By Ray Boshara
As our nation recognizes black history this month, it is important to remember the lingering effects of history on economic outcomes, particularly the racial wealth gap.
Take the case of JB Stradford, a black entrepreneur who, unlike others, survived the Tulsa Race Massacre of 1921, when white mobs razed one of the wealthiest black communities in the United States. But his hotel and other properties did not survive. His great-grandson, John W. Rogers Jr. of Ariel Investments, calculates that Stradford’s investments, then valued at $125,000, would now be worth more than $100 million.
Stradford and his descendants didn’t choose to have their wealth wiped out, of course. Yet a harmful assumption persists today that the black-white wealth gap largely reflects choices, not history.
The narrative goes like this: legal discrimination no longer exists, educational opportunities have expanded dramatically, and we have elected a black president and vice president – so, in the absence of any impediments, our economic success depends largely from the strength with which we work and the financial, educational and other choices we make. In this post-racial America, good choices lead to more wealth and success, while bad choices lead to less.
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Professors Darrick Hamilton and William A. Darity Jr. forcefully challenged this assumption a few years ago: “The problem with this language,” they observed, “is the implicit notion that the racial wealth gap is a question of financial literacy, choice and agency, as opposed to inheritance and structure. Darity further warned that “the ultimate implication of this type of argument is that there is something inferior about the group that performs worse.”
Although individual action and choices still matter, Darity and Hamilton have led us to ask ourselves: how much of the racial wealth gap is explained by our choices and how much by heritage, history and structure?
As expected, our research team found that families who, regardless of race, chose to save for retirement, diversify their investments, and own a home, for example, have more wealth than those who don’t. haven’t made those choices. However, they also observed that it ignored the fact that the choices themselves were shaped by factors beyond anyone’s control – that the common or historically shared experience of each group overwhelmingly explains the choices they had. the possibility of doing.
For white Americans, these common experiences were widely shared by inclusion in major wealth-creating policies such as the Homestead Act of 1865 (which granted 160 acres of land, mostly west of the Mississippi River, to families willing to work on it); the 1944 GI Bill (which helped returning soldiers go to college, start a business, or buy a house); and strong 20th century policies to promote home ownership. Black Americans, however, were largely excluded from these policies.
Black wealth further suffered from the canceled 1865 promise to some 4 million freed slaves of “40 acres and a mule”, the neglect and mismanagement of white administrators, and the eventual demise of the Freedman’s Bank in 1874, and the destruction of black property. in racial massacres in cities like Tulsa, Wilmington, Delaware and Rosewood, Florida, to name a few.
Today’s black-white wealth gap – black families have about 12 cents of wealth for every dollar held by white families – thus largely reflects the culmination of all these shared historical experiences of exclusion and of destruction. And that gap hasn’t changed much over the past generation, despite academic and other advancements. Many have argued that without meaningful economic redress, these embedded and enduring features of the racial wealth gap cannot be overcome.
But the racial wealth gap also reflects the constrained choices that many black Americans and others still face today compared to those of white Americans: having to, as research shows, borrow more for college and graduate studies ; diminished opportunities to pursue more lucrative STEM studies; and fewer options for leaning on parents in financial difficulty or inheriting their wealth. In this context, the racial wealth gap has been less about making different choices and more about having different choices to make.
If the racial wealth gap has therefore been defined by exclusion, its reduction should be defined by inclusion.
Experts have mapped out many paths to inclusion, starting with closing racial gaps in pay and employment, which is fundamental to building wealth. Or through a more inclusive federal tax system that currently encourages home ownership and retirement savings for wealthier families, the majority of whom are white. Inclusive financial wellness efforts in workplaces nationwide also have broad support, as do expanded opportunities to promote Black-owned businesses. And calls for automatic inclusion in the “baby bonds” and retirement savings and security plans of the 529 state-based colleges are also growing nationwide.
Moreover, these policies would grow the US economy, as the San Francisco Fed and others discovered. Economic equity and inclusion can truly move us all forward.
Ray Boshara is a Senior Advisor at the Federal Reserve Bank of St. Louis. Ana Hernández Kent, senior researcher, and Lowell R. Ricketts, data scientist at the Institute for Economic Equity, also contributed. The views herein are their own and do not necessarily reflect the official positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.