The Other Wealth Gap: The Racial Wealth Rift No One is Talking About

Essay

by Sara Grossman

Most of us are at least marginally aware of America’s notorious “wealth gap”—the growing cliff between the rich elite and everyone else—that has become so prominent in our national consciousness in recent years.

This gap, however, is not one rift, but two.

There is the well-known economic gap between America’s middle class and its elite, but also a striking wealth gap between people of color and their white counterparts. Both are highly concerning, but only one gets significant media attention or discussion time.

These two gaps are informed by two different kinds of wealth. There is the kind of wealth that allows you to merely survive, to pay for basic necessities like food, water, and housing. But then there is transformative wealth. This is the type of wealth that builds other wealth. The kind of wealth that you invest in, get returns on, and fund your kid's college education.

Data has demonstrated time and time again that the black community has, if any wealth, the first kind. The type of wealth that allows them to just get by. This is also true of Native Americans, Latinos and a handful of other minority groups who rely solely on earned income to get by, rather than investments or capital assets. White Americans, on the other hand, tend to have transformative wealth, which has allowed their riches to multiply and generate a life of affluence and prosperity for current and future kin. These issues were explored in the recent Color of Wealth Summit, of which Haas Institute was a partner.

Thomas Piketty—the French economist whose book “Capital in the 21st Century” became the unexpected smash hit of 2014—argues that in an economy where the rate of return on capital outpaces the rate of growth, inherited wealth will always grow faster than earned wealth. In layperson’s terms, this means that wealth that already exists within a family will proliferate on its own via simple returns on investments at a faster rate than income earned on the job.

In general, whites in this country hold the bulk of capital thanks to generations of overt and implicit racism, including discrimination in employment, housing, education, and current and historic public policies that benefit whites.

One prime example of such discrimination in public policy is the New Deal, which passed dozens of bills during the height of the Depression that either excluded or discriminated against black Americans and other people of color. The National Recovery Administration, for example, authorized separate and reduced pay scales for blacks, while also giving whites the first opportunity to get jobs. The Social Security Act excluded the types of jobs that blacks and other minorities traditionally held and the Civilian Conservation Corps maintained largely segregated camps for the young men who worked in them, according to Digital History.

As Haas Institute Director john a. powell said recently at the Color of Wealth Summit. “People of color were not allowed to participate in what was the largest wealth creation of a large number of people in the history of the world.”

The stark implications of this exclusion are obvious with the growing racial wealth gap we see today.

As beneficiaries of these explicit and implicit discriminatory policies, whites gained significantly more wealth and capital assets generations ago than most other groups, and this same wealth has multiplied into a level of affluence that surpasses all others.

This is perhaps the defining reason why the wealth gap between blacks and whites is at its highest point since 1989 — data from the Federal Reserve’s Survey of Consumer Finances shows that in 2013, white families had 13 times the amount of wealth of that of black families, up from eight times the wealth in 2010. According to a working paper by NYU's David Low, high earning married black households have, on average, less wealth than their low-earning  white counterparts. This could also explain why the median white household was worth $141,900 during the economic recovery from the Recession, while the median black household was worth $11,000, according to Pew Research Center.  

Additionally, according to Pew, financial assets like stocks have recovered their value much faster than housing since the recession ended. 

“White households are much more likely than minority households to own stocks directly or indirectly through retirement accounts,” the Pew report says. “Thus, they were in better position to benefit from the recovery in financial markets.”

While ordinary Americans of all backgrounds have fallen behind elites, blacks and latinos have fallen behind the furthest.

Even more troubling is the complete lack of concern our leaders are showing in addressing this racial wealth gap. While politicians lament the disappearance of America’s white middle class, they are largely silent on the struggles that those of color are facing. Both disparities have serious implications for the future of a strong, equitable, and preeminent American economy.

Further, while there has been a libertarian wave in this country, with increased demands for deregulation and a generally reduced role of government, we have actually seen a rise in government intervention—but these interventions have largely been to protect capital, banks, and financial assets, not labor, people of color, or ordinary working Americans.

Ultimately, as john recently said, “we must repurpose government to protect people, not just the elites.”