Beyond pandemic’s upheaval, a racial wealth gap endures
By Patricia Cohen
Not since Lyndon B. Johnson’s momen-tous civil rights and anti-poverty legis-lation has an American president so pointedly put racial and economic equity at the center of his agenda.
President Joe Biden’s multitrillion-dollar initiatives to rebuild infrastructure in neglected and segregated neighborhoods, increase wages for health care workers, expand the safety net and make pre-K and college more accessible are all shot through with attention to the particular economic disadvantages that face racial mino-rities. So were his sweeping pandemic relief bill and Inauguration Day executive orders.
Yet as ambitious as such efforts are, aca-demic experts and some policymakers say still more will be needed to repair one of the most stubborn and invidious inequalities: the gap in wealth between Black and white Americans.
Wealth — one’s total assets — is the most meaningful measure of financial strength. Yet for every dollar a typical white household has, a Black one has 12 cents, a divide that has grown over the last half-century. Latinos have 21 cents for every dollar in white wealth.
Such disparities drag down the U.S. eco-nomy as a whole. A study by McKinsey & Co. found that consumption and investment lost because of that gap cost the U.S. economy $1 trillion to $1.5 trillion over 10 years, or 4%-6% of the projected gross domestic product in 2028.
Biden started talking about the wealth di-vide on the campaign trail, calling on the Federal Reserve to take on a new role and “aggressively target persistent racial gaps in jobs, wages and wealth.”
Vice President Kamala Harris and several Democratic senators have supported proposals targeted specifically at the gap — from increa-sing Black homeownership to establishing trust accounts for newborns (“baby bonds”). And senior economic advisers who have joined the Biden team, including Cecilia Rouse and Jared Bernstein, have talked about the need for pro-grams that attack structural inequities, noting that disparities in income over time create more entrenched gaps in wealth.
Heather Boushey, a member of the White House Council of Economic Advisers, said the president’s proposals were intended to work together to make sure that unexpected or tem-porary economic jolts — like the loss of a job — didn’t snowball into a disastrous tumble.
“No one thing alone is going to check the box to close the wealth gap, but the combina-tion of all these things together will make real progress,” said Boushey, who has written frequently about the issue.
Government support is crucial, econo-mists say, because there is so little that indivi-duals can do on their own to close the wealth gap. The most surprising finding that researchers at the Federal Reserve Bank of St. Louis establis-hed after a decadelong study of inequality and financial vulnerability was that no matter what financial decisions you make or schools you at-tend, roughly 80% of those yawning disparities are determined by your skin color, the year you were born and your gender.
“There’s a lot you don’t control,” said Ray Boshara, who headed the research effort. “The-se larger forces really have an impact on your ability to accumulate wealth.”
Imagine playing a game of Monopoly with a set of rigged rules. Your opponent gets $2,000 in cash, rolls with two dice at every turn, and earns $200 every time he circles the board and passes “Go.” You, by contrast, begin with only $1,000, roll with a single die and earn $100 at “Go.”
At the game’s end, you can hand off wha-tever cash and property you’ve accumulated to a friend or family member, and the next round just continues.
The rigged game helps explain the origins of the wealth gap. The heavy hand of a history studded by intimidation and terrifying violence, segregation and unfair housing, zoning and len-ding policies has prevented generations of Black families from gathering assets.
“That’s how we built the racial wealth gap,” said William A. Darity Jr., an economics professor at the Sanford School of Public Policy at Duke University. “Unless you have a compa-rable program focused on building Black wealth, you’re not going to do much about it.”
Unequal outcomes in one generation turn into unequal opportunities in the next. Without assets, Black parents cannot offer as much fi-nancial support to help pay for their children’s education, first home or efforts to start a small business.
Black graduates, for example, have to take out bigger loans to cover college costs, compelling them to start out in more debt — on average $25,000 more — than their white counterparts.
The same house in a Black neighborhood will fetch less money than it would in a white one. A Black worker with the same credentials as a white colleague will earn less. Even among college graduates, the Black jobless rate tends to be twice as high as the rate for whites. Such in-equities operate like an invisible tax on African Americans, a tax on being Black.
The pandemic has underscored how crus-hing unpredictable and uncontrollable twists in circumstances can be. When Congress appro-ved the $1.9 trillion relief plan, Biden pointed out that millions of Americans were jobless and lining up at food banks “through no fault of their own.”
“I want to emphasize that,” he added, “through no fault of their own.”
The pandemic has hit African Americans and Latinos hardest on all fronts, with higher infection and death rates, more job losses, and more business closures. Proposals that confront the wealth gap head on, though, are both expen-sive and politically charged.
Darity of Duke, the co-author of “From Here to Equality: Reparations for Black Ameri-cans in the Twenty-First Century,” has argued that compensating the descendants of Black slaves — who helped build the nation’s wealth but were barred from sharing it — would be the most direct and effective way to reduce the ra-cial wealth gap.
Harris and Sens. Bernie Sanders of Ver-mont, Elizabeth Warren of Massachusetts and Cory Booker of New Jersey have tended to push for asset-building policies that have more po-pular support. They have offered programs to increase Black homeownership, reduce student debt, supplement retirement accounts and esta-blish “baby bonds” with government contribu-tions tied to family income. With these accou-nts, recipients could build up money over time that could be used to cover college tuition, start a business or help in retirement.
Without dedicated funds — the kind of programs that enabled white families to build assets — it won’t be possible for African Ame-ricans to bridge the wealth gap, said Mehrsa Baradaran, a law professor at the University of California, Irvine, and author of “The Color of Money: Black Banks and the Racial Wealth Gap.”
She paraphrased a 1968 presidential cam-paign slogan of Hubert Humphrey’s: “You can’t have Black capitalism without capital.”