Economics of Systemic Racism

These past few weeks of heightened activism highlights that our nation is waking up to the injustices that our communities have faced for decades. Every person with common sense can acknowledge the rawness of the abuse people of color experience in this country, from the ongoing indignities to the extreme violence, like the horrendous killing of George Floyd. Why does racism still exist? Our country has overcome many social, economic, and political barriers, yet racism is still prevalent in our society. Systemic racism, or institutional racism, is a form of racism expressed in the practice of social, economic, and political institutions. Today, African-Americans face continuing disparities in terms of wealth, employment, education, housing, and representation in leadership positions. Much of this is due to the detrimental economic effects of institutional racism.

Photo by Maria Oswalt on Unsplash

The Racial Wealth Gap

But, there is an uneven distribution of wealth within this country between white and Black households. Households with less wealth have less opportunity to improve their quality of life and build generational wealth. Generational wealth is wealth that is grown or preserved as it is passed from generation to generation.

Here is some data from the 2016 Federal Reserve highlighting the significant wealth gap between Black and white Americans:

  • African Americans make up approximately 10 percent of the wealth owned by white America. In 2016, the median wealth for non-retired Black households 25 years old and older was less than one-tenth that of similarly situated white households.[1]
  • The Black-white wealth gap has not recovered from the Great Recession. In 2007, immediately before the Great Recession, the median wealth of Blacks was nearly 14 percent that of whites. Although Black wealth increased at a faster rate than white wealth in 2016, Blacks still owned less than 10 percent of the wealth owned by whites at the median.[2]
  • The wealth gap persists regardless of households’ education, marital status, age, or income. For instance, the median wealth for Black households with a college degree was about 70 percent of the median wealth for white households without a college degree. The gap worsens as households grow older.[3]

Systemic Obstacles

Employment

Housing

Redlining

Decades after the Civil War, many government agencies started to draw maps dividing cities into sections that were either desirable or undesirable for choosing whether to give out loans or not. So when a Black family wanted to buy a house, the banks could deny a loan. If they gave them a loan, it was usually with unfavorable terms. This forced them to live in certain separated neighborhoods, creating a greater divide in affluent areas, and in many instances prevented them from acquiring a home at all.

Despite its illegalization in 1968 under the Fair Housing Act, banks routinely gave subprime loans to hopeful Black homebuyers. This was a process called redlining, and it inhibited access to owning a home and getting a college education — all important for building wealth — for Blacks and other minorities. Redlining essentially barred Blacks and other minorities from economic opportunity and building wealth like their white counterparts by affecting homeownership rates, home values, and credit scores. Since many African-Americans could not access conventional home loans, they had to turn to predatory lenders who charged high interest rates.

Photo by National Geographic: This 1939 map of Los Angeles ranks neighborhoods by desirability, as determined by the Home Owners’ Loan Corporation (HOLC). The scale from most to least desirable goes from green to blue to yellow to red. HOLC maps generally rated poorer or less white neighborhoods as less desirable.

A recent study demonstrated that people of color are told about and shown fewer homes and apartments than whites. Black home ownership, where one completely owns a home without mortgage debt, is now at an all-time low (42%, compared to 72% for whites).[6] This statistic can be explained by the higher interest rates that people of color are charged. Furthermore, the current tax code favors high-income families due to increased tax benefits. So even if African Americans own a house or a retirement savings account, their low-income status favors decreased tax benefits. These are just a few to name, but the list of housing disparities go on.

Education

Healthcare

Recently, the coronavirus has ravaged America’s healthcare system, exploiting the existing racial health disparities. In Michigan, Black people make up 14 percent of the state’s population but account for 41 percent of coronavirus deaths.[12] Similarly, in Illinois, Black people make up 14% of the population, but account for 32.5% of coronavirus deaths, according to the state’s Department of Public Health.[13] In Louisiana, Black people make up about 33% of the population but account for more than 70% of the state’s coronavirus deaths, with the majority of these fatalities taking place in New Orleans.[14] If Blacks are in the minority of these states, then it begs the question: why do they comprise the majority of coronavirus deaths?

Photo by New York City Department of Health and Mental Hygiene

Corporate America’s Current Response

Additionally, JPMorgan Chase is working to promote financial literacy in disadvantaged Black communities through Advancing Black Pathways. — an initiative that builds on their existing efforts to help Black people chart stronger paths towards economic success and empowerment. Through Advancing Black Pathways, JPMorgan Chase works to improve educational opportunities and job readiness for Black students. This includes hiring 4,000 Black students at the firm in roles such as apprenticeships, internships, and post-graduation roles over the next five years.

Photo by Nike’s ‘Don’t Do It’ ad.

Wealth Transfer

“Wealth transfer is exactly what’s needed. Think about this. For 200-plus-years or so of slavery, labor taken with no compensation is a wealth transfer. Denial of access to education — which is a primary driver of accumulation of income and wealth — is a wealth transfer.”

— Robert Johnson

Moreover, well-known entrepreneurs are beginning to act on the scene. Robert Johnson, founder of BET and the first African American to become a billionaire, states that “now is the time to go big” to keep America from dividing into two separate and unequal societies, and demands reparations for slavery. By providing $14 trillion of reparations, he believes that there needs to be a transfer of wealth — Robinhood style. Johnson said reparations sends the signal that white Americans acknowledge owed damages for the systemic racism slavery created and the decades since, and finally put a close to America’s racial wealth gap.[15]

Potential Systemic Solutions

Building savings

  • Improve access to retirement savings, expand opportunities for entrepreneurship.

Reducing debt load and cost

  • Improve access to banking, improve college affordability.

Improving income and employment

  • Adopt fair chance hiring policies.

Final Thoughts: Continuity and Change

“Genealogy itself is something of a privilege, coming far more easily to those of us for whom enslavement, conquest, and dispossession of our land has not been our lot.

— Tim Wise

Families can accumulate wealth over time, creating a better life for the next generation and the next. However, for many years, the ability to gain and preserve wealth was not available to African Americans. Since the beginning of American independence, the American experience for Blacks was largely unjust because of racism. From the start, white plantation owners enslaved Black people for their economic benefits. This left Black people unable to create wealth for their own and future generations. After the Civil war, African Americans found themselves in more labor of sharecropping — a legal plantation system similar to slavery. This left them in a cycle of continual debt.

It has been 150 years since slavery’s abolition. But, America has yet to fully reckon with how to atone for this original sin. With disparities that have existed — slavery, Jim Crow, redlining, school segregation, mass incarceration, environmental racism — past systems have inhibited African Americans from accessing opportunities to grow wealth.

Photo by British Library on Unsplash

The persistent racial wealth gap leaves African Americans in a cycle of economic struggle from one generation to the next; the lack of sufficient wealth and opportunity inhibits economic mobility over time. Although there are ways the country is striving to close the wealth gap such as improved access to higher education (through the practice of affirmative action), that is simply not enough. And although large companies have donated millions to the Black lives matter cause, that is simply not enough. There must be persistent attention to racism and equal wealth creation among races in order to address this blatant inequity in our country. Despite the most painful parts of our history, change is possible — and there is still so much work to do.

Citations

  1. Authors’ calculations based on data in survey year 2016 from Board of Governors of the Federal Reserve System, “Survey of Consumer Finances (SCF),” available at https://www.federalreserve.gov/econres/scfindex.htm (last accessed January 2018). See also Table 1.
  2. Hanks, Angela, et al. “Systematic Inequality.” Center for American Progress, 21 Feb. 2018, www.americanprogress.org/issues/race/reports/2018/02/21/447051/systematic-inequality/.
  3. Economic Policy Institute. “Black Workers Endure Persistent Racial Disparities In Employment Outcomes.” https://www.epi.org/publication/labor-day-2019-racial-disparities-in-employment/. Accessed Feb. 5, 2020.
  4. Abdul Latif Jameel Poverty Action Lab. “Discrimination in the Job Market in the United States.” https://www.povertyactionlab.org/evaluation/discrimination-job-market-united-states. Accessed Feb. 5, 2020.
  5. Marks Jarvis, Gail. “Why Black Homeownership Rates Lag Even as the Housing Market Recovers.” Chicagotribune.com, Chicago Tribune, 3 June 2018, www.chicagotribune.com/business/ct-black-homeownership-plunges-0723-biz-20170720-story.html.
  6. Fiel, Jeremy E. “Decomposing School Resegregation: Social Closure, Racial Imbalance, and Racial Isolation.” American Sociological Review. no. 5 (2013): 1–21. (accessed September 24, 2013).
  7. Duncan, Arne. “Civil Rights Data Collection.” Office for Civil Rights, 21 Mar. 2014, www2.ed.gov/about/offices/list/ocr/docs/crdc-discipline-snapshot.pdf.
  8. Goff, Phillip Atiba, et al. “The Essence of Innocence: Consequences of Dehumanizing Black Children.” American Psychological Association, 2014, www.apa.org/pubs/journals/releases/psp-a0035663.pdf.
  9. staff, Science X. “‘Unconscious’ Racial Bias among Doctors Linked to Poor Communication with Patients.” Medical Xpress — Medical Research Advances and Health News, Medical Xpress, 15 Mar. 2012, medicalxpress.com/news/2012–03-unconscious-racial-bias-doctors-linked.html.
  10. Agency for Healthcare Research and Quality. “National Healthcare Quality and Disparities Report.” https://www.ahrq.gov/sites/default/files/wysiwyg/research/findings/nhqrdr/2018qdr-final.pdf. Accessed Feb. 5, 2020.
  11. “Michigan Data.” Coronavirus — Michigan Data, 8 June 2020, www.michigan.gov/coronavirus/0,9753,7-406-98163_98173---,00.html.
  12. “COVID-19 Statistics.” COVID-19 Statistics | IDPH, 8 June 2020, www.dph.illinois.gov/covid19/covid19-statistics.
  13. Team, WDSU Digital, and Hearst Television Inc. “‘Big Disparity’: 70% of Louisiana’s Coronavirus Deaths Are African Americans, Governor Says.” WDSU, WDSU, 6 Apr. 2020, 9:02 PM, www.wdsu.com/article/covid-19-impacts-in-louisiana-high-death-rate-among-african-americans/32058042#.
  14. Rogers, Taylor Nicole. “BET Founder Robert Johnson Calls for $14 Trillion of Reparations for Slavery.” CNBC, CNBC, 1 June 2020, www.businessinsider.com/bet-founder-robert-johnson-slavery-reparations-george-floyd-murder-protests-2020-6.

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