The Color of Money

by Mehrsa Baradaran

  Paradoxically, the most potent weapon against a demand for reparations was capitalism. Free-market fundamentalists said that reparations or compensatory capital was anticapitalist. Shortly after the civil rights community had asked that the equal opportunity myth be made a reality, a white majoritarian backlash demanded that the law treat everyone equally based on race and bestow no special race-based favors. And when the black community began rejecting the deviant ghetto market and demanding a share of American capitalism, the response it received was pure capitalism with a hard-core libertarian edge. Equality and capitalism were used as weapons against black demands for inclusion. Just as equality had become a noose around the first wave of civil rights demands, capitalism was used to strangle the second wave of economic demands.

  Alan Greenspan, who served as Nixon’s economic advisor, discussed demands for reparations in a personal memo titled “The Urban Riots of the 1960s” in 1967. He wrote that capitalism itself was under attack by demands made by black militants and that “ghetto riots have become a rallying cry for an attack upon America’s system of free enterprise and individual rights.” Greenspan outlined his reasoning: “The critical question is, of course, whether the Negroes are correct in claiming that they have been exploited and that their violent reaction is the rational response. There can be little doubt that discrimination has been rampant. However, the charge of exploitation in the sense of value being extracted from the Negroes without their consent for the profit of the whites is clearly false.” In other words, because white businesses had not profited directly from black misery, reparations should be rejected. He claimed that black activists had misunderstood capitalism and the natural market of the ghetto, and had erroneously and unfairly blamed whites for exploitation. “This distinction between discrimination and exploitation is all the difference in the world,” said Greenspan.199

  But the difference was not quite as stark as Greenspan portrayed it to be—especially for those trapped in the ghetto market who had no choice but to pay the high price of discrimination. He was correct when he said that “profit rates in slum areas are doubtless distressingly low considering the risks,” but he erred when he concluded based on that observation that the white community was not gaining any “advantage and profit," and that therefore cries of “injustice" were “erroneous." Perhaps it was unfair to blame just the ghetto lenders for exploitation because of their limited profits, but only because they were a small part of a larger system—a symptom rather than the disease itself. He could not see that the same system that discriminated against blacks had brought benefits to whites—this was why the ghetto was created and redlined in the first place. Whites had not wanted to live near blacks and thus they were benefitting from segregation. Nor did he acknowledge that, for blacks who were being crushed by the ghetto debt trap, it could still feel like an “injustice" even if the lenders were not making direct profits. Discrimination had led to the deviant market and it felt like exploitation. It’s just that the mechanism of exploitation and the individual exploiters were hard to detect. The benefits had not accrued only to the ghetto lenders, but to all of white society.

  Greenspan underscored in the memo his belief that any capitulation to demands for federal spending in the ghetto was a threat to free enterprise. He believed that the cries of exploitation were not only misguided, but had destroyed the status of the “more moderate old-line Negro civil rights leaders" and turned the black middle class anti-capitalist. He rejected the liberal notion that “the Negro ghetto must be elevated to the level of affluence of middle class America" because “this can only be done by massive governmental expenditures." Instead, he advised Nixon to pursue programs to “help Negroes help themselves."

  Capitalist theory was even used to fight basic antidiscrimination laws in Milton Friedman’s foundational 1962 book Capitalism and Freedom. The intellectual father of neoliberalism opposed civil rights laws as a violation free-market capitalism. He decried discrimination as a matter of bad taste, but said that antidiscrimination laws were an “interference with the freedom of individuals to enter into voluntary contracts with one another."200 He compared laws prohibiting discrimination to laws requiring discrimination, such as the infamous Nuremberg laws—it was all unjustified government intervention. Friedman believed that markets would themselves root out discrimination because it was costly and inefficient. Friedman claimed that anyone who opposed buying goods from black businessmen or employing black employees was expressing an inefficient preference and would therefore pay a higher price for that preference. Theoretically this was true, but historically it was not. Because the ghetto had cordoned off a segment of risky borrowers, whites actually paid significantly less for goods, credit, and housing. Racial discrimination had not cost whites, but had actually brought many advantages in the form of all-white suburbs, lower competition for lucrative jobs, and labor protections that benefited whites at the expense of blacks.201

  Friedman, Greenspan, and other market capitalists grounded their arguments in economic theory. They were chasing a libertarian, laissez-faire vision of the economy, but what they were describing was a hypothetical future that bore no relationship to the actual lived experience of American history. This was a common trope of the Chicago school economists, one that relied on models that often assumed perfect information and rational behavior and did not account for the decision-making flaws of average humans.202 The historical American reality was that blacks had never fully participated in free-market capitalism and that whites had benefited from heavy government interventions that had worked to the direct disadvantage of blacks. The arteries of trade and commerce had not flowed freely through the ghetto, at least not in the realm of credit and banking. The credit markets lay atop a federal government apparatus including guarantees, secondary markets, deposit insurance, and Federal Reserve support. The only place where those forces were not intervening was inside the ghetto. The ghetto itself had been an unnatural creation of antimarket impositions of racist policies. Indeed, discrimination was incredibly costly, but only to blacks.

  The neoliberal faith in capitalism and market efficiency was rooted in an ideal much like the egalitarian principles of the founding documents. They were aspirational faiths, but they were not accurate descriptions of the real world. In theory, it was costly to refuse to buy products from blacks if they were offering the same or lower prices. In reality, whites often refused to associate with blacks at any cost. Besides, even if discrimination did suddenly disappear, the broken markets of the ghetto would not. Discrimination had created macro market forces that were now operating on their own. Yet neoliberal dogma and market fundamentalism demanded adherence to market theory, which meant an aversion to any and all “government intervention” aimed at black poverty.

  Barry Goldwater’s failed presidential run in 1964 was the watershed moment for libertarian market principles on the national political stage, and created a movement that only grew stronger over time.203 Goldwater demanded less government involvement and spending in all spheres. Without spewing the racial animus of the George Wallace wing of American politics, he opposed civil rights laws, integration, and any government program meant to address poverty—all in the name of free-market capitalism. There is no reason to doubt that Goldwater was a true believer in market fundamentalism, but Goldwater won back the South for the Republican Party not on a promise of small government, but based purely on his opposition to integration and civil rights laws. He used the principles of libertarianism as a weapon against racial equality, and he did so to court the votes of the white supremacist wing of the party.204

  Since any redress for past economic exclusion required heavy federal government action, an immediate libertarian backlash began to delegitimize all government action. Conservatives began to demand a bill of rights that guaranteed the right to free use of property, including the right to segregated neighborhoods. The movement could hardly be seen as anything but a direct response to the economic demands of the bl
ack movement and the government antipoverty program.205 Nixon was not a libertarian—he expanded the federal bureaucracy and created more government agencies than any other modern president—but he still opposed government interference of any kind when it came to integration or antipoverty measures. Republican strategist Lee Atwater gave away the playbook in a 1981 interview: “You start out in 1954 saying nig***, nig***, nig***. By 1968, you can’t say nig***—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is, blacks get hurt more than whites.”206

  Free-market capitalism and its faithful defenders were no doubt responding to the political threat of communism. But they were also specifically and forcefully using free-market dogma to fight the economic demands of the black power movement. This dogma would only be emboldened and perfected under President Reagan, but it began in the 1960s with Friedman, Goldwater, Buckley, and Greenspan. The economic theory that James Kwak has called “Economism" began to be adhered to like a religious dogma and was used to fight each and every government intervention to remedy past sins.207

  Economism even provided a new justification for stark wealth inequality and exploitation. Inequality along racial lines has been a constant on the American scene, but different eras have justified it with different myths. Christianity was corrupted to prove that white men had a divine right—even a duty—to subjugate and enslave blacks. When religious theory fell out of favor, social Darwinism and skull measurements held that blacks were an inferior species that had lost the evolutionary race, and thus their subjugation was nature’s will. Now economic theory established that “market forces" decreed that blacks should hold the bottom rung because, for example, the law of supply and demand caused blacks to pay more for credit and the market determined how much their labor was worth, and that integration was antimarket. Any effort to change these “market laws" was delegitimized and labeled as harmful government interference with, in the words of President Reagan, “the magic of the marketplace."208 And just as God’s will was difficult to challenge in the 1800s, so too was free-market economic theory after the neoliberal revolution of the late 1960s, lest one be labeled a heretic or a communist.

  For the ascendant libertarians who were taking hold of American politics, the only acceptable remedy for a history of exclusion was black capitalism. But what these white policymakers surely meant by black capitalism was capitalism for blacks only. Government intervention in markets had been the norm, as were government-imposed Jim Crow laws. Capitalism had not created the ghetto and black poverty—racist laws and state intervention in the markets had created both. There had never been free-market capitalism for blacks. After years of exclusion, Jim Crow, segregation, and the deviant markets these state interventions had created, the Nixon administration was actually proposing that maintaining the segregated market was the remedy—that somehow attaching the word “black" to “capitalism" would fix past wrongs.

  The irony of the politics of libertarianism is that it ran comfortably alongside a draconian criminal justice system, which was the antithesis of liberty. Both Nixon and Goldwater strongly supported federal intervention in the form of a stronger police state.209 For Gold-water, even Martin Luther King’s nonviolent mass demonstrations consisted of “bullies and marauders” running rampant. He called for Stokely Carmichael to be charged with high treason, a crime punishable by death.210 Goldwater ran his campaign on promises of law and order, with the ominous warning, “Choose the way of [the Johnson] Administration and you have the way of mobs in the street.”211 Nixon followed suit by releasing fear-stoking radio ads featuring violence, with a promise that “we shall have order in the United States.” As John Ehrlichman, special counsel to Nixon, admitted, “that subliminal appeal to the anti-black voter was always present in Nixon’s statements and speeches.” By 1969, over 80 percent of Americans felt that “law and order had broken down in this country,” and a majority blamed “Negroes who start riots” and “communists.”212 So began the slow deprivation of the rights and livelihoods of generations of black men in the ghetto.

  Advocates of libertarianism and neoliberalism claimed to want more liberty for individuals and a smaller government, but in reality they only wanted less government for the wealthy and the white. The War on Crime had increased surveillance on the black community, overregulated the informal black economy, and imposed excessive sentences for crimes—all of which cost many poor black men their liberty. Not only was the civil rights upheaval co-opted by the car-ceral state, but a lesser-known diversion took place during this pivotal era. In a pattern that resembled what happened during Reconstruction, exactly at the point of inflection when the black community began to demand economic integration and a transfer of wealth and land, a libertarian free-market backlash couched in “black capitalist” rhetoric headed off their demands.

  The Free Market Confronts Black Poverty

  No sooner had the complicated, overdue, and incomplete racial turmoil of the civil rights era subsided than a rewriting of its history began. The story was that the civil rights laws had permanently altered race relations in America, dividing history into a racist past and a color-blind present. Civil rights was a fait accompli, justice had finally been achieved, and Ameri ca’s institutions were at last only concerned with the “content of one’s character." Even Dr. King’s complicated legacy was recast. King was now seen as a singular American hero who sought and ushered forth racial harmony, finally reconciling America’s stated ideals of equality with its dissonant history. This retelling not only erased the long history of injustice and its effects, which in fact had not abated in the least; it also pushed the burden of economic disparity squarely onto the black population.

  On the campaign trail and as president, Jimmy Carter portrayed the country as postracial. He chastised his Democratic primary opponent, Jesse Jackson, for overemphasizing racial problems, which he referred to as “an issue that’s already divided the people," yet he enthusiastically embraced the once-divisive leader of the previous era, stating “I see an America in which Martin Luther King’s dream is our national dream."1 President Ronald Reagan also harshly denounced racism and embraced King’s dream. When Reagan made King’s birthday a national holiday in 1983, he announced, “We’ve made historic strides since Rosa Parks refused to go to the back of the bus. As a democratic people, we can take pride in the knowledge that we Americans recognized a grave injustice and took action to correct it."2 Yet he had consistently maintained opposition to civil rights laws because he believed them to be unnecessary government intrusions into private markets.3

  Black poverty came to be seen as a direct result of a culture that lacked responsibility, work ethic, and “family values." Having achieved racial equality, what else could explain the wide wealth gap? Government interventions and the welfare state had allegedly created perverse incentives for blacks to avoid employment and have children out of wedlock.4 President Reagan attacked welfare spending, characterizing it as tax dollars being spent on “welfare queens" feasting on T-bone steak while hardworking Americans “were standing in the checkout line with [their] package of hamburgers." In railing against welfare, Reagan used the example of a particular black female fraudster who had snatched unearned privileges by exploiting the welfare system at the expense of honest taxpayers. This was an inaccurate picture of welfare, as whites received the large majority of welfare benefits and welfare fraud was rare. However, the depiction of the black population as riddled with crime and drugs, unwilling to work, and living comfortably off government largesse had remarkable durability.5

  It is worth distilling this message in order to fully appreciate the irony. The story was that after decades of New Deal-era federal subsidies had created a white middle class, reinforced a segregated black underclass, and created cyclic poverty that made it diff
icult for many to find shelter and food without government aid, it was black people who were being unjustly enriched by the overly generous hand of the state.

  According to this story, the only state intervention required in the ghetto was “law and order." By the time Ronald Reagan took office, the groundwork for the war on crime had been laid, but the Reagan administration turned up the heat. Part of President Reagan’s appeal, according to one political insider, was derived from “the emotional distress of those who fear or resent the Negro, and who expect Reagan somehow to keep him ‘in his place’ or at least echo their own anger and frustration."6 In 1982, Reagan initiated the War on Drugs, even though drugs had not yet registered as a perceived public problem.7 Even the staunchest advocates of the drug war now admit that it was unfairly skewed to impose the harshest prison sentences on black drug criminals rather than white ones, and it resulted in a generational devastation of the lives of young black men.8 In just a few years, federal funding for antidrug law enforcement skyrocketed (while funding for treatment or prevention programs plummeted). Anyone selling or possessing crack cocaine could face a lifetime in prison. A media offensive sensationalized a crack “epidemic" in the inner city, one that didn’t really exist yet. But it would.