The Racial Wealth Gap In The United States Of America
Just over 150 years ago, America was using bills with enslaved people picking cotton on them. These slaves did not just represent wealth in America, they were wealth in America. By 1863, they were worth over 3 billion dollars, which is 83 billion dollars today. Since then, America has overcome racial obstacles and changed as a country, yet the aftermath of slavery is still in effect today and many people’s mindsets have not changed.
The racial wealth gap is the result of past injustices that create present suffering. In the US, the median white house hold’s wealth (savings + assets – debts) is $171,000. The median black house hold’s wealth is $17,600. This difference has a huge effect on the lives of people of color and it keeps growing. In January 1865, the civil war was ending. Union general William Sherman and Secretary of war Edwin Stanton brought together a group of 20 black leaders and asked them what the black community needed to build lives in freedom. Garrison Frazier, the leader of the group said: “The way we can best take care of ourselves is to have land. ” Union general William Sherman issued special field order no. 15 which said, “each family shall have a plot of not more than 40 acres of tillable ground”. This set aside hundreds of thousands of acres of land for people of color. The field order made it to former president Abraham Lincoln and he signed a bill that made it official. America would have been a very different place if this had worked but weeks later, Abraham Lincoln was assassinated. His successor, Andrew Johnson quickly reversed course and by the end of that year, thousands of freed slaves who owned land were evicted. Just a single year after slavery, President Johnson complained about discrimination against white people saying, “in favor of the negro”. Before the end of the civil war, slaves had been creating wealth for their owners for over 246 years. This wealth, white people got to keep and invest with. Wealth grows dramatically across generations. All that is needed is time. If a person invested 100$ in 1863, each year the amount would grow. The average annual inflation-adjust return (US stock market) is about 7%. Today, the 100$ they had invested would be worth more than $3. 5 million. This money would belong to their grandchildren and would help them go to school, buy a house, raise a family and live their lives. While white people did this with the money, they did not earn themselves, people of color did not have this option, and this affects the lives of future generations.
Even if we manage to close the racial wealth gap now, centuries of inequality have already made an effect, mostly through land and housing. For the American middle class, home equity accounts represent 2/3 of wealth. When white Americans bought houses that were worth $14,000 50 years ago, are now worth $119,000. Where you live and what opportunities exist in your community have a lot of power on your life. The government played a huge role in where each person lives and in the division of communities by race. During the great depression, half of all city homeowners were in default. In 1933, Franklin Delano Roosevelt made the new deal which unleashes mortgage credit to the population. The American dream became owning a home but the New Federal Housing Administration wouldn’t insure mortgages in areas it decided were too risky and risk was calculated by race. Whenever a family of color moved into the neighborhood, it was seen as a threat to housing prices. The FHA would draw maps where they would not insure loans. This was called red lining and the neighborhoods with bigger numbers of African American families were literally colored in red. The effects of racism became a justification for more racism. This federally enforced segregation affects every part of life: job access, the school children go to, how safe they were and if the home increased in value. Because home ownership represents 2/3 of America’s middle class wealth, this had a huge effect on people of color’s wealth. It was not until 1968 that housing discrimination was outlawed, but that did not stop it from happening. When people of color wanted to buy a house, real estate agents would only show them homes in African American communities and if there was a house in a white neighborhood, real estate agents would say it was already sold.
Cory Booker’s family went through this treatment and decided to set up an operation with a civils rights group. When the Booker family went to buy a house in a white neighborhood, they were sent away, but when the civils rights group sent a white couple the real estate agent accepted their offer. On the day of closing, the Bookers and their lawyer showed up instead of the white couple. The real estate agent was furious and he attacked the Booker family’s lawyer. Once the real estate agent became desperate, he began begging the Booker family to not move in. He was afraid one black family would move in and it would destroy his business and drive down real estate rates. The Booker family ended up getting the house, which they used to build wealth and to build a future. After 400 years of slavery and then 100 years of discrimination there was a huge homeowner ship gap. In the 1990s, banks and politicians saw this as an opportunity. The government made a push to open up the mortgage market and homeowner ship for people of color started to rise. People of color wanted regular loans that everyone else had. Instead, people of color were twice as likely as white Americans to get subprime loans, a loan that starts out cheap, then becomes much more expensive for borrowers with low credit. But 1/5 of people of color with good credit ended up with a subprime loan.
Beth Jacobson, a former loan officer at Wells Fargo (subprime division), said she heard conference calls where Wells Fargo planned to target African American churches. They were called wealth building seminars and the minister of these churches thought this was a great idea, something to help the parishioners in the community. The bank would give the church a donation for each parishioner who got a mortgage. They did not realize that the loan officer they were talking to would only sell them a subprime loan, even if they had an 800 credits score. This happened less then 30 years ago and housing discrimination was outlawed by then, yet there were still situations like these and housing discrimination continues today. In 2008 during the stock market breakdown, African American communities lost 53% of their wealth, while white communities lost 16%. The people at the highest level of the world of finance would make irresponsible decisions that did not help the minorities.
Today, African American communities are still struggling because of the effects of the stock market breakdown and the effects of slavery, discrimination and segregation. There is no plan or vision for these communities. Wells Fargo denied targeting black borrowers but they agreed to pay 175 million dollars. Unlike in FDR’s new deal, the government’s 440 $ billion programs to address the housing crisis mostly did not go to home owners. In 2019, people have different mindsets and even with the evidence and research, they believe that the racial wealth gap is the product of lazy, irresponsible African Americans and that the wealth gap could be closed simply if they put in more effort. If we had an equity scenario where white people and people of color had the same amount of educational achievement, it would lower the racial wealth gap minimally. Furthermore, white adults who don’t graduate high school, don’t get married before having children, and don’t work full time still have much greater wealth than comparable people of color — and often have more wealth than black households that have married, completed more education, or work longer hours. Among households under age 55, the median white high school dropout has similar wealth to the median African American adult who graduated high school and attended at least some college. These white dropouts that did not receive a diploma or pursued further education do not gain the wealth-building opportunities offered by a college education. White dropouts have advantages like greater access to gifts and inheritances which offer more opportunities to gain and build wealth, even when they have completed less education. This is because white families have accumulated wealth over a history where families of color could not access many wealth-building opportunities. This gives white families generally greater resources to pass on to their descendants. White families having left high school without a diploma and never pursued further education, white dropouts do not gain the wealth-building opportunities offered by a college education.
Yet, advantages such as greater access to gifts and inheritances offer white households more opportunities to gain and build wealth, even when they have completed less education. Because white families accumulated more wealth over a history in which black families were excluded from many wealth-building opportunities through discriminatory policies in housing, banking, education and other areas, white families today have, in general, greater resources to pass on to their offspring. Consequently, white families are 5 times more likely than families of color to receive great gifts and inheritances. The racial wealth gap also causes African American students to borrow at much higher rates and in higher amounts, to receive the same college degrees as white students. The higher rate of borrowing can influence college dropout and completion rates. The white student has less loan debt to pay off, which permits them to start building wealth earlier then African American students.
In conclusion, we must understand that African Americans were wealth for 246 years. For 100 more years, they were victims of legal discrimination which excluded them from building wealth. And studies show discrimination continues today. The racial wealth gap has grown very large over the years and people feel uncomfortable talking about it. It continues to grow because the government policy keeps perpetuating the circumstances for the wealth gap. “Whenever this issue of compensatory or preferential treatment for the Negro is raised, some of our friends recoil in horror. The Negro should be granted equality, they agree; but he should ask for nothing more. On the surface, this appears reasonable, but it is not realistic. For it is obvious that if a man is entered at the starting line in a race three hundred years after another man, the first would have to perform some incredible feat in order to catch up with his fellow runner. ” - Why We Can’t Wait, Martin Luther King Jr.
