Tackling the Black-White Wealth Gap - Black Enterprise

Tackling the Black-White Wealth Gap

wealthGApThe Joint Center for Political and Economic Studies convened a group of economic, community, and political leaders Monday to confront the persistent wealth gap between blacks and whites. The statistics cited by these experts were dire.

Before the economy took a nosedive, the overall poverty rate was 12.5% nationally, but that figure has almost doubled for African Americans at 24.5%. And while the national unemployment rate is 9.4%, but for African Americans, it is much higher at approximately 15%.

As William Darity, Jr., a professor of public studies and economics at Duke University, pointed out, many people have attributed the huge income and wealth gap between blacks and whites to a lack of financial literacy, particularly with respect to savings decisions. That, he said was Federal Reserve Chairman Ben Bernanke‘s explanation when he spoke at Morehouse this year.

“It’s noteworthy that Bernanke said nothing about the lack of access to inherited wealth where inheritances and other intergenerational transfers constitute the most transparent form of non-merit or unmerited resources in our society,” said Darity. He said that Bernanke’s perspective reflects a highly popular, but incorrect, blame-the-victim view that the black/white economic gap is due to a fundamental deficiency in black behavior that can be remedied through increased financial literacy.

Part of the problem is that blacks and other people of color have always trailed whites in terms of wages and income. But, Darity argues, the real answer lies in differential access to inherited assets and in vivo (living) transfers, as happens when parents pay for their children’s college expenses, assist them with the purchase of a new home or set up trusts for grandchildren.

“Racial differences in intergenerational assets are the key to understanding the gross inequality between blacks and whites and net worth. Most wealth acquisition today takes place by a shift in assets from the older generation to the younger generation. Groups that have less wealth to bestow upon their offspring yield the next generation with less wealth,” said Darity.

Given the nation’s diminishing appetite to apply race-based criteria to close gaps, he suggests the public provision of a substantial trust fund for newborns to families that are poor, and which would not be accessible until a child has reached the age of 18. One could even place stipulations on these funds, such as they must be used to pay for higher education.

Darrick Hamilton, an assistant professor at the New School for Management and Urban Policy, discussed business wealth creation for blacks. He noted that the typical white household is nearly five times more likely than black households to own a business asset, although homeownership represents the greatest source of wealth for most households.

Hamilton pointed to a findings by recent Ph.D graduate Tamara Nopper, that since 1989, the total share of Small Business Administration (SBA) loans as well as the level of lending to black borrowers has declined dramatically because of a movement to instead create targets for women and all minority groups. She also found that the use of banks via the agency’s guaranteed lending programs has also contributed to this decline. Both Nopper and Hamilton propose that the SBA return to a policy of direct lending with specific black business targets that are in line with black population representation.