Economy

White Families Have 20 Times the Wealth of Black Families: How Racism's Legacy Created a Crushing Depression In Black America

The economic crisis has hit most families hard--but since many black families had less wealth to start with, its impact on them has been nothing short of disastrous.

Racism is real and measurable, and it definitely impacts economic outcomes. But at a time when overt, in-your-face institutional racism is largely a thing of the past, discrimination alone can't explain the entire black-white achievement gap – African Americans' lower average incomes and persistently higher levels of poverty and unemployment.

But a large part of that gap can be explained by differences in accumulated wealth. If you look at black and white families with the exact same incomes, the white families will have far more accumulated wealth – cash in the bank, retirement savings, investments, real estate, etc.

That wealth gap has widened into a yawning chasm in recent years. In 2007, white families, on average, had 10 times the accumulated wealth of black families earning the same amount. That was significant, but then, between 2005 and 2009, the average white household's wealth dropped by 16 percent, while the average black family's dived by 52 percent, and, as the New York Times reported, by 2009, the “median wealth of whites [was] 20 times that of black households.” As a result, we now have “the largest [racial] wealth disparities in the 25 years that the [Census] bureau has been collecting the data.”

It’s crucial to understand the relationship between wealth accumulated over generations and one's economic prospects today. Central to that relationship is the concept of “intergenerational assistance.” That’s a fancy way of saying that a person’s chances to advance economically are very much impacted by whether his or her family can help get him or her started on the path to prosperity.

Think of the difference it makes when a young couple’s parents can give them a down payment on their first home—that couple starts building equity right out of the starting gate, instead of throwing away money on rent. Small businesses don’t begin with a good idea; they begin with an idea and start-up capital. If you’re already established, you can get that cash from a bank or find an investor. Before then, your best chance is to hit up your family for a loan. The wealthy don’t pass on their status to their kids through inheritance alone; they also do it by smoothing the way for their children's ascent to the top of the pile.

Dalton Conley, the director of NYU’s Center for Advanced Social Science Research, compared two hypothetical kids—one from a family with some money and the other from a poor family. Both are born with the same level of intelligence, both are ambitious and both work hard in school. In a meritocracy, the two would enjoy the same opportunities to get ahead. Yet 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.

That’s only one of the myriad ways that parents pass their economic status on to their children, Conley explained. “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.”

Education also plays a crucial role 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 facilities that are available to kids in wealthier and poorer communities. According to the Urban Institute’s annual report on the State of Black America, African American children got an average of 82 cents on the white education dollar in 2008. You get what you pay for, and twice as many black children as whites are taught by instructors with fewer than three years of experience.

Now consider again that 50 years after achieving legal equality, a black family has only one twentieth of the accumulated wealth of a white family that earns the exact same income today and saves the exact same amount of money for a rainy day. The difference in wealth is, as Conley told me, "the legacy of racial inequality from generations past."

While the country as a whole is mired in a painfully slow recovery, the African American community is suffering from nothing less than a full-blown depression. Unemployment overall stands at around 9 percent, but for blacks it's increased by one and a half percentage points since the recession officially ended and now stands at 16.2 percent. In some hard-hit communities, it's much higher – 34 percent of black men living in Milwaukee are now jobless. According to CBS, “This May, black male employment fell to the lowest level since the government began keeping track in 1972. Only 56.1 percent of black men over age 20 were working, compared with 68.3 percent of white men.”

Older blacks have been hit especially hard. AARP did a study of people over 45 years of age, and found that a third had stopped contributing to their retirement funds (PDF). More than a quarter of African Americans over 45 have made premature withdrawals from their IRAs, compared with less than a fifth of the population as a whole.

African Americans also reported more problems than the general population in paying for common items and expenses such as gas (55% versus 50%), food and utilities (44% versus 23%), and even the mortgage or rent (33% versus 15%) and a relatively large percentage (18% versus 10%) had lost a job in the past year.

As a result, half of those sampled had lost sleep due to stress or worry (compared with 41 percent of the population as a whole), 31 percent had cut back on medications (compared with 15 percent overall) and 23 percent had lost employer-provided health care coverage (versus 13 percent of the population at large).

The context here is important. Through much of the 1990s, black America had made truly significant economic gains. By the end of the last century, black incomes were up, and African American poverty hit an all-time low. All of those gains have since been reversed; the process started during the Bush years, before the crash, and has only accelerated during the recession.

And now, with a black/white wealth-gap of 20 to 1 – and proportionally limited prospects of helping the kids get off to a good start -- America's black community is going to have a very hard time digging itself out of the grueling depression in which it finds itself. Add to that the black incarceration crisis – there are now more African Americans behind bars in the United States (most of them for drug-related offenses) than there were slaves in 1850– and what you have are a set of daunting structural impediments to bouncing back from the crash.

White families are suffering, but they will recover in the medium-term. The same can't be said for black America. Tragically, the crushing depth of economic chaos wrought on African American families since the crash is likely to reverberate within that community for generations to come.