Racial Wealth Gap
Content
!Topic:!!Wealth! ! What!wealth!is!and!why!it!matters! ! The!term!"wealth"!refers!to!the!total!stock!of!savings!that!an!individual,!or!
family,!possesses!at!any!given!point!in!time.!!It!is!most!commonly!measured!by!net! worth:!!the!value!of!total!assets!minus!debts.!!!Wealth!is!important!because!it! represents!a!pool!of!resources,!beyond!income,!that!individuals!or!families!can!use! to!sustain!themselves!and!to!provide!support!for!their!offspring.!!! For!example,!wealth!can!be!used!to!cushion!any!shocks!that!a!family! experiences.!!When!a!family!has!a!disruption!to!its!normal!income!flow!due!to!a! family!member!suddenly!becoming!unemployed,!the!family!can!use!its!savings!to! tide!itself!over.!!Alternatively,!if!a!family!faces!an!unexpected!and!unavoidable!rise!in! its!expenditures,!often!due!to!someone!needing!medical!attention!for!example,!the! family!can!dip!into!its!savings!if!it!is!unable!to!cover!the!medical!expenses!from!its! income!(see!for!example!Anirudh!Krishna’s!book!entitled!One$Illness$Away!(2010),! which!examines!flows!in!and!out!poverty!in!many!societies!around!the!world!and! finds!that!illness!or!other!health!problems!is!the!most!significant!contributor!to! descent!into!poverty).!!Simply!put,!wealth!and!income!are!quite!different!animals.!! Income!is!a!flow!of!payments!that!comes!to!an!individual!or!family!periodically,! usually!based!on!the!individual's!participation!in!the!labor!market.!!Wealth!is!a!stock! of!assets!that!an!individual!or!family!can!access!(whether!or!not!income!is!being! earned).!!It!is!what!you!"own."!
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As!such!wealth!is!a!primary!indicator!of!economic!security.!!!Moreover,!
wealthy!families!are!better!positioned!to!finance!elite!independent!school!and! college!education!than!other!families.!!Wealthy!families!can!use!preMexisting!savings! to!access!capital!to!start!a!business,!to!purchase!homes!in!"good"!neighborhoods! with!lots!of!amenities,!to!exert!political!influence!through!campaign!financing,!to! purchase!better!counsel!if!confronted!with!the!legal!system,!to!leave!a!bequest,! and/or!withstand!financial!hardship!resulting!from!any!number!of!emergencies.!! The!ways!that!wealth!provides!advantages!to!families!who!have!more!of!it!are! numerous.!!!Yet,!there!is!perhaps!no!other!economic!indicator!in!which!blacks!and! whites!in!the!United!States!are!so!racially!disparate.! ! Inequalities!in!the!distribution!of!wealth! ! Economic!research!consistently!reveals!that!wealth!is!unevenly!distributed!in!
the!United!States.!!When!one!looks!at!the!distribution!of!wealth!by!class!or!race,!one! finds!a!strong!concentration!of!wealth!within!the!hands!of!a!few.!!For!example,! research!by!Ed!Wolff!(2001)!indicates!that!the!richest!20!percent!of!the!population! hold!over!80!percent!of!the!nation's!wealth,!and!that!the!top!1!percent!have!about! 38!percent!of!the!nation's!wealth!(Wolff!2001,!p.!46).!!These!shares!for!the!rich!are! much!larger!than!the!share!of!the!population!share!of!the!rich,!and!one!important! measure!of!wealth!inequality!is!the!extent!to!which!a!given!group's!share!of!the! population!deviates!from!its!share!of!the!nation's!wealth.!!! ! When!examining!wealth!by!race,!one!finds!that!wealth!is!highly!unevenly!
distributed.!!Data!routinely!indicate!that!white!families!possess!substantially!more!
wealth!than!black!families.!!For!example,!before!the!2007!Great!Recession,!data!from! the!2005!Survey!of!Income!and!Program!Participation!(SIPP)!revealed!a!white! household!median!net!worth!of!about!$135,000!and!a!black!household!median!net! worth!of!a!little!over!$12,000.!!The!typical!black!family!had!less!than!9!cents!for! every!dollar!in!wealth!of!the!typical!white!family.!!After!the!Great!Recession,!that!gap! nearly!doubled!with!the!typical!black!family!having!about!a!nickel!for!every!dollar!in! wealth!held!by!the!typical!white!family,!and!in!2009,!the!typical!black!household!had! less!than!$6,000!in!net!worth!(Taylor,!Fry!and!Kochhar,!2011).!!! The!absolute!racial!wealth!gap!exceeds!$100,000.!!The!disparity!is!so! pronounced!that!the!median!black!household!would!have!to!save!100!percent!of! their!income!for!close!to!three!consecutive!years!to!close!the!gap!(Hamilton!and! Darity,!2009).!!Furthermore,!85!percent!of!black!and!Latino!households!have!a!net! worth!below!the!median!white!household!(Kocchar,!2004).!!Regardless!of!age,! household!structure,!education,!occupation!or!income,!black!households!typically! have!less!than!a!quarter!of!the!wealth!of!otherwise!comparable!white!households.!!! Perhaps!even!more!disturbing!the!median!wealth!of!black!families!whose!head! graduated!from!college!is!less!than!the!median!wealth!of!white!families!whose!head! dropped!out!of!high!school!(Gittleman!and!Wolff,!2004).! ! It!is!also!clear!that!the!distribution!of!wealth!is!somewhat!rigid;!that!is!to!say!
the!United!States!does!not!have!a!situation!in!which!many!individuals!are!able!to! move!up!significantly!in!the!wealth!distribution!over!time.!When!examining! transition!matrices!and!individuals'!situations!over!a!15!year!period,!Menchik!and!
Jianakoplos(1997)!find!that!movements!far!up!or!far!down!the!economic!spectrum! are!rare.!!Instead,!individuals!with!low!wealth!tend!to!be!trapped!in!their!positions.!!! ! Other!evidence!suggests!that!wealth!positions!(and!wealth!disadvantages)!
persist!across!generations!(Conley!and!Glauber!2008;!Charles!and!Hurst!2001;! Menchik!1979).!!When!one!looks!at!wealth!crossMgenerationally,!one!finds!a! correlation!in!status.!Racial!disparities,!in!particular,!persist!from!one!generation!to! the!next.!!For!example,!Menchik!(1979)!reports!that!wealthiness!is!so!persistent! across!generations!that!the!elasticity!of!parentMtoMchild!wealth!is!0.759.!!That! suggests!that!if!one!were!to!take!two!parents,!the!Joneses!and!the!Jacksons,!if!the! Joneses!have!twice!as!much!wealth!as!the!Jacksons,!one!can!expect!the!next! generation!of!Joneses!to!have!about!76%!more!wealth!than!the!next!generation!of! Jacksons.!!Furthermore,!Conley!and!Glauber!(2008)!find!that!blacks!in!comparison! to!whites!are!less!likely!to!maintain!high!wealth!class!positions!and!transition!out!of! low!wealth!class!positions!across!both!time!and!generations.! ! Large!racial!disparity!in!wealth!is!not!a!phenomenon!limited!to!the!U.S.!!!For!
example,!Omar!Khan!(2011)!reports!that!in!the!United!Kingdom,!one!of!the!few! European!countries!where!collecting!data!on!ethnicity!is!legal,!60!percent!of!black! and!Asian!households!have!no!savings!in!comparison!33!percent!of!white! households!havw!no!savings.!!In!addition,!based!on!the!UK’s!first!Wealth!and!Asset! Survey!collected!in!2009,!the!average!white!household!has!£221,000!in!assets,!black! Caribbean!households!have!£76,000!(or!about!34!percent!of!white!household! assets),!Bangladeshi!households!have!£21,000!(or!about!10!percent!of!white!
household!assets),!and!black!African!households!£15,000!(or!only!about!seven! percent!of!white!household!assets).!! ! Explanations!of!the!racial!wealth!gap!and!policy!implications! ! Despite!a!longstanding!pattern!of!structural!racial!inequality,!there!is!an!
emergent!narrative!that!historical!racial!barriers!and!resultant!racial!disparities! largely!have!been!eliminated.!!This!narrative!is!coupled!with!the!explanation!that! whatever!racial!disparities!remain!are!largely!the!result!of!actions!(or!inactions)!on! the!part!of!the!subaltern!groupMMin!the!case!of!the!blackMwhite!wealth!gap!the! practices!of!blacks.!!This!discourse!put!forth!by!conservatives,!liberals,!whites!and! blacks!alike,!emphasizes!selfMdetrimental!attitudes!and!behaviors!stemming!from! the!legacy!of!discrimination!and!disproportionate!exposure!to!poverty!within!the! black!community!as!the!main!explanation!for!racial!inequality.!!The!roots!of!this! ideology!can!be!traced,!at!least,!to!the!1965!Moynihan!Report!in!which!black!families! are!characterized!as!being!caught!up!in!a!“tangle!of!pathology”!(Rainwater!and! Yancey,!1967).! ! An!updated!version!of!the!“tangle!of!pathology”!thesis!is!the!“postMracial!
narrative,”!which!asserts!that!society!has!transcended!the!racial!divide,!and!that!if! blacks!would!adjust!their!selfMsabotaging!attitudes!and!behaviors!their!lot!in!life! would!dramatically!change!(Hamilton!and!Darity,!2009).!!For!wealth,!this!narrative! is!particularly!troublesome!given!the!fact!that!it!is!accumulated!over!timeMMmeaning! the!past!can!exert!a!strong!influence!over!the!present.!
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So!how!does!the!postMracial!narrative!explain!the!racial!wealth!gap,!and!the!
fact!that!this!so!called!black!middle!class!radically!shrinks!when!wealth!is!used!as! the!indicator!of!class!position?!!! ! Wealth!provides,!perhaps,!the!best!evidence!to!dispel!the!myth$of!a!postM
racial!society!in!which!the!systematic!barriers!of!racial!disparity!have,!for!the!most! part,!been!eliminated,!and!that!the!remaining!source!of!racial!inequality!are!the! result!of!poor!choices!on!the!part!of!blacks!themselves.!!! ! The!conventional!wisdom!incorrectly!explains!the!persistence!of!this!massive!
racial!wealth!gap!across!virtually!all!class!categories,!based!on!three!main! mechanisms.!!First,!in!search!of!immediate!gratification!blacks!are!presumed!to!be! less!frugal!when!it!comes!to!saving.!!But!the!empirical!evidence!indicates!that!it!has! not!historically!been!the!case,!nor!is!it!now!the!case!that!blacks!are!more!profligate! than!whites.!!Economists!ranging!from!the!conservative!Milton!Friedman!to! Marjorie!Galenson!to!a!founder!of!the!Caucus!of!Black!Economists,!Marcus!Alexis,!all! have!found!that,!after!accounting!for!household!income,!blacks!have!a!slightly!higher! savings!rate!than!whites.!!! More!recently,!Gittleman!and!Wolff!(2004)!use!longitudinal!data!from!the! Panel!Study!on!Income!Dynamics!(PSID)!to!compare!components!of!the!rates!of! wealth!growth!for!black!and!white!households!from!the!decade!of!1984!to!1994.!! Consistent!with!the!earlier!studies,!they!confirm!that!the!savings!component!of! wealth!reveals!a!slight!savings!edge!for!black!households,!again!after!adjusting!for! household!income.!!This!mild!savings!rate!advantage!is!actually!indicative!of!even! greater!black!frugality!because!blacks!who!attain!higher!incomes!typically!have!a!
greater!array!of!kin!and!family!obligations!assisting!lowMincome!relative!to!whites,! further!reducing!their!resources!to!save!(Chiteji!and!Hamilton,!2002;!and!Heflin!and! Patillo,!2000).!! ! In!addition!to!increases!due!to!new!saving!out!of!income,!!household!wealth!
can!increase!if!the!value!of!assets!held!rise!(i.e.!an!increase!in!asset!prices).!!As!such,! the!second!conventional!explanation!for!the!wealth!gap!is!the!claim!that!inferior! black!portfolio!management!has!resulted!in!lower!asset!returns!for!their!group.!! However,!similar!to!the!case!for!savings,!Gittleman!and!Wolff!(2004),!using!data!that! predates!the!predatory!subprime!and!mortgage!market!crisis,!find!no!significant! racial!advantage!in!asset!appreciation!rates!for!white!families!with!positive!assets,! again,!once!household!income!is!controlled.!!! This!provides!yet!another!example,!in!which!the!conventional!explanations,! namely!that!blacks!possess!a!lower!financial!acumen,!is!not!empirically!supported.!!! Indeed,!the!finding!that!white!families!whose!head!dropped!out!of!high!school!have! higher!median!wealth!than!heads!of!black!families!with!a!college!degree!indicates! that!not!even!a!college!degree!shields!black!families!from!low!levels!of!asset! accumulation.! ! In!addition!to!being!more!profligate!and!possessing!low!financial!acumen,!the!
conventional!wisdom!also!attributes!the!racial!wealth!gap!to!a!deficient! entrepreneurial!spirit!on!the!part!of!blacks.!!Proponents!of!this!discourse!tend!to! focus!on!successful!entrepreneurial!immigrants!as!examples!of!“model!minorities”! that!blacks!should!emulate.!!!
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Although!it!is!the!case!that!Asian!Immigrants!in!general!have!substantially!
more!business!assets!than!blacks,!careful!examination!by!Tim!Bates!(1997),!William! Darity!(2007;!2009),!Vicki!Bogan!and!William!Darity!(2008),!and!Masao!Suzuki! attribute!this!advantage!to!higher!levels!!of!initial!financial!capital,!and!selectivity! associated!with!immigration,!rather!than!some!group!based!“model!minority”! entrepreneurial!behavioral.! ! Migration!is!not!a!random!occurrence,!which!leads!to!selection!advantages!
associated!with!immigration.!!These!selectivity!advantages!are!exhibited!by!three! comparisons.!!First,!entrepreneurially!successful!immigrant!groups!enjoy!initial! financial!and!human!capital!advantages!over!their!nonMmigrating!countrymen.!! Second,!these!selective!immigrants!are!also!more!likely!to!engage!in!entrepreneurial! activity!than!their!U.S.!born!ancestral!linked!peers,!who!presumably!have!similar! cultural!orientations.!!Finally,!there!are!varying!degrees!of!success!amongst!Asian! immigrant!groups,!and!this!success!is!correlated!with!group!level!financial!and! human!capital!upon!U.S.!entry.! ! In!fact,!financial!capital!might!be!the!key!ingredient!to!start!a!successful!
business.!!SeventyMseven!percent!of!firms!with!employees!and!59!percent!of!sole! proprietors!report!that!using!personal!or!family!assets!to!start!their!business.!!Yet,! from!1979!to!1987,!29!percent!of!black!firms!started!with!no!financial!capital,! whereas!only!16!percent!of!Asian!Immigrant!firms!were!launched!with!no!financial! capital.!!This!figure!is!even!substantially!lower!than!the!white!rate!of!23!percent.!! ! The!result!is!a!very!low!ownership!of!business!assets!on!the!part!of!blacks.!!In!
2002,!blacks!made!up!about!12!percent!of!the!population,!less!than!five!percent!of!
nonMpublicly!traded!firms!were!black!owned!and!these!firms!collectively!received! less!than!one!percent!of!total!business!receipts.!!In!contrast,!nonMLatino!whites! represented!about!68!percent!of!the!population,!owned!about!83!percent!of!all! firms,!and!93!percent!of!nonMpublically!traded!business!receipts.!! ! Tamara!Nopper!(2009)!documents!a!dramatic!reduction!in!the!share!and!
value!of!Small!Business!Administration!loans!since!1980,!which!she!characterizes!as! resulting!from!a!policy!shift!in!the!U.S.!Small!Business!Administration!(SBA).!!She! attribute!at!least!part!of!this!decline!to!the!administrations!movements!away!from! specific!targets!for!black!borrowers!to!a!more!aggregate!targeting!that!includes! women!and!all!minority!groups.!!The!result!has!been!a!shift!in!lending!away!from!! blacks.!!!Of!all!the!SBA!loans!distributed!to!minorities!in!1980,!roughly!40!percent!of! the!loans!and!40!percent!of!the!total!dollar!amounts!of!these!loans!were!directed!to! black!borrowers.!!However,!by!2006,!black!borrowers!received!only!about!21! percent!of!all!loans!and!10!percent!of!the!total!amount!of!funds!distributed.!!! ! Nopper!(2009)!also!attributes!the!relative!decline!in!black!lending!to!a!Small!
Business!Administration!policy!shift!from!direct!lending!to!the!use!of!banks!as! intermediaries!via!loan!guarantees.!!Black!borrowers!conceivably!had!better!access! to!finance!as!a!result!of!more!relaxed!SBA!collateral!and!credit!requirements,!which,! even!with!loan!guarantees,!may!not!have!been!offered!by!commercial!lenders.!!! ! Another!issue!with!the!use!of!bank!intermediaries!is!the!relative!shortage!of!
black!banks.!!In!a!report!produced!at!the!end!of!2008,!the!FDIC!identified!a!total!of! 44!black!banks!with!$7.5!billion!in!assets!and!96!Asian!and!Pacific!Islander!banks! with!a!total!of!$53!billion!in!assets.!!Since!ethnic!banks!disproportionately!service!
coMethnic!borrowers!and!coMethnic!communities,!the!given!underrepresentation!of! black!banks,!and!reliance!of!banks!to!identify!borrowers!and!distribute!loans,! creates!a!structural!impediment!to!black!business!creation!and!growth.!!! ! In!sum,!the!relative!success!of!certain!immigrant!groups!in!business!relative!
to!blacks!is!more!indicative!of!a!greater!access!to!financial!capital,!selectivity! characteristics!associated!with!immigration!itself,!along!with!the!shift!in!SBA!loan! administration,!rather!than!some!so!called!deficient!entrepreneurial!spirit!or! cultural!orientation!towards!business!amongst!blacks.!!! ! Finally,!given!the!vast!majority!of!households!that!do!not!own!any!business!
equity,!entrepreneurship!!may!have!limitations!has!a!pathway!to!substantially! reduce!racial!differences!in!household!wealth!!!For!example!Taylor,!Fry!and!Kochhar! (2011)!estimate!that!in!2009!the!12!percent!white!rate!of!business!equity! represented!the!highest!rate!of!any!racial/ethnic!group!(the!comparable!figure!for! blacks!was!only!six!percent).!!So,!although!closing!the!racial!business!equity!gap!may! be!a!social!equity!goal,!its!practical!implications!for!closing!the!overall!racial!wealth! gap!is!limited.! ! So!if!the!empirical!evidence!does!not!support!the!conventional!postMracial!
narrative!that!blacks!are!more!profligate,!possess!a!lower!financial!acumen,!and!a! lower!entrepreneurial!spirit!than!their!more!wealth!white!counterparts,!what!does! explains!the!racial!wealth!gap?!! ! Careful!economic!studies!actually!demonstrate!that!inheritances,!bequests!
and!intraMfamily!transfers!account!for!more!of!the!racial!wealth!gap!than!any!other! demographic!and!socioeconomic!indicators!including!education,!income!and!
household!structure!(see!for!example,!Blau!and!Graham,!1990;!Menchik!and! Jianakoplos,!1997;!Gittleman!and!Wolff,!2004).!!These!intraMfamilial!transfers,!the! primary!source!of!wealth!for!most!Americans!with!positive!net!worth,!are!transfers! of!blatant!nonMmerit!resources.!!So,!why!haven’t!blacks!been!able!to!amass!more! resources!to!transfer!across!generations?!!! ! In!addition!to!the!national!failure!to!endow!black!exMslaves!with!the!
promised!forty!acres!and!a!mule!after!the!Civil!War,!blacks!were!deprived! systematically!of!property,!especially!land,!accumulated!between!1880!and!1910!by! government!complicity,!fraud,!and!seizures!by!white!terrorists.!During!the!first! three!decades!of!the!twentieth!century!prosperous!black!communities!and!the! associated!property!literally!was!destroyed!by!white!rioters!in!communities!ranging! from!Wilmington,!North!Carolina!to!Tulsa,!Oklahoma!(Darity!and!Frank!2003,!Darity! 2008).!!The!historical!use!of!restrictive!covenants,!redlining,!and!general!housing! and!lending!discrimination!were!also!factors!that!inhibited!blacks!from! accumulating!wealth!(Oliver!and!Shapiro,!2006;!and!Katznelson,!2005).!! Furthermore,!Oliver!and!Shapiro!and!Katznelson!in!separate!studies!document! exclusion!of!blacks!from!postMdepression!and!World!War!II!public!policy,!which!are! largely!responsible!for!the!asset!development!of!an!American!middle!class!(e.g.! racially!discriminatory!local!implementation!of!a!FHA!loans!and!G.I.!Bill!benefits).! ! The!biased!treatment!of!blacks!in!asset!markets!is!not!limited!to!the!past.!!For!
example,!a!February!(2009)!report!on!mortgage!lending!and!race!conducted!by!the! Institute!on!Race!and!Poverty!at!the!University!of!Minnesota!finds!that!black!Twin! Cities!residents!in!the!highest!earning!categories!(above!$150,000)!were!twice!as!
likely!to!be!denied!a!home!loan!as!compared!to!whites!in!the!lowest!earning! category!(below!$40,000).!!It!is!also!the!case!that!among!those!fortunate!(or! unfortunate)!enough!to!actually!get!a!loan,!high!earning!blacks!were!more!than! three!times!as!likely!to!be!offered!a!subprime!loan!than!low!earning!whites.!!! ! This!evidence!of!racially!predatory!lending!is!not!limited!to!the!Twin!Cities.!!
For!example,!Bocian,!Li!and!Ernst!(2010)!report!that!in!2007,!30.6!percent!of!home! loans!to!black!families!with!earnings!below!their!metropolitan!area!median!was! subprime,!while!the!comparable!figure!for!similarly!situated!white!families!was!16.1! percent.!!On!the!flip!side,!33.5!percent!of!home!loans!to!black!families!above!the! metro!area!median!were!subprime,!while!the!figure!for!whites!was!10.5!percent.!! Thus,!race!seems!to!be!a!better!predictor!than!income!of!subprime!loan!receipt.!!The! same!study!revealed!that,!from!2007!to!2009,!black!families!were!twice!as!likely!as! white!families!to!experience!a!home!loan!foreclosure.! ! So!what!can!be!done!about!the!persistent!and!enormous!racial!wealth!gap?!!
Private!action!alone!is!insufficient;!the!most!efficient!way!would!be!carefully! targeted!race!based!policies.!!If!it!is!the!case!that!such!policies!are!becoming! increasingly!politically!unfeasible!–!especially!in!the!context!of!the!post!racial! rhetoric!that!shifts!the!social!responsibility!of!racial!disparities!away!from!the!public! and!towards!blacks!themselves!–!then!we!need!a!shift!to!more!dramatic!and!bold! policies!that!lead!to!economic!security,!mobility!and!sustainability!for!all!Americans.!!! ! Hamilton!and!Darity!(2010)!have!proposed!a!substantial!child!trust!account!
(or!“baby!bond”!program,!a!phrase!coined!by!the!famed!African!American!scholar! Manning!Marable).!These!accounts!are!designed!to!provide!an!opportunity!for!asset!
development!for!all!newborns!regardless!of!the!financial!position!in!which!they!are! born.!!The!advantages!of!wealth!in!our!society!are!clear.!!Since!about!85!percent!of! black!families!have!a!net!worth!below!the!median!household,!it!is!also!clear!that!the! vast!majority!of!the!nation’s!wealth,!along!with!the!associated!opportunities! stemming!from!this!wealth!are!skewed!heavily!towards!a!relative!few,!who!are! predominantly!white.!Yet,!even!among!only!white!families,!less!than!10!percent!of! families!hold!more!than!50!percent!of!total!white!wealth.! ! The!baby!bonds!would!set!up!trusts!for!75!percent!of!all!newborns!(it!would!
be!straightforward!to!make!the!program!universal!for!all!newborns)!with!an! average!account!of!$20,000!that!progressively!rise!to!$60,000!for!babies!born!into! the!most!wealth!poor!families.!!The!accounts!would!grow!at!a!federally!guaranteed! annual!interest!rate!of!1.5M2!percent.!The!accounts!could!be!accessed!when!the!child! becomes!an!adult!and!used!for!some!assetMenhancing!endeavor!such!as!purchasing!a! home,!or!starting!a!new!business.!! ! If!threeMquarters!of!the!roughly!4!million!babies!born!per!year!were!eligible!
for!an!average!trust!of!$20,000!or!if!all!4!million!new!borns!were!eligible!for!an! average!trust!of!$15,000,!a!crude!estimate!of!the!cost!of!the!program!would!amount! to!about!$60!billion!a!year.!!This!cost!could!be!fully!funded!based!on!a!fraction!of! what!the!federal!government!already!spends!on!asset!enhancing!activities.!!! A!2004!report!by!the!Corporation!for!Enterprise!Development!(CFED)! estimates!that!the!federal!government!allocated!$335!billion!of!its!2003!budget!in! the!form!of!tax!subsidies!and!savings!to!promote!asset!development!policies.!!!The! bulk!of!this!allocation!comes!from!items!like!mortgage!interest!deductions,!
exclusion!of!investment!income!on!life!insurance!and!annuity!contracts,!reduced! rates!of!tax!on!dividends!and!longMterm!capital!gains,!and!exclusion!of!capital!gains! at!death.!!The!total!allocation,!which!is!about!15!times!higher!than!what!is!spent!by! department!of!education,!does!not!include!subsidies!or!tax!breaks!given!to! corporations!nor!funds!from!state!and!local!level!policies.!!An!updated!version!of! this!report!estimates!the!assetMbuilding!allocation!at!close!to!$400!billion!with!more! than!half!of!the!benefits!going!to!the!top!5!percent!of!earners.! ! At!issue!is!not!the!amount!that!was!allocated,!but!to!whom!the!allocation!is!
distributed.!The!top!1!percent!of!earners,!those!typically!earning!over!$1!million! dollars!a!year,!received!about!oneMthird!of!the!entire!allocation,!while!the!bottom!60! percent!of!earners!received!only!five!percent.!!If!the!federal!asset!promotion!budget! where!allocated!in!a!more!progressive!manner,!federal!policies!could!be! transformative!for!low!income!Americans!(see!Sherraden,!1991).!!The!baby!bonds! proposal!provides!a!far!more!progressive,!opportunityMenhancing!that!is!a!lot!less! expensive!program!than!many!of!the!asset!tax!policies!already!in!existence.!! ! Given!this!strikingly!uneven!distribution!of!wealth!and!the!importance!of!
wealth!in!providing!economic!security!and!enhanced!lifeMchances,!a!baby!bonds! program!would!represent!a!needed!shift!in!public!policy!that!could!provide!assetM building!opportunities!for!all!Americans.!!Indeed,!with!wealth!so!unevenly! distributed!along!racial!lines,!the!baby!bonds!proposal!could!go!a!long!way!towards! eliminating!the!racial!wealth!gap.! ! Despite!the!strong!empirical!evidence!to!the!counter,!the!emergent!narrative!
of!racial!inequality,!which!has!evolved!from!the!Moynihan!report,!is!one!that!
emphasizes!deficient!norms,!values!and!behaviors!on!the!part!black,!and!what! William!Ryan!categorized!over!40!years!ago!as!simply!Blaming$the$Victim.!!! ! !To!truly!become!a!society!consistent!with!the!most!comprehensive!norms!of!
postMracial!society,!the!United!States!needs!to!get!beyond!the!unsubstantiated! rhetoric,!and!get!to!the!business!of!eliminating!the!transmission!of!racial!economic! advantage!or!disadvantage!across!generations.!!Public!provision!of!a!substantial! trust!fund!for!newborns!from!wealth!poor!families!would!go!a!long!way!towards! achieving!this!American!ideal!and!provides!asset!building!opportunities!and!access! to!economic!security!for!all!regardless!of!race.! ! Darrick!Hamilton! Associate!Professor! Milano!School!of!International!Affairs,!Management!and!Urban!Policy! The!New!School! New!York,!NY! ! Ngina!Chiteji! Associate!Professor! Department!of!Economics! Skidmore!College! Saratoga!Springs,!NY! !
References! ! Alexis,!Marcus.!1971.!“Some!NegroMWhite!Differences!in!Consumption.”!in!The$ Black$Consumer,!edited!by!George!Joyce!and!Norman!A.P.!Govoni,!257–274.!!New! York:!Random!House.! ! Bates,!Timothy.!1997.$$Race,$self>employment,$and$upward$mobility.!Washington,!DC:! The!Woodrow!Wilson!Center;!1997.! ! Blau,!Francine,!and!John!Graham.!1990.!“Black!White!Differences!in!Wealth!and! Asset!Composition.”!Quarterly$Journal$of$Economics!105!(2):!321–339.! ! Bogan,!Victoria,!and!William!Darity,!Jr!.!!2008.!!“Culture!and!entrepreneurship?! African!American!and!immigrant!selfMemployment!in!the!United!States”!Journal$of$ Socio>Economics.!37:1999–2019.! ! Chiteji,!Ngina,!and!Darrick!Hamilton.!!2002.!!“Family!Connections!and!the!BlackM White!Wealth!Gap!Among!the!Middle!Class”!Review$of$Black$Political$Economy,! 30(1):9M27.!! ! Conley,!Dalton,!and!Rebecca!Glauber.!!2008.!!“Wealth!Mobility!and!Volatility!in!Black! and!White”!Washington,!DC:!Center$for$American$Progress!! !
Corporation!for!Enterprise!Development.!!2004.!!“Hidden!in!Plain!Sight:!A!Look!at! the!$335!Billion!Federal!Asset!Building!Budget”!Washington,!DC:!Corporation$for$ Enterprise$Development! ! Darity,!William!Jr.,!and!Dania!Frank.!2003.!‘‘The!Economics!of!Reparations,’’! American$Economic$Review!93(2):326–29.! ! Darity,!William!Jr.!!2005.!!“Stratification!Economics:!The!Role!of!Intergroup! Inequality,”!Journal$of$Economics$and$Finance!29(2):144M153.! ! Darity,!William!Jr.!!2008.!“Forty!Acres!and!a!Mule!in!the!21st!Century,”!Social$Science$ Quarterly!89(3):656M64.! ! Darity,!Jr.,!and!Darrick!Hamilton.!2012.!!“Bold!Policies!for!Economic!Justice”!Review$ of$Black$Political$Economy.!!Published!onMline!(forthcoming!in!print!edition).! ! Darity,!Jr.,!William,!and!Darrick!Hamilton.!!October!30,!2009.!!“Bernanke!Ignores! History!of!Black!and!White!Wealth!Rift”!!The$Grio$ (http://thegrio.com/2009/10/30/bernanke>ignores>history>of>black>and>white> wealth>rift/)$ ! Friedman,!Milton.!1957.!!A$Theory$of$the$Consumption$Function.!Princeton:!Princeton! University!Press.!
! Galenson,!Marjorie.!1972.!“Do!Blacks!Save!More?”!American$Economic$Review! LXII!(March):!211–216.! ! Gittleman,!Maury,!and!Edward!N.!Wolff.!!2004.!!“Racial!Differences!in!Patterns!of! Wealth!Accumulation,”!The$Journal$of$Human$Resources$39(1):193>227.$ ! Hamilton,!Darrick,!Algernon!Austin,!and!William!Darity,!Jr.!!2011.!!“Occupational! Segregation!and!the!Lower!Wages!of!Black!Men!“!Economic$Policy$Institute$Briefing$ Paper$#$288,$$Washington!DC:!Economic!Policy!Institute.! ! Hamilton,!Darrick,!and!William!Darity,!Jr.!!September/October!2009.!!“Race,!Wealth,! and!Intergenerational!Poverty:!There!will!never!be!a!postMracial!America!if!the! wealth!gap!persists”!!The$American$Prospect!(http://prospect.org/article/race> wealth>and>intergenerational>poverty)! ! Hamilton,!Darrick,!and!William!Darity,!Jr.!!2010.!!“Can!‘Baby!Bonds’!Eliminate!the! Racial!Wealth!Gap!in!Putative!PostMRacial!America?”!Review$of$Black$Political$ Economy,!37(3,4):207M216.! ! Heflin,!Colleen!M.,!and!Mary!PattilloMMcCoy.!2000.!“Kin!Effects!on!BlackMWhite! Account!and!Home!Ownership,”!Sociological$Inquiry!72(2):!220M239.! !
Institute!on!Race!and!Poverty,!2009.!Communities$in$Crises:$Race$and$Mortgage$ Lending$in$the$Twin$Cities.$Report.!University!of!Minnesota.! ! Kahn,!Omar.!April!8,!2011.!“The!Racial!Wealth!Gap:!Not!Just!an!American!Problem,”! Reuters,$Edition$UK,$The$Great$Debate$UK$$(http://blogs.reuters.com/great>debate> uk/2011/04/08/the>racial>wealth>gap>not>just>an>american>problem/)$ $ Katznelson,!Ira.!2005.!When$Affirmative$Action$Was$White.!New!York:!W.W.!Norton! and!Company! ! Kocchar,!Rakesh.!2004.!“The!Wealth!of!Hispanic!Households,”!Washington,!DC:!Pew! Hispanic!Center.! ! Krishna,!Anirudh.!!2010.!!One$Illness$Away.$$Oxford:!Oxford!University!Press.! ! Menchik,!Paul,!and!Nancy!Ammon!Jianakoplos.!1997.!!“BlackMWhite!Wealth! Inequality:!Is!Inheritance!the!Reason?”!!Economic$Inquiry!35(2):428–442.!! ! Munnell,!Alicia!H.!and!Christopher!Sullivan.!2009.!!“401(k)!Plans!and!Race.”!!Center$ for$Retirement$Research$at$Boston$College.!!Issue!Brief!No.!9M24.! ! Nopper,!Tamara.!2009.!“The!Globalization!of!Korean!Banking!and!Korean!Immigrant! Entrepreneurship!in!the!United!States.”!Race,$Gender$&$Class!!16(3/4).!
! Oliver,!Melvin,!and!Thomas!Shapiro.!2006.!Black$Wealth/White$Wealth,!2nd!Ed.!New! York:!Routledge.! ! Rainwater,!Lee!and!William!Yancey.!1967.!!The$Moynihan$Report$and$the$Politics$of$ Controversy.$!Cambridge:!M.I.T.!Press.! ! Ryan,!William.!1976.!Blaming$the$Victim.!!New!York:!!Vintage!Books.$! ! Sherraden,!Michael.!1991.!!Assets$and$the$Poor:$A$New$American$Welfare!Policy.!New! York:!Vintage!Books.! ! Taylor,!Paul,!Rakesh!Kochhar,!and!Richard!Fry.!!2011.!!“Wealth!Gaps!Rise!to!Record! Highs!Between!Whites,!Blacks!and!Hispanics.”!!Washington,!DC:!Pew!Hispanic! Center.! ! Woo,!Beadsie,!Ida!Rademacher,!and!Jillien!Meier.!!2010.!!“Upside!Down:!The!$400! Billion!Federal!AssetMBuilding!Budget”!!Baltimore,!MD:!Anne!E.!Casey!Foundation.! !
family,!possesses!at!any!given!point!in!time.!!It!is!most!commonly!measured!by!net! worth:!!the!value!of!total!assets!minus!debts.!!!Wealth!is!important!because!it! represents!a!pool!of!resources,!beyond!income,!that!individuals!or!families!can!use! to!sustain!themselves!and!to!provide!support!for!their!offspring.!!! For!example,!wealth!can!be!used!to!cushion!any!shocks!that!a!family! experiences.!!When!a!family!has!a!disruption!to!its!normal!income!flow!due!to!a! family!member!suddenly!becoming!unemployed,!the!family!can!use!its!savings!to! tide!itself!over.!!Alternatively,!if!a!family!faces!an!unexpected!and!unavoidable!rise!in! its!expenditures,!often!due!to!someone!needing!medical!attention!for!example,!the! family!can!dip!into!its!savings!if!it!is!unable!to!cover!the!medical!expenses!from!its! income!(see!for!example!Anirudh!Krishna’s!book!entitled!One$Illness$Away!(2010),! which!examines!flows!in!and!out!poverty!in!many!societies!around!the!world!and! finds!that!illness!or!other!health!problems!is!the!most!significant!contributor!to! descent!into!poverty).!!Simply!put,!wealth!and!income!are!quite!different!animals.!! Income!is!a!flow!of!payments!that!comes!to!an!individual!or!family!periodically,! usually!based!on!the!individual's!participation!in!the!labor!market.!!Wealth!is!a!stock! of!assets!that!an!individual!or!family!can!access!(whether!or!not!income!is!being! earned).!!It!is!what!you!"own."!
!
!
As!such!wealth!is!a!primary!indicator!of!economic!security.!!!Moreover,!
wealthy!families!are!better!positioned!to!finance!elite!independent!school!and! college!education!than!other!families.!!Wealthy!families!can!use!preMexisting!savings! to!access!capital!to!start!a!business,!to!purchase!homes!in!"good"!neighborhoods! with!lots!of!amenities,!to!exert!political!influence!through!campaign!financing,!to! purchase!better!counsel!if!confronted!with!the!legal!system,!to!leave!a!bequest,! and/or!withstand!financial!hardship!resulting!from!any!number!of!emergencies.!! The!ways!that!wealth!provides!advantages!to!families!who!have!more!of!it!are! numerous.!!!Yet,!there!is!perhaps!no!other!economic!indicator!in!which!blacks!and! whites!in!the!United!States!are!so!racially!disparate.! ! Inequalities!in!the!distribution!of!wealth! ! Economic!research!consistently!reveals!that!wealth!is!unevenly!distributed!in!
the!United!States.!!When!one!looks!at!the!distribution!of!wealth!by!class!or!race,!one! finds!a!strong!concentration!of!wealth!within!the!hands!of!a!few.!!For!example,! research!by!Ed!Wolff!(2001)!indicates!that!the!richest!20!percent!of!the!population! hold!over!80!percent!of!the!nation's!wealth,!and!that!the!top!1!percent!have!about! 38!percent!of!the!nation's!wealth!(Wolff!2001,!p.!46).!!These!shares!for!the!rich!are! much!larger!than!the!share!of!the!population!share!of!the!rich,!and!one!important! measure!of!wealth!inequality!is!the!extent!to!which!a!given!group's!share!of!the! population!deviates!from!its!share!of!the!nation's!wealth.!!! ! When!examining!wealth!by!race,!one!finds!that!wealth!is!highly!unevenly!
distributed.!!Data!routinely!indicate!that!white!families!possess!substantially!more!
wealth!than!black!families.!!For!example,!before!the!2007!Great!Recession,!data!from! the!2005!Survey!of!Income!and!Program!Participation!(SIPP)!revealed!a!white! household!median!net!worth!of!about!$135,000!and!a!black!household!median!net! worth!of!a!little!over!$12,000.!!The!typical!black!family!had!less!than!9!cents!for! every!dollar!in!wealth!of!the!typical!white!family.!!After!the!Great!Recession,!that!gap! nearly!doubled!with!the!typical!black!family!having!about!a!nickel!for!every!dollar!in! wealth!held!by!the!typical!white!family,!and!in!2009,!the!typical!black!household!had! less!than!$6,000!in!net!worth!(Taylor,!Fry!and!Kochhar,!2011).!!! The!absolute!racial!wealth!gap!exceeds!$100,000.!!The!disparity!is!so! pronounced!that!the!median!black!household!would!have!to!save!100!percent!of! their!income!for!close!to!three!consecutive!years!to!close!the!gap!(Hamilton!and! Darity,!2009).!!Furthermore,!85!percent!of!black!and!Latino!households!have!a!net! worth!below!the!median!white!household!(Kocchar,!2004).!!Regardless!of!age,! household!structure,!education,!occupation!or!income,!black!households!typically! have!less!than!a!quarter!of!the!wealth!of!otherwise!comparable!white!households.!!! Perhaps!even!more!disturbing!the!median!wealth!of!black!families!whose!head! graduated!from!college!is!less!than!the!median!wealth!of!white!families!whose!head! dropped!out!of!high!school!(Gittleman!and!Wolff,!2004).! ! It!is!also!clear!that!the!distribution!of!wealth!is!somewhat!rigid;!that!is!to!say!
the!United!States!does!not!have!a!situation!in!which!many!individuals!are!able!to! move!up!significantly!in!the!wealth!distribution!over!time.!When!examining! transition!matrices!and!individuals'!situations!over!a!15!year!period,!Menchik!and!
Jianakoplos(1997)!find!that!movements!far!up!or!far!down!the!economic!spectrum! are!rare.!!Instead,!individuals!with!low!wealth!tend!to!be!trapped!in!their!positions.!!! ! Other!evidence!suggests!that!wealth!positions!(and!wealth!disadvantages)!
persist!across!generations!(Conley!and!Glauber!2008;!Charles!and!Hurst!2001;! Menchik!1979).!!When!one!looks!at!wealth!crossMgenerationally,!one!finds!a! correlation!in!status.!Racial!disparities,!in!particular,!persist!from!one!generation!to! the!next.!!For!example,!Menchik!(1979)!reports!that!wealthiness!is!so!persistent! across!generations!that!the!elasticity!of!parentMtoMchild!wealth!is!0.759.!!That! suggests!that!if!one!were!to!take!two!parents,!the!Joneses!and!the!Jacksons,!if!the! Joneses!have!twice!as!much!wealth!as!the!Jacksons,!one!can!expect!the!next! generation!of!Joneses!to!have!about!76%!more!wealth!than!the!next!generation!of! Jacksons.!!Furthermore,!Conley!and!Glauber!(2008)!find!that!blacks!in!comparison! to!whites!are!less!likely!to!maintain!high!wealth!class!positions!and!transition!out!of! low!wealth!class!positions!across!both!time!and!generations.! ! Large!racial!disparity!in!wealth!is!not!a!phenomenon!limited!to!the!U.S.!!!For!
example,!Omar!Khan!(2011)!reports!that!in!the!United!Kingdom,!one!of!the!few! European!countries!where!collecting!data!on!ethnicity!is!legal,!60!percent!of!black! and!Asian!households!have!no!savings!in!comparison!33!percent!of!white! households!havw!no!savings.!!In!addition,!based!on!the!UK’s!first!Wealth!and!Asset! Survey!collected!in!2009,!the!average!white!household!has!£221,000!in!assets,!black! Caribbean!households!have!£76,000!(or!about!34!percent!of!white!household! assets),!Bangladeshi!households!have!£21,000!(or!about!10!percent!of!white!
household!assets),!and!black!African!households!£15,000!(or!only!about!seven! percent!of!white!household!assets).!! ! Explanations!of!the!racial!wealth!gap!and!policy!implications! ! Despite!a!longstanding!pattern!of!structural!racial!inequality,!there!is!an!
emergent!narrative!that!historical!racial!barriers!and!resultant!racial!disparities! largely!have!been!eliminated.!!This!narrative!is!coupled!with!the!explanation!that! whatever!racial!disparities!remain!are!largely!the!result!of!actions!(or!inactions)!on! the!part!of!the!subaltern!groupMMin!the!case!of!the!blackMwhite!wealth!gap!the! practices!of!blacks.!!This!discourse!put!forth!by!conservatives,!liberals,!whites!and! blacks!alike,!emphasizes!selfMdetrimental!attitudes!and!behaviors!stemming!from! the!legacy!of!discrimination!and!disproportionate!exposure!to!poverty!within!the! black!community!as!the!main!explanation!for!racial!inequality.!!The!roots!of!this! ideology!can!be!traced,!at!least,!to!the!1965!Moynihan!Report!in!which!black!families! are!characterized!as!being!caught!up!in!a!“tangle!of!pathology”!(Rainwater!and! Yancey,!1967).! ! An!updated!version!of!the!“tangle!of!pathology”!thesis!is!the!“postMracial!
narrative,”!which!asserts!that!society!has!transcended!the!racial!divide,!and!that!if! blacks!would!adjust!their!selfMsabotaging!attitudes!and!behaviors!their!lot!in!life! would!dramatically!change!(Hamilton!and!Darity,!2009).!!For!wealth,!this!narrative! is!particularly!troublesome!given!the!fact!that!it!is!accumulated!over!timeMMmeaning! the!past!can!exert!a!strong!influence!over!the!present.!
!
So!how!does!the!postMracial!narrative!explain!the!racial!wealth!gap,!and!the!
fact!that!this!so!called!black!middle!class!radically!shrinks!when!wealth!is!used!as! the!indicator!of!class!position?!!! ! Wealth!provides,!perhaps,!the!best!evidence!to!dispel!the!myth$of!a!postM
racial!society!in!which!the!systematic!barriers!of!racial!disparity!have,!for!the!most! part,!been!eliminated,!and!that!the!remaining!source!of!racial!inequality!are!the! result!of!poor!choices!on!the!part!of!blacks!themselves.!!! ! The!conventional!wisdom!incorrectly!explains!the!persistence!of!this!massive!
racial!wealth!gap!across!virtually!all!class!categories,!based!on!three!main! mechanisms.!!First,!in!search!of!immediate!gratification!blacks!are!presumed!to!be! less!frugal!when!it!comes!to!saving.!!But!the!empirical!evidence!indicates!that!it!has! not!historically!been!the!case,!nor!is!it!now!the!case!that!blacks!are!more!profligate! than!whites.!!Economists!ranging!from!the!conservative!Milton!Friedman!to! Marjorie!Galenson!to!a!founder!of!the!Caucus!of!Black!Economists,!Marcus!Alexis,!all! have!found!that,!after!accounting!for!household!income,!blacks!have!a!slightly!higher! savings!rate!than!whites.!!! More!recently,!Gittleman!and!Wolff!(2004)!use!longitudinal!data!from!the! Panel!Study!on!Income!Dynamics!(PSID)!to!compare!components!of!the!rates!of! wealth!growth!for!black!and!white!households!from!the!decade!of!1984!to!1994.!! Consistent!with!the!earlier!studies,!they!confirm!that!the!savings!component!of! wealth!reveals!a!slight!savings!edge!for!black!households,!again!after!adjusting!for! household!income.!!This!mild!savings!rate!advantage!is!actually!indicative!of!even! greater!black!frugality!because!blacks!who!attain!higher!incomes!typically!have!a!
greater!array!of!kin!and!family!obligations!assisting!lowMincome!relative!to!whites,! further!reducing!their!resources!to!save!(Chiteji!and!Hamilton,!2002;!and!Heflin!and! Patillo,!2000).!! ! In!addition!to!increases!due!to!new!saving!out!of!income,!!household!wealth!
can!increase!if!the!value!of!assets!held!rise!(i.e.!an!increase!in!asset!prices).!!As!such,! the!second!conventional!explanation!for!the!wealth!gap!is!the!claim!that!inferior! black!portfolio!management!has!resulted!in!lower!asset!returns!for!their!group.!! However,!similar!to!the!case!for!savings,!Gittleman!and!Wolff!(2004),!using!data!that! predates!the!predatory!subprime!and!mortgage!market!crisis,!find!no!significant! racial!advantage!in!asset!appreciation!rates!for!white!families!with!positive!assets,! again,!once!household!income!is!controlled.!!! This!provides!yet!another!example,!in!which!the!conventional!explanations,! namely!that!blacks!possess!a!lower!financial!acumen,!is!not!empirically!supported.!!! Indeed,!the!finding!that!white!families!whose!head!dropped!out!of!high!school!have! higher!median!wealth!than!heads!of!black!families!with!a!college!degree!indicates! that!not!even!a!college!degree!shields!black!families!from!low!levels!of!asset! accumulation.! ! In!addition!to!being!more!profligate!and!possessing!low!financial!acumen,!the!
conventional!wisdom!also!attributes!the!racial!wealth!gap!to!a!deficient! entrepreneurial!spirit!on!the!part!of!blacks.!!Proponents!of!this!discourse!tend!to! focus!on!successful!entrepreneurial!immigrants!as!examples!of!“model!minorities”! that!blacks!should!emulate.!!!
!
Although!it!is!the!case!that!Asian!Immigrants!in!general!have!substantially!
more!business!assets!than!blacks,!careful!examination!by!Tim!Bates!(1997),!William! Darity!(2007;!2009),!Vicki!Bogan!and!William!Darity!(2008),!and!Masao!Suzuki! attribute!this!advantage!to!higher!levels!!of!initial!financial!capital,!and!selectivity! associated!with!immigration,!rather!than!some!group!based!“model!minority”! entrepreneurial!behavioral.! ! Migration!is!not!a!random!occurrence,!which!leads!to!selection!advantages!
associated!with!immigration.!!These!selectivity!advantages!are!exhibited!by!three! comparisons.!!First,!entrepreneurially!successful!immigrant!groups!enjoy!initial! financial!and!human!capital!advantages!over!their!nonMmigrating!countrymen.!! Second,!these!selective!immigrants!are!also!more!likely!to!engage!in!entrepreneurial! activity!than!their!U.S.!born!ancestral!linked!peers,!who!presumably!have!similar! cultural!orientations.!!Finally,!there!are!varying!degrees!of!success!amongst!Asian! immigrant!groups,!and!this!success!is!correlated!with!group!level!financial!and! human!capital!upon!U.S.!entry.! ! In!fact,!financial!capital!might!be!the!key!ingredient!to!start!a!successful!
business.!!SeventyMseven!percent!of!firms!with!employees!and!59!percent!of!sole! proprietors!report!that!using!personal!or!family!assets!to!start!their!business.!!Yet,! from!1979!to!1987,!29!percent!of!black!firms!started!with!no!financial!capital,! whereas!only!16!percent!of!Asian!Immigrant!firms!were!launched!with!no!financial! capital.!!This!figure!is!even!substantially!lower!than!the!white!rate!of!23!percent.!! ! The!result!is!a!very!low!ownership!of!business!assets!on!the!part!of!blacks.!!In!
2002,!blacks!made!up!about!12!percent!of!the!population,!less!than!five!percent!of!
nonMpublicly!traded!firms!were!black!owned!and!these!firms!collectively!received! less!than!one!percent!of!total!business!receipts.!!In!contrast,!nonMLatino!whites! represented!about!68!percent!of!the!population,!owned!about!83!percent!of!all! firms,!and!93!percent!of!nonMpublically!traded!business!receipts.!! ! Tamara!Nopper!(2009)!documents!a!dramatic!reduction!in!the!share!and!
value!of!Small!Business!Administration!loans!since!1980,!which!she!characterizes!as! resulting!from!a!policy!shift!in!the!U.S.!Small!Business!Administration!(SBA).!!She! attribute!at!least!part!of!this!decline!to!the!administrations!movements!away!from! specific!targets!for!black!borrowers!to!a!more!aggregate!targeting!that!includes! women!and!all!minority!groups.!!The!result!has!been!a!shift!in!lending!away!from!! blacks.!!!Of!all!the!SBA!loans!distributed!to!minorities!in!1980,!roughly!40!percent!of! the!loans!and!40!percent!of!the!total!dollar!amounts!of!these!loans!were!directed!to! black!borrowers.!!However,!by!2006,!black!borrowers!received!only!about!21! percent!of!all!loans!and!10!percent!of!the!total!amount!of!funds!distributed.!!! ! Nopper!(2009)!also!attributes!the!relative!decline!in!black!lending!to!a!Small!
Business!Administration!policy!shift!from!direct!lending!to!the!use!of!banks!as! intermediaries!via!loan!guarantees.!!Black!borrowers!conceivably!had!better!access! to!finance!as!a!result!of!more!relaxed!SBA!collateral!and!credit!requirements,!which,! even!with!loan!guarantees,!may!not!have!been!offered!by!commercial!lenders.!!! ! Another!issue!with!the!use!of!bank!intermediaries!is!the!relative!shortage!of!
black!banks.!!In!a!report!produced!at!the!end!of!2008,!the!FDIC!identified!a!total!of! 44!black!banks!with!$7.5!billion!in!assets!and!96!Asian!and!Pacific!Islander!banks! with!a!total!of!$53!billion!in!assets.!!Since!ethnic!banks!disproportionately!service!
coMethnic!borrowers!and!coMethnic!communities,!the!given!underrepresentation!of! black!banks,!and!reliance!of!banks!to!identify!borrowers!and!distribute!loans,! creates!a!structural!impediment!to!black!business!creation!and!growth.!!! ! In!sum,!the!relative!success!of!certain!immigrant!groups!in!business!relative!
to!blacks!is!more!indicative!of!a!greater!access!to!financial!capital,!selectivity! characteristics!associated!with!immigration!itself,!along!with!the!shift!in!SBA!loan! administration,!rather!than!some!so!called!deficient!entrepreneurial!spirit!or! cultural!orientation!towards!business!amongst!blacks.!!! ! Finally,!given!the!vast!majority!of!households!that!do!not!own!any!business!
equity,!entrepreneurship!!may!have!limitations!has!a!pathway!to!substantially! reduce!racial!differences!in!household!wealth!!!For!example!Taylor,!Fry!and!Kochhar! (2011)!estimate!that!in!2009!the!12!percent!white!rate!of!business!equity! represented!the!highest!rate!of!any!racial/ethnic!group!(the!comparable!figure!for! blacks!was!only!six!percent).!!So,!although!closing!the!racial!business!equity!gap!may! be!a!social!equity!goal,!its!practical!implications!for!closing!the!overall!racial!wealth! gap!is!limited.! ! So!if!the!empirical!evidence!does!not!support!the!conventional!postMracial!
narrative!that!blacks!are!more!profligate,!possess!a!lower!financial!acumen,!and!a! lower!entrepreneurial!spirit!than!their!more!wealth!white!counterparts,!what!does! explains!the!racial!wealth!gap?!! ! Careful!economic!studies!actually!demonstrate!that!inheritances,!bequests!
and!intraMfamily!transfers!account!for!more!of!the!racial!wealth!gap!than!any!other! demographic!and!socioeconomic!indicators!including!education,!income!and!
household!structure!(see!for!example,!Blau!and!Graham,!1990;!Menchik!and! Jianakoplos,!1997;!Gittleman!and!Wolff,!2004).!!These!intraMfamilial!transfers,!the! primary!source!of!wealth!for!most!Americans!with!positive!net!worth,!are!transfers! of!blatant!nonMmerit!resources.!!So,!why!haven’t!blacks!been!able!to!amass!more! resources!to!transfer!across!generations?!!! ! In!addition!to!the!national!failure!to!endow!black!exMslaves!with!the!
promised!forty!acres!and!a!mule!after!the!Civil!War,!blacks!were!deprived! systematically!of!property,!especially!land,!accumulated!between!1880!and!1910!by! government!complicity,!fraud,!and!seizures!by!white!terrorists.!During!the!first! three!decades!of!the!twentieth!century!prosperous!black!communities!and!the! associated!property!literally!was!destroyed!by!white!rioters!in!communities!ranging! from!Wilmington,!North!Carolina!to!Tulsa,!Oklahoma!(Darity!and!Frank!2003,!Darity! 2008).!!The!historical!use!of!restrictive!covenants,!redlining,!and!general!housing! and!lending!discrimination!were!also!factors!that!inhibited!blacks!from! accumulating!wealth!(Oliver!and!Shapiro,!2006;!and!Katznelson,!2005).!! Furthermore,!Oliver!and!Shapiro!and!Katznelson!in!separate!studies!document! exclusion!of!blacks!from!postMdepression!and!World!War!II!public!policy,!which!are! largely!responsible!for!the!asset!development!of!an!American!middle!class!(e.g.! racially!discriminatory!local!implementation!of!a!FHA!loans!and!G.I.!Bill!benefits).! ! The!biased!treatment!of!blacks!in!asset!markets!is!not!limited!to!the!past.!!For!
example,!a!February!(2009)!report!on!mortgage!lending!and!race!conducted!by!the! Institute!on!Race!and!Poverty!at!the!University!of!Minnesota!finds!that!black!Twin! Cities!residents!in!the!highest!earning!categories!(above!$150,000)!were!twice!as!
likely!to!be!denied!a!home!loan!as!compared!to!whites!in!the!lowest!earning! category!(below!$40,000).!!It!is!also!the!case!that!among!those!fortunate!(or! unfortunate)!enough!to!actually!get!a!loan,!high!earning!blacks!were!more!than! three!times!as!likely!to!be!offered!a!subprime!loan!than!low!earning!whites.!!! ! This!evidence!of!racially!predatory!lending!is!not!limited!to!the!Twin!Cities.!!
For!example,!Bocian,!Li!and!Ernst!(2010)!report!that!in!2007,!30.6!percent!of!home! loans!to!black!families!with!earnings!below!their!metropolitan!area!median!was! subprime,!while!the!comparable!figure!for!similarly!situated!white!families!was!16.1! percent.!!On!the!flip!side,!33.5!percent!of!home!loans!to!black!families!above!the! metro!area!median!were!subprime,!while!the!figure!for!whites!was!10.5!percent.!! Thus,!race!seems!to!be!a!better!predictor!than!income!of!subprime!loan!receipt.!!The! same!study!revealed!that,!from!2007!to!2009,!black!families!were!twice!as!likely!as! white!families!to!experience!a!home!loan!foreclosure.! ! So!what!can!be!done!about!the!persistent!and!enormous!racial!wealth!gap?!!
Private!action!alone!is!insufficient;!the!most!efficient!way!would!be!carefully! targeted!race!based!policies.!!If!it!is!the!case!that!such!policies!are!becoming! increasingly!politically!unfeasible!–!especially!in!the!context!of!the!post!racial! rhetoric!that!shifts!the!social!responsibility!of!racial!disparities!away!from!the!public! and!towards!blacks!themselves!–!then!we!need!a!shift!to!more!dramatic!and!bold! policies!that!lead!to!economic!security,!mobility!and!sustainability!for!all!Americans.!!! ! Hamilton!and!Darity!(2010)!have!proposed!a!substantial!child!trust!account!
(or!“baby!bond”!program,!a!phrase!coined!by!the!famed!African!American!scholar! Manning!Marable).!These!accounts!are!designed!to!provide!an!opportunity!for!asset!
development!for!all!newborns!regardless!of!the!financial!position!in!which!they!are! born.!!The!advantages!of!wealth!in!our!society!are!clear.!!Since!about!85!percent!of! black!families!have!a!net!worth!below!the!median!household,!it!is!also!clear!that!the! vast!majority!of!the!nation’s!wealth,!along!with!the!associated!opportunities! stemming!from!this!wealth!are!skewed!heavily!towards!a!relative!few,!who!are! predominantly!white.!Yet,!even!among!only!white!families,!less!than!10!percent!of! families!hold!more!than!50!percent!of!total!white!wealth.! ! The!baby!bonds!would!set!up!trusts!for!75!percent!of!all!newborns!(it!would!
be!straightforward!to!make!the!program!universal!for!all!newborns)!with!an! average!account!of!$20,000!that!progressively!rise!to!$60,000!for!babies!born!into! the!most!wealth!poor!families.!!The!accounts!would!grow!at!a!federally!guaranteed! annual!interest!rate!of!1.5M2!percent.!The!accounts!could!be!accessed!when!the!child! becomes!an!adult!and!used!for!some!assetMenhancing!endeavor!such!as!purchasing!a! home,!or!starting!a!new!business.!! ! If!threeMquarters!of!the!roughly!4!million!babies!born!per!year!were!eligible!
for!an!average!trust!of!$20,000!or!if!all!4!million!new!borns!were!eligible!for!an! average!trust!of!$15,000,!a!crude!estimate!of!the!cost!of!the!program!would!amount! to!about!$60!billion!a!year.!!This!cost!could!be!fully!funded!based!on!a!fraction!of! what!the!federal!government!already!spends!on!asset!enhancing!activities.!!! A!2004!report!by!the!Corporation!for!Enterprise!Development!(CFED)! estimates!that!the!federal!government!allocated!$335!billion!of!its!2003!budget!in! the!form!of!tax!subsidies!and!savings!to!promote!asset!development!policies.!!!The! bulk!of!this!allocation!comes!from!items!like!mortgage!interest!deductions,!
exclusion!of!investment!income!on!life!insurance!and!annuity!contracts,!reduced! rates!of!tax!on!dividends!and!longMterm!capital!gains,!and!exclusion!of!capital!gains! at!death.!!The!total!allocation,!which!is!about!15!times!higher!than!what!is!spent!by! department!of!education,!does!not!include!subsidies!or!tax!breaks!given!to! corporations!nor!funds!from!state!and!local!level!policies.!!An!updated!version!of! this!report!estimates!the!assetMbuilding!allocation!at!close!to!$400!billion!with!more! than!half!of!the!benefits!going!to!the!top!5!percent!of!earners.! ! At!issue!is!not!the!amount!that!was!allocated,!but!to!whom!the!allocation!is!
distributed.!The!top!1!percent!of!earners,!those!typically!earning!over!$1!million! dollars!a!year,!received!about!oneMthird!of!the!entire!allocation,!while!the!bottom!60! percent!of!earners!received!only!five!percent.!!If!the!federal!asset!promotion!budget! where!allocated!in!a!more!progressive!manner,!federal!policies!could!be! transformative!for!low!income!Americans!(see!Sherraden,!1991).!!The!baby!bonds! proposal!provides!a!far!more!progressive,!opportunityMenhancing!that!is!a!lot!less! expensive!program!than!many!of!the!asset!tax!policies!already!in!existence.!! ! Given!this!strikingly!uneven!distribution!of!wealth!and!the!importance!of!
wealth!in!providing!economic!security!and!enhanced!lifeMchances,!a!baby!bonds! program!would!represent!a!needed!shift!in!public!policy!that!could!provide!assetM building!opportunities!for!all!Americans.!!Indeed,!with!wealth!so!unevenly! distributed!along!racial!lines,!the!baby!bonds!proposal!could!go!a!long!way!towards! eliminating!the!racial!wealth!gap.! ! Despite!the!strong!empirical!evidence!to!the!counter,!the!emergent!narrative!
of!racial!inequality,!which!has!evolved!from!the!Moynihan!report,!is!one!that!
emphasizes!deficient!norms,!values!and!behaviors!on!the!part!black,!and!what! William!Ryan!categorized!over!40!years!ago!as!simply!Blaming$the$Victim.!!! ! !To!truly!become!a!society!consistent!with!the!most!comprehensive!norms!of!
postMracial!society,!the!United!States!needs!to!get!beyond!the!unsubstantiated! rhetoric,!and!get!to!the!business!of!eliminating!the!transmission!of!racial!economic! advantage!or!disadvantage!across!generations.!!Public!provision!of!a!substantial! trust!fund!for!newborns!from!wealth!poor!families!would!go!a!long!way!towards! achieving!this!American!ideal!and!provides!asset!building!opportunities!and!access! to!economic!security!for!all!regardless!of!race.! ! Darrick!Hamilton! Associate!Professor! Milano!School!of!International!Affairs,!Management!and!Urban!Policy! The!New!School! New!York,!NY! ! Ngina!Chiteji! Associate!Professor! Department!of!Economics! Skidmore!College! Saratoga!Springs,!NY! !
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