Jun 25

Jun 25 Closing The Racial Wealth Gap Supports Everyone

Professional Issues, Talking About Money, The Big Picture

Reparations as a real way for "a rising tide lifts all boats."

Hello Talking About Money Community, how are you?

Today I want to talk about the racial wealth gap. In all likelihood you have attended webinars or speeches where you have seen Power Point slides with data describing the stark contrast in wealth between white and black households. And you may have thought to yourself, “I’ve committed myself to this profession, and I am working as hard as a can to close the racial wealth gap.” I know that I have.

At the same time I am aware of how important public policy is to the work that financial capability professionals like you do (as you can see in blog posts here, here, and here). I have written about the necessity of public policy that supports working families through things like paid time off, universal basic income, and public pensions. But there is more that the federal government can do to close the racial wealth gap, and that is to directly provide more wealth to black households.

Let’s discuss.

First, What Doesn’t Close the Racial Wealth Gap

As I was conducting research for this post I came across a 2018 article written by William “Sandy” Darity Jr., Darrick Hamilton, Mark Paul, Alan Aja, Anne Price, Antonio Moore, and Caterina Chiopris, called What We Get Wrong About Closing the Racial Wealth Gap. Please read the entire article, but first take a glance at their compiled list of commonly held myths regarding what will close the racial wealth gap:

Myth 1: Greater educational attainment or more work effort on the part of blacks will close the racial wealth gap

Myth 2: The racial homeownership gap is the “driver” of the racial wealth gap
Myth 3: Buying and banking black will close the racial wealth gap
Myth 4: Black people saving more will close the racial wealth gap
Myth 5: Greater financial literacy will close the racial wealth gap
Myth 6: Entrepreneurship will close the racial wealth gap
Myth 7: Emulating successful minorities will close the racial wealth gap
Myth 8: Improved “soft skills” and “personal responsibility” will close the racial wealth gap
Myth 9: The growing numbers of black celebrities prove the racial wealth gap is closing
Myth 10: Black family disorganization is a cause of the racial wealth gap

You can assess for yourself what part you have taken (if any) in perpetuating these myths. I will admit for myself that I have worked in programs funded by the government and/or philanthropy that have supported more than one of these myths, namely those around homeownership, savings programs, financial literacy, and entrepreneurship.

Now, I think that this is a more nuanced argument, because I do believe that there are lots of services that financial capability professionals provide that do in fact help black households. But when looking at the true impact at each of these initiatives, you cannot help but acknowledge that this is merely nibbling around the edges of closing the racial wealth gap.

In reading this article, as a professional who has devoted her entire career to improving the financial stability of hard working households, what came to mind is the image of Sisyphus rolling a boulder up a hill.

If none of these initiatives work to entirely close the racial wealth gap, then what?

Second, What Does Close the Racial Wealth Gap – Reparations

The subject of reparations for black households has come and in and out of political discourse over the years, and it is once again having a moment. Democratic Representative Sheila Jackson Lee of Texas has re-introduced H.R.40, “Commission to Study and Develop Reparation Proposals for African-Americans Act,” first introduced by the late John Conyers, Democratic Representative of Michigan, in 1989. In this new political climate there is increased attention being paid, and it will be interesting to see where this bill goes.

If passed, H.R. 40 would form a commission to study and make recommendations on what reparations would look like in the United States. Not to wait, wise thinkers are already adding to the public discourse.

Among them are Rashawn Ray and Andre M. Perry, who in their April 15, 2020, Brookings article entitled Why we need reparations for Black Americans, make a number of concrete recommendations, including:

Individual payments for descendants of enslaved Black Americans
College tuition to 4-year or 2-year colleges and universities for descendants of enslaved Black Americans
Student loan forgiveness for descendants of enslaved Black Americans
Down payment grants and housing revitalization grants for descendants of enslaved Black Americans
Business grants for business starting up, business expansion to hire more employees, or purchasing property for descendants of enslaved Black Americans

Moreover, I found this passage in the article especially profound:

This reparations package for Black Americans is about restoring the wealth that has been extracted from Black people and communities. Still, reparations are all for naught without enforcement of anti-discrimination policies that remove barriers to economic mobility and wealth building. The architecture of the economy must change in order to create an equitable society. The racial wealth gap was created by racist policies. Federal intervention is needed to remove the racism that undergirds those polices. In some respects, the question of who should receive reparations is more controversial than what or how much people should be awarded.

William “Sandy” Darity Jr. and Kirsten Mullen also have something to say about who should receive reparations in their recently published book, From Here to Equality: Reparations for Black Americans in the Twenty-First Century [full disclosure: I have yet to read this book]. While this is a vigorous debate that is outside the bounds of this meager blog post, I do recommend further reading. And in his May 17, 2020, interview on The American Project podcast, Professor Darity builds on the thesis of Rashawn Ray and Andre Perry by stating:

I think that that needs to be a[n educational] component of a reparations program for Black American descendants of persons who were enslaved here. And it’s an important component and it needs to be appropriately funded and supported as well.

Furthermore, Professor Darity, who is an economist and researcher by profession, even has a dollar amount that should be awarded to each household to fully close the racial wealth gap. And that figure is $800,000 per household.

Third, How to Pay for Reparations So That It Is a Real Thing

You might be thinking: Kimberly, you had me this far, but how would the federal government ever be able to pay for this? (And as an aside, Professor Darity estimates that the entire reparation package would cost the federal government somewhere in the vicinity of $10-12 trillion over a decade.)

This leads me, Dear Reader, to my last bit of wisdom to impart to you today. And that is an interview with Stephanie Kelton, professor of economics and public policy at Stony Brook University, on the June 23, 2020 episode of the Slate Money podcast. As you might guess, Professor Kelton is promoting a new book, The Deficit Myth, Modern Monetary Theory and the Birth of the People’s Economy [full disclosure #2, I have yet to read this book either].

For those of you who are looking for the Cliff Notes explanation of Modern Monetary Theory (MMT), I’m not sure if I can help you (maybe read Professor Kelton’s book, or listen to the above-referenced Slate Money episode?). What I can tell you in overly simplified terms, is that MMT makes the case that household budgets and the federal government are not managed in the same way. With a household budget, if you need to make a large purchase, you must borrow the money to do so. According to MMT, if the federal government were to make a large expenditure, they could simply print the money to do so, no borrowing required.

This means, if the federal government made reparations a priority, they could come up with the money. Case in point, look how fast the federal government came up with $3 trillion to combat the coronavirus pandemic? Enough said.