The financial crisis of 2008 disproportionately affected segregated black communities and turned the persistent racial wealth gap into a chasm. The financial crisis wiped out 53 percent of total black wealth.18 As the head of the Congressional Black Caucus, Representative G. K. Butterfield, said in 2015, “Black America is in a state of emergency!"19 Today, black families have an average net wealth of $11,000 compared to a white family’s average of $141,900. Pew data reveals that white families have thirteen times more wealth than black families.20 The wealth gap exists at every income and education level. On average, white families with college degrees have over $300,000 more wealth than black families with college degrees. A third of black families have no assets at all.21 Moreover, studies reveal that the gap is accelerating—over the last thirty years, the average wealth of white families has grown at three times the rate for average black families.22 This growing divide perpetuates injustices hard to capture behind the latest news of riots and protests.
The wealth gap is where the injustices sown in the past grow imperceptibly in the present.23 The cumulative effects of discrimination, segregation, and the economic detour for black businesses have created self-perpetuating forces that continue to make black wealth accumulation difficult. The perpetuation of poverty is stunning—75 percent of black children who grow up in families in the bottom wealth category remain in that same category as adults.24 A 2013 study found that for white families, every additional dollar they earn in income leads to $5.19 in wealth. For black families, each dollar creates only sixty-nine cents in total wealth.25 This is why the wealth gap between blacks and whites can continue to grow even when de jure discrimination ended decades ago. Blacks are no longer prohibited from highly paid employment, and there are black stars in every field and almost every top office, including the highest political office, but the majority of black people are as poor as they have ever been and live in regions that offer them little hope for economic progress.
President Obama acknowledged in his first public speech in 2004 “that in no other country on earth is my story even possible." But if Obama’s identity was uniquely American, he was also unique among black Americans. He started his 2004 speech by introducing his Kansan grandparents who helped raise him. He said that “after the war, they studied on the GI Bill, bought a house through FHA and later moved west, all the way to Hawaii, in search of opportunity."26 Here was a black man who was able to enjoy a uniquely white privilege passed down through the postwar generation.
From one generation to the next, wealth can perpetuate and reinforce itself, not only as it is passed down literally, but because the attendants of wealth also ripple across generations. Many iterations of racial inequality, such as differences in educational attainment, income, and even incarceration, can be traced back to differences in generational wealth.27 Nevertheless, because of the prevalent belief that the wealth gap is a natural result of market forces, many Americans continue to blame the poor for their own predicament, an idea described by Lawrence Bobo as “laissez faire racism."28
It is worth noting that a broad body of research reveals just how connected wealth is to a broad array of outcomes and how poverty perpetuates itself. For example, lower wealth is not caused by blacks refusing to work or get an education, as some have claimed.29 In fact, it is more likely that a family’s wealth determines a family member’s ability to get an education or a high-paying job.30 Those without wealth often live in resource-poor communities with subpar schools and restricted social networks.31 More directly, a family’s assets strongly predict whether and where a child can secure higher edu-cation.32 Crime also grows where opportunities are few, and crime in turn tends to diminish opportunity. It is therefore unlikely that the education gap between blacks and whites was caused by inherent biological differences between the races, as Charles Murray and Richard Herrnstein explained in their much-discussed 1994 book, The Bell Curve.
It is also unlikely that black poverty is caused by a lack of “family values” or of broken families.33 It is true that single-parent homes perpetuate the cycle of poverty and that poverty, in turn, creates more single-parent homes. But which came first, the “lack of fathers” or the lack of jobs for them? Economic hardship causes black families to extend their homes to encompass many extended family members who need support.34 Poverty also causes stress, depression, and poor heath, all of which threaten family stability. Not surprisingly, the level of asset ownership is a much more significant determinant of stable marriages within the black, no less than the white, com-munity.35 Blacks are not choosing to be in single-parent households because they are gaming the welfare system. Poverty creates joblessness, crime, social decay, and family deterioration. To state that poverty is linked to these “cultural forces” is to state the obvious, but it is a gross oversimplification to say that culture creates poverty and stop there. Culture is as much a reflection of poverty as it is a cause.
Recent research has revealed even more profound psychological effects of poverty on behavior and outlook. Eviction, homelessness, and extended poverty are experienced as psychological trauma, especially for children. Children who grow up in an environment of scarcity, fear, or social disorder are exposed to stress that significantly hinders their social and academic capacity. It even affects their decision-making process.36 The famous “marshmallow experiment” revealed that children who could practice self-control and delay gratification (wait for the second marshmallow) were more successful as adults across the board.37 Yet the experiment has been misunderstood as it relates to poverty. One consistent result of the experiment, noted by its designer Walter Mischel and replicated by every subsequent experimenter, was that the poor consistently “failed” the marshmallow test. One might be tempted to believe that being poor was thus a result of a lack of self-control. However, as researchers like Melissa Sturge-Apple have homed in on the decisionmaking process, they have revealed a much more complex story. By measuring the heart rate and brain activity of the children during the test, the experimenters revealed that the poor children were making a careful and calm choice to enjoy the marshmallow immediately instead of waiting for an uncertain second marshmallow. “When resources are low and scarce, the rational decision is to take the immediate benefit and to discount tuture gain." Calmer decision making—or less impulsiveness—among wealthy children led them to wait for the additional treat, but that same measured and calm decision making led the poor children to decide not to wait. Poor children’s rational decision making was misinterpreted as lack of self-control.38 Today, one in three black children grows up in poverty compared to one out of ten white children. One out of five black children under the age of five grow up in extreme poverty.39
Poverty changes decision making for adults as well. Behavioral economists Sendhil Mullainathan and Eldar Shafir have demonstrated that poverty, or scarcity of any kind, creates a distinct mental state. A state of scarcity is such a heavy mental burden that it can lead to temporarily lower cognitive ability and shortsighted decision making. This does not mean that the poor have less capacity, but that their capacity is overburdened because living in scarcity takes up significant mental space and leaves less room for other mental processes. Those operating under the pressure of scarcity have been shown to eat poorly, parent poorly, make bad decisions, and even wash their hands less often.40 Scarcity also creates tunneling, which is a hyperfocused mind-set that homes in on the resource in scarcity. Those who are hungry show extreme attention to food. Those who are lonely, to human interactions. Those who are poor focus intensely on money and little else. The poor are actually much more careful with their money than the wealthy. For example, customers leaving a grocery store were asked about the price of certain purchases. The majority of middle-class customers could not recall the amount they had just spent or how much they had spent on items such as toothpaste. The poor overwhelmingly got it right. This undercuts the premise that the poor need financial education so that they can pay attention to where they are s
pending their money.
Scarcity is not caused by having a low income. It is financial volatility and insecurity that create bandwidth overload. In other words, it is the lack of wealth. Wealth is a crucial pillar of stability and a bulwark against devastation, and many black families do not have it. Even a small buffer of savings can shield a person from the immense psychological toll of a scarcity mind-set. Can it be that what Moynihan called the “tangle of pathology" was just a natural response to financial insecurity and scarcity? Modern science has undercut the old dogmas of biological and cultural inferiority by making it clear that decision making is much more connected to surrounding circumstances than previously thought. Instead, policymakers continue to address poverty as though it were a result of individual decision making, which is why solutions like financial literacy or education have predictably yielded little fruit. “Somehow, people absurdly believe—and they have done do for much of our history," laments Eddie Glaude, “that black social misery is the result of hundreds of thousands of unrelated bad individual decisions by black people all across this country."41
When Treasury Secretary Jack Lew was asked by the president of Black Enterprise magazine in 2016 to address the racial wealth gap, he said that the Treasury Department was very concerned about the gap, and he acknowledged that the financial crisis had wiped out a significant portion of black wealth. He then went on to offer some advice on how to accumulate wealth. “A lot of people say they can’t afford to save. I understand. Living on a paycheck to paycheck income is really challenging. I experienced it at the beginning of my career and I know how hard it is. By the same token, most people buy a cup of coffee without thinking about it. Most people buy an extra magazine or a video without thinking about it. . . . If you take the accumulated decisions people make lightly and in one of those occasions say, I am going to put money away for retirement, you’d see people start out with more. . . . I think financial education, financial literacy is about understanding that some people buying a home might not be a good idea."42 This is all sound advice from the treasury secretary, but the entire black community could abstain from lattes indefinitely and yet the wealth gap would persist. In reality, blacks save an average of 11 percent of their annual income while whites save only 10 percent.43 The idea of blacks spending frivolously while whites save their pennies is a meaningless, damaging, and sadly persistent stereotype.
While government officials urge blacks to save, government policies are perpetuating the wealth gap. The American tax code distributes wealth toward homeowners because the most significant tax deductions for the middle class are related to mortgage interest deductions. These tax benefits cost the government over $130 billion a year, and their benefits flow to the wealthiest 20 percent of Americans. This redistribution of wealth operates as a significant disadvantage to blacks, who have much lower rates of homeownership than whites. Over 70 percent of white families but only 40 percent of blacks own homes, according to the 2016 census.44 Meanwhile, welfare, affordable housing subsidies, and other first-time homeowner initiatives have been gradually cut over the last decades.45
Even though segregation remains a primary driver of racial inequality, virtually no one is fighting it. Blacks are still the most segregated group in the country, and the poorest neighborhoods in America are still usually the blackest. Yet after George Romney’s Open Communities program failed, there has not been a single federal effort to integrate America.46 Walter Mondale, who helped pass the Fair Housing Act in 1968, lamented the total lack of progress on integration in a 2015 interview, calling the failure to integrate “one of the great moral failings of our country."47 A disheartening result of housing segregation is the erosion of the Brown vs. Board of Education mandate.48 The majority of American children today attend de facto segregated schools that have resegregated with the passage of time and the absence of court mandates.49 Even the black middle class lives in neighborhoods that are more disadvantaged than the white middle class. For example, black families earning $75,000 a year typically live in poorer neighborhoods than white Americans earning $40,000.50 As Ta-Nahisi Coates has explained, “As a rule, poor black people do not work their way out of the ghetto—and those who do often face the horror of watching their children and grandchildren tumble back."51
There was reason to hope that the Obama administration would enforce the Fair Housing Act more effectively. Obama selected affordable housing advocate Shaun Donovan as HUD secretary and civil rights advocate John Trasvina as head of the fair housing office within HUD. For the first time since the 1960s, racial segregation was being discussed by a federal policymaker. In several speeches, Donovan gave a forceful rationale for government action to fight segregation, explaining, “Far more often than not, segregation, isolation and poverty don’t occur in spite of government. They happen because of government—by government dollars and government decisions made with government authority.” Under Obama, HUD began by unearthing substantial noncompliance with the agency’s own rules, a finding substantiated by the Government Accountability Office a year later. In fact, it became clear that HUD officials were not even trained to ensure compliance with fair housing requirements. A senior HUD official explained, “There’s a car here and nobody knows how to drive it.”52 The Obama administration, like those before it, chose to focus on litigating housing discrimination.
President Trump has expressed hostility to HUD’s mission, and as a real estate mogul, he was sued by the Justice Department for discriminating against black tenants in his apartment buildings.53 Trump appointed neurosurgeon Ben Carson as HUD secretary, the first African American to hold the position. Dr. Carson, who once remarked that “poverty is really more of a choice than anything else,” has opposed all government measures to oppose segregation, calling them “social engineering” and akin to communism.54 The modern Republican Party opposes the very mission of HUD and the FHA mandate, and has pursued dismantling it. In 2012 integrationist crusader George Romney’s son, Mitt, told a group in Florida that he would consider closing HUD permanently. “I’m going to take a lot of departments in Washington, and agencies, and combine them,” he said. “Things like Housing and Urban Development, which my dad was head of, that might not be around later.”55
Segregation is the reason the financial sting of the economic downturn most acutely affected blacks. Some called the catastrophic effect on black wealth “the largest drain of wealth” ever to befall the black community.56 Former Congressman Brad Miller called the crisis and the resulting loss of wealth “an extinction event” for the black community.57 More than 240,000 black families lost their homes. By 2009, 35 percent of black families had zero or negative wealth.58 According to Eddie Glaude Jr., “by every relevant statistical measure (employment, wages, wealth, etc.) black America has experienced and is experiencing a depression. This is more like the symptoms of a national congenital disease than the flu.”59 It was subprime mortgage lending that swallowed much of this black wealth.
Even as blacks and other minorities were the hardest hit victims of the crisis, they were also blamed by some conservative hardliners for causing it. When the Financial Crisis Inquiry Commission released its definitive report, it determined that the crisis was caused essentially by banks taking too much risk in the pursuit of profit. Commission member Peter Wallison, a senior fellow at the conservative think tank the American Enterprise Institute, dissented from the group and blamed the financial crisis on government policies like the CRA that promoted lending to minorities.60 The claim was that the CRA forced banks to lend to minority communities. The theory has since been parroted by politicians, pundits, and aca-demics.61 Republican congressmen blamed the CRA, stating that “for years Congress has been pushing banks to make risky subprime loans. . . . Congress passed laws that said we’re going to fine you and we’re going to file lawsuits against you lenders if you don’t make risky loans."62 Two of President Trump’s economic advisers explained that the housing crisis was actually caused by the CRA and Bill Cl
inton, who pushed banks to lend unjustifiably into “credit-deprived areas."63 A Fox News commentators remarked, “Look . . . you go all the way back to the Community Reinvestment Act, under Jimmy Carter, expanded under Bill and Hillary Clinton—they put the guns to the banks’ heads, and said, ‘You have got to do these subprime loans.’ . . . That’s what caused this mess."64
Blaming the CRA became code for lending to minorities, and many directed their moral outrage at the “reckless" subprime borrowers. Rick Santelli’s infamous rant on the Chicago trading floor that supposedly started the Tea Party movement was a diatribe against the injustice of hardworking Americans who had to pay for irresponsible debtors who greedily bought homes they could not afford. Santelli shouted, “How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills?" and denounced those being foreclosed on as “losers." The resentment, bearing more than a hint of racial animosity, resonated with many. Research showed that the Tea Party movement itself, ostensibly about government overreach, was directly correlated with a racist backlash.65 This is consistent with Goldwater’s and Nixon’s message associating government largesse with free-loading blacks.
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