The right eloquence needs no bell to call the people together and no constable to keep them. ~ Emerson

Monday, March 23, 2009

The Color of Money

During the 2008 Presidential campaign, many argued forcefully that racism is no longer a significant issue in America. When the Obama campaign complained about what it viewed as a prejudicial remark, it was likely to receive criticism in return for “playing the race card.” During the Reverend Wright controversy, some even suggested the only real racism left was reverse racism by a separatist black minority, with the bulk of white Americans “moved beyond” such hate-filled beliefs and rhetoric.

John McWhorter, an African-American linguist and Senior Fellow at the Manhattan Institute, was not quite willing to declare the end of racism when writing in Forbes magazine last November. Nonetheless, he was quick to dismiss it as something intelligent people need no longer worry about. “The question is whether the total eclipse of racism is either possible or necessary. It is neither and . . . The very fact that the President is now black is a clear sign that it is no longer our main problem and that we can, even as morally informed and socially concerned citizens, admit it.”

Certainly, the Republican opposition, by the end of the campaign, professed itself far more frightened and angered by what it saw as Obama’s socialist proclivities than by the color of his skin. This charge has persisted since Obama took office. He is an enemy of capitalism, a re-distributor of wealth, charge alarmed conservatives.

Even if one agrees that racial divides continue shrinking over the past decades, the gap in wealth is doing just the opposite, growing unchecked at a disturbing rate.

A 2006 analysis by the Economic Policy Institute found the net worth held by the top one percent of households grew from 125 times to 190 times the median wealth in the United States since 1960. Likewise, the net worth held by the top twenty percent of households grew from 15 times to 23 times median wealth over the same period.

Another 2007 study by the University of Michigan study showed the net worth of the top two percentile of American families nearly doubled, from $1.1 million in 1984 to $2.1 million in 2005. Conversely, the bottom quarter of American families ended up with their 2005 net worth below their 1984 net worth, as measured in constant 2005 dollars.

The translation is straightforward but chilling. In America, the land of opportunity, where any poor child can conceivably grow up to become a millionaire or, at the least, any honest, hard-working person can build a better life for their children and themselves, we have become increasingly class-bound, with the rich getting richer and the poor getting poorer.

In recent years, the negative aspects of this trend have become systemic beyond the upper echelons. The net worth of the average American family is less today than it was in 2001.

Doubtless, many assume this gap, no matter how worrisome, has no significant connection to any lingering racism. The invisible hand of free markets is as colorblind as it is colorless, after all.

But then along come the persistent, nagging voices, like the one belonging to Meizhu Lui, a longtime union and community activist, whose current title is Director of the Closing the Racial Wealth Gap Initiative at the Insight Center for Community Economic Development in Oakland California.

Writing in today’s Washington Post, Lui notes the Federal Reserve has just released its 2007 Survey of Consumer Finances. Breaking down the wealth gap by demographics clearly reveals the gap between the wealth of white Americans and African Americans has grown. For every dollar of wealth held by an average white family, an average black family has only one dime, down from twelve cents in 2004.

White families are five times as likely as black families to have bank accounts and access to responsible loan terms. Twenty-four percent of black families do not own a car, as opposed to only seven percent for white families and seventeen percent for Latino families.

There is nothing new about this. Back in 2004, the last time the Fed compiled its survey, with the economy growing positively out of a relatively mild recession, unemployment stood at a little over five for whites but nine percent for African-Americans.

Lui postulates that our society focuses too much on wealth as a function of income rather than as an accumulation of assets. In many cases, improvements in employment (i.e. income level) for impoverished families result in a sudden and dramatic loss of entitlements/assistance. Income goes up a little but expenses go up a lot and negative saving results, with families finding they are further in debt than ever.

This situation has not only been permitted but often encouraged by both government and the financial sector,

The Fed survey found African Americans and other people of color were more than three times as likely as white borrowers to be steered toward high-interest loans, even when they qualified for a prime loan.

A Harvard University study showed that a high-income African American family in Massachusetts was more likely than a low-income white family to get a sub-prime loan.

The University of Michigan study mentioned earlier discovered an eighteen percent drop among black families owning stock from 2003 to 2005, as compared to an only twelve percent drop for white families during the same period. Likewise, short-term debt increased by seven percent among black families as compared to only two percent for white families.

All of this causes Lui to conclude in a recent interview, “So the dirty little secret of our economy is that it has really been built on the debt of ordinary folks.”

About now, some conservatives are probably ready to consign Lui to the ranks of “radical socialist.” Some of her beliefs, such as a higher capital gains tax rate, a more progressive tax system, and a capped mortgage interest deduction available to non-itemizing tax filers, certainly fit that emblem.

However, Lui is also quick to attack those who pressure/criticize state and local officials hesitant to accept their full share of federal bailout money, saying, “There is a need for a lot of education about how the economy works and to get people to understand that sometimes their common sense is actually more correct than what the so-called experts are saying.” While she understands the need for some wealth redistribution, Lui believes the best way to allow communities to start building real assets is to prevent money from flowing out of them, in any form, in the first place.

None of this is to suggest that the wealth gap along racial lines is a result of direct, intentional racism. However, patterns and cycles – even unintentional ones – can be extremely difficult to break and cause extensive damage. Much as we might wish, we cannot judge ourselves solely on our good intentions. We must face up to results achieved as well.

In this light, Lui is sadly on target when she writes, “The overhyped political term ‘post-racial society’ becomes patently absurd when looking at [the] economic numbers.” It should also help us all understand why some African Americans continue to feel a lingering bitterness over racism that has far more immediacy and relevance than old memories of slavery, lynchings, and segregation.

Through a series of aggressive proposed initiatives, President Obama is looking to improve quality and reduce costs for such common daily expenses as heating and fuel, healthcare, and retirement benefits. If successful, these could allow asset accumulation without the need for exorbitant income increases and reverse the long-standing trend of negative savings in this country.

To that extent, perhaps Obama has actually had a “Black agenda” all along. It is only that he is smart enough to realize it is not strictly a black or white issue. Instead, the pertinent color here is the color of money and making sure we are all a little greener in a lasting way.

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