's children and grandchildren to survive economically. Put simply, wealth builds economically stable communities.
Depriving certain communities of opportunities to accumulate wealth makes it harder for them to survive economically. Those who have massive amounts of wealth do what they can to protect it, even influencing the political system. This drives the wealth gap, especially the racial wealth gap, even wider and undermines democracy by putting political and economic power in the hands of a relative few. Tackling the racial wealth gap would advance racial equality, justice and true democracy.