Most
families suffered decreasing wealth when the recession devastated the
American economy, but African American and Latino families were hit the
hardest.
Photo Credit: Shutterstock.com/Kuzma
May 31, 2013
|
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.
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