Racism and the Economy: Focus on the Wealth Divide - October 20, 2021
The ninth installment of the series focused on how barriers to wealth accumulation deny families and communities long-term economic mobility and financial resiliency.
Experts say racial wealth disparities are an economic drag that must be confronted
By Jay Lindsay
In the early 19th century, the Grand Traverse Band of Ottawa and Chippewa Indians inhabited the vast and heavily forested lands in Michigan's lower peninsula.
By the 1980s, the Grand Traverse Band's holdings totaled a mere 12-acre parcel and whatever coins clanged into a coffee can the tribal council passed around for a collection at its first meeting after federal recognition.
Tribal member Matthew Fletcher discussed his tribe's lost assets at the Federal Reserve's latest Racism and the Economy event, which focused on wealth. Fletcher, a law professor at Michigan State, highlighted treaties in 1836 and 1855 that aimed to preserve the tribe's land, but which he said instead devastated their holdings.
"Our ability to restore our wealth will never really be recovered," Fletcher said.
Speakers at the event told similar stories of lost wealth that's fed the nation's wealth gap between Whites and people of color. The good news, according to law professor Mehrsa Baradaran of the University of California at Irvine, is that since the gaps were purposely created by flawed policies, there's hope that better policy can erase them.
"When the United States wants to create wealth, it actually knows how to do it," she said. "We just need the political will."
Duke University public policy professor William Darity said righting past wrongs to create a more inclusive economy is just part of an overdue "moral rectification." He added that closing racial wealth gaps would also spark a "flowering" of buried gifts and ingenuity.
"The other benefit for the society as a whole would be creating the opportunity for the talent and creativity of large segments of the American population that's been suppressed as a consequence of economic deprivation," he said. Federal Reserve Bank of Atlanta president Raphael Bostic has made similar points in an essay and in several speeches over the past year.
How big are the racial wealth gaps?
In his opening remarks for this event, Bostic put numbers on the racial wealth gap, citing research by the St. Louis Fed that indicates that in 2019, the typical White family had $184,000 in wealth, compared to $38,000 for the typical Hispanic family, and $23,000 for the typical Black family.
Several speakers said it was important to understand the gaps exists because of policies that were explicitly aimed at creating them.
As an example, writer Kirsten Mullen pointed to 40-acre land grants promised to Black Americans during Reconstruction, but later denied. She also cited the loans for homes, businesses, and farms that were guaranteed all World War II veterans as part of the GI Bill, but which overwhelmingly were funneled to Whites.
Noel Poyo, deputy assistant secretary for community economic development in the US Department of the Treasury, said the country must reckon with its history to fully address the economic consequences.
"We do need to own it," he said. "Being able to hear and being willing to let the truth of our histories be told I think is terribly important."
Minneapolis Fed president Neel Kashkari said if a system is discriminatory at its historical roots, even bold reforms first require fundamental changes to the system, or they will just make things worse.
"The first thing we have to stop doing is increasing the (racial wealth) gap, and the way we start is by all being aware of why these gaps exist," he said. "That's why the historical context that was offered today is so important."
Proposals to close racial wealth gaps focus on taxes, investments, property
The conference included several proposals aimed at narrowing racial wealth gaps by addressing historical causes of racial disparities:
- Emory University law professor Dorothy Brown proposed a refundable wealth tax credit for all individuals in US households with total wealth below the median of roughly $100,000. Brown said the proposal would help low-wealth Whites but would also disproportionately help Black taxpayers due to the racial wealth gap.
- Nia Evans and James Vamboi of the Boston Ujima Project advocated for the wider adoption of their community investment model. The project runs a $4.8 million fund that finances businesses and projects that reflect residents' values and needs, particularly in communities of color. Evans said it offers opportunities to both high-net-worth and smaller-dollar investors, and it gives them a voice in how to best allocate shared resources.
- Dãnia Davy of the Federation of Southern Cooperatives/Land Assistance Fund proposed an Heirs Property Advocacy Institute. "Heirs property" is informally owned land passed down to the descendants of an owner in a form of common ownership that is susceptible to loss. The federation estimates 60 percent of all Black-owned land is held as heirs property. The institute would train heirs property owners on how to retain their land and assist with policy responses to various challenges.
Former US congressman Phil English of Pennsylvania, co-chairman of the governmental affairs practice at Arent Fox, said that in general policies to close racial wealth gaps need to be broader than they've been in the past and founded in strong economic growth.
"Having local projects that bring people together in communities and specifically shoot at local examples of the racial wealth gap are very, very important," he said. "But I don't think those are going to be sustainable unless... economic growth occurs. Because I don't think this is a soluble problem if it's a zero-sum game."
The benefits of a more equitable economy are clear, according to St. Louis Fed president James Bullard. He cited a San Francisco Fed paper that estimated gender and racial gaps in opportunity led to a $2.6 trillion loss to the economy in 2019. Erasing that kind of loss benefits everyone, Bullard said.
"This is tremendous upside potential here, if we can get many of the good ideas that are out there at this conference implemented in the US economy," he said.