Monthly Archives: April 2015

How the Supreme Court is about to explode America’s racial wealth gap

When discussing race, the conservative argument is best expressed by the famous words of Chief Justice John Roberts: “The best way to stop discrimination on the basis of race is to stop discriminating on the basis of race.” Translation: America has done bad things in its history, but those bad things are gone now, so we should move past those horrors and look forward.

Conservatives believe that if blacks and Latinos simply work hard, get a good education and earn a good income, historical racial wealth gaps will disappear. The problem is that this sentiment ignores the ways that race continues to affect Americans today. A new report from Demos and Brandeis University, “The Racial Wealth Gap: Why Policy Matters,” makes this point strongly. The report shows that focusing on education alone will do little to reduce racial wealth gaps for households at the median, and that the Supreme Court, through upcoming decisions, could soon make the wealth gap explode.

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Wealth is the whole of an individual’s accumulated assets, not the amount of money they make each year. As such, in his recent book, “The Son Also Rises,” Gregory Clark finds that the residual benefits of wealth remain for 10 to 15 generations. To understand why that matters, consider the fact that Loretta Lynch, Obama’s recent nomination for U.S. attorney general, is the great-great-granddaughter of a slave who escaped to freedom. (That’s four generations). Consider also that most people on Social Security today went to segregated schools. (That’s two generations.) If Clark is correct in his thesis, then the impacts of wealth built on the foundations of American slavery and segregation will continue to affect Lynch’s great-great-great grandchildren.

It is therefore unsurprising that addressing just one aspect of this disparity cannot solve racial wealth gaps. Demos/Brandeis find that equalizing graduation rates would reduce the wealth gap between blacks and whites by 1 percent, and between Latinos and whites by 3 percent at the median. Equalizing the distribution of income would only reduce the wealth gap by 11 percent for blacks and 9 percent for Latinos. Part of the durability of wealth gaps is the disproportionate benefits that whites still enjoy: They face less job market discrimination and are more likely to reap a big inheritance, for example. This means that the returns to education and income are generally higher for whites. But even after controlling for these returns, income and education can’t explain the entire wealth gap.

Because America’s primary vehicle for wealth accumulation is our homes, much of the explanation of the racial wealth gap lies in unequal homeownership rates. According to the Brandeis/Demos analysis, equalizing homeownership would reduce the racial wealth gap by 31 percent for blacks and 28 percent for Latinos. This effect is muted because centuries of discrimination—including racial exclusion from neighborhoods where home values appreciate, redlining, and discriminatory lending practices—mean that people of color are segregated into relatively poor neighborhoods. Indeed, in 1969, civil rights activist John Lewis bought a three-bedroom house for $35,000 in Venetian Hills, Atlanta. He and his wife were the first black family in the middle-class neighborhood. In his book, “Walking with the Wind,” he notes that, “within two years… the white owners began moving out.” Had the value of his house simply kept up with inflation, it would be worth $222,881 today. But Zillow shows that three-bedroom houses in Venetian Hills, Atlanta, are currently selling for around $65,000 to $100,000.

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Systematic disinvestment in communities of color means that even when blacks and Latinos own their homes, they are worth far less than white homes. In addition, blacks and Latinos are targets of shady lending. They are more likely to be offered a subprime loan even if they are qualified to receive a better rate. In the wake of the financial crisis, big banks like Blackstone scooped up foreclosed homes and are now offering them to people of color to rent, further pulling wealth out of these communities to benefit rich whites.

The financial crisis had a disparate impact on people of color. A Center for Responsible Lending report examined the loans originated during the subprime boom (2005 to 2008), and found that blacks and Latinos were almost twice as likely to have foreclosed during the crisis. The New York Times reported that Wells Fargo “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” They discovered that loan officers “pushed customers who could have qualified for prime loans into subprime mortgages” and “stated in an affidavit… that employees had referred to blacks as ‘mud people’ and to subprime lending as ‘ghetto loans.’”

These problems are troubling, but, as unlikely as it seems, things are about to get even worse. The Supreme Court is set to decide Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, a landmark case challenging the disparate impact test, which allows a practice to be considered discriminatory if it disproportionately and negatively impacts communities of color, even if a discriminatory intent can’t be proven.

The case involves an excellent example of why disparate impact is so important: Nearly all of the tax credits that the Texas Department of Housing and Community Affairs had approved were in predominantly non-white neighborhoods. At the same time, the department disproportionately denied the claims in white neighborhoods. A federal judgedecided that regardless of racial intent, the result had a “disparate impact” and increased neighborhood segregation. As Nikole Hannah-Jones has extensively documented, disparate impact has been crucial in holding banks accountable. For instance, the Justice Department used it to settle with Bank of America for $335 million after it was discovered that a mortgage company purchased by BofA had been pushing blacks and Latinos into subprime loans when a similar white borrower would have qualified for a prime loan.Because there was no official policy that required blacks and Latinos to get worse loans, the case would not have been won but for the disparate-impact statute.

The Supreme Court has already decimated the Voting Rights Act, opening the door for onerous restrictions on voting. They upheld a law banning affirmative action at state universities and have already crushed integration efforts at K-12 schools. Worryingly, as Demos Senior Fellow Ian Haney López told ProPublica, “It is unusual for the Court to agree to hear a case when the law is clearly settled. It’s even more unusual to agree to hear the issue three years in a row.” Given the importance of neighborhood poverty to upward mobility and wealth building, this case had the potential to be the most destructive, dramatically curtailing opportunity and making the wealth gap into a chasm. As Patrick Sharkey notes, “Neighborhood poverty alone accounts for a greater portion of the black-white downward mobility gap than the effects of parental education, occupation, labor force participation, and a range of other family characteristics combined.”

Demos and Brandeis suggest policies to boost homeownership, like better enforcement of anti-discrimination laws, lowering the cap on the mortgage interest deduction so blacks and Latinos can benefit and authorizing Fannie Mae and Freddie Mac to allow homeowners to modify their loans. In addition, America needs to systematically invest in poor neighborhoods. Equalizing public school education funds for poor and nonwhite schools would increase home prices in poor neighborhoods. In addition, a baby bond program would directly reduce wealth gaps by giving children money that could be used for a down payment on a house or an investment in their education. What’s clear is that we cannot simply hope that wealth gaps will disappear. These gaps were created by racially biased federal policies and need to be remedied by public policy as well. Government created the white middle class in the 1950s; now it’s time to create a black and Latino middle class. The Supreme Court, with its supposedly race-neutral philosophy, will only make it more difficult to close racial wealth gaps.

Catherine Ruetschlin is a Senior Policy Analyst at Demos and co-author of the report “The Racial Wealth Gap: Why Policy Matters.

The myth destroying America: Why social mobility is beyond ordinary people’s control

In America, there is a strongly held conviction that with hard work, anyone can make it into the middle class. Pew recently found that Americans are far more likely than people in other countries to believe that work determines success, as opposed to other factors beyond an individual’s control. But this positivity comes with a negative side — a tendency to pathologize those living in poverty. Indeed, 60 percent of Americans (compared with 26 percent of Europeans) say that the poor are lazy, and only 29 percent say those living in poverty are trapped in poverty by factors beyond their control (compared with 60 percent of Europeans).

Such beliefs are just that: beliefs. While a majority of Americans might think that hard work determines success and that it should be relatively simple business to climb and remain out of poverty, the reality is that the United States has a relatively entrenched upper class, but precarious, ever-shifting lower and middle classes. While many Americans might hate welfare, the data suggest they are fairly likely to fall into it at one point or another.

In their recent book, “Chasing the American Dream,” sociologists Mark Robert Rank, Thomas Hirschl and Kirk Foster argue that the American experience is more fluid than both liberals and conservatives believe. Using Panel Survey of Income Dynamics (PSID) data — which has tracked 5,000 households (18,000 individuals) from 1968 and 2010 — they show that many Americans have temporary bouts of affluence (defined as eight times the poverty line), but also temporary bouts of poverty, unemployment and welfare use. (The study includes food stamps, Medicaid, Temporary Assistance to Needy Families/Aid to Families with Dependent Children, Supplemental Security Income and any other cash/in-kind program that relies on income level to qualify.) The researchers conclude that a large number of Americans eventually fall into one of these categories, but that very few Americans stay for long. Instead, the social safety net catches them, and they get back on their feet.



The authors also find that the risk of poverty is higher for people of color. (Since the PSID began in 1968, most non-white people in the survey have been black.) And while most Americans will at some time experience affluence, again, this experience is segregated by race.

In a study published earlier this year, Rank and Hirschl examine the 1 percent, and find that entry into it is more fluid than previously thought. They find that 11 percent of Americans will enter the 1 percent at some point in their lives. However, here again, access is deeply segregated. Whites are nearly seven times more likely to enter the 1 percent than non-whites. Further, those without physical disability and those who are married are far more likely to enter the 1 percent.

The researchers didn’t measure how being born into wealth effects an individual’s chances, but there are other ways to estimate this effect. For instance, a 2007 Treasury Department study of inequality allows us to examine mobility at the most elite level. On the horizontal axis (see below) is an individual’s position on the income spectrum in 1996. On the vertical level is where they were in 2005. To examine the myth of mobility, I focused on the chances of making it into the top 10, 5 or 1 percent. We see that these chances are abysmal. Only .2 percent of those who began in the bottom quintile made it into the top 1 percent. In contrast, 82.7 percent of those who began in the top 1 percent remained in the top 10 percent a decade later.

One recent summary of twin studies suggests that “economic outcomes and preferences, once corrected for measurement error, appear to be about as heritable as many medical conditions and personality traits.” Another finds that wages are more heritable than height. Economists estimate that the intergenerational elasticity of income, or how much income parents pass onto their children, is approximately 0.5 in the U.S. This means that parents in the U.S. pass on 50 percent of their incomes to their children. In Canada, parents pass on only 19 percent of their incomes, and in the Nordic countries, where mobility is high, the rate ranges from 15 percent (in Denmark) to 27 percent (in Sweden).

There is reason to believe that Chris Rock is correct that wealth, which is far more unequally distributed than income, is also more heritable.

In his recent book, “The Son Also Rises,” Gregory Clark explores social mobility in societies spanning centuries. He finds, “current studies… overestimate overall mobility.” He argues that,

“Groups that seem to persist in low or high status, such as the black and the Jewish populations in the United States, are not exceptions to a general rule of higher intergenerational mobility. They are experiencing the same universal rates of slow intergenerational mobility as the rest of the population. Their visibility, combined with a mistaken impression of rapid social mobility in the majority population, makes them seem like an exception to a rule. The are in instead the exemplary of the rule of low rates of social mobility.”

Clark finds that the residual effects of wealth remain for 10 to 15 generations. As one reviewer writes, “in the long run, intergenerational mobility is far slower than conventional estimates suggest. If your ancestors made it to the top of society… the probability is that you have high social status too.” While parents pass on about half of their income (at least in the United States), Clark estimates that they pass on about 75 percent of their wealth. Thus, what Rank and Hirschl identify, an often-changing 1 percent, is primarily a shuffling between the almost affluent and the rich, rather than what we would consider true social mobility.

The American story, then, is different than normally imagined. For one, Americans live increasingly precarious existences. In another paper, Hirschl and Rank find that younger Americans in their sample are more likely to be asset poor at some point in their lives. But more importantly, a majority of Americans will at some point come to rely on the safety net. Rather than being a society of “makers” and “takers,” we are a society of “makers” who invest in a safety net we will all likely come in contact with at one point or another. However, there are some who don’t.

The Gini Coefficient measures how equally distributed resources are, on a scale from 0 to 1. In the case of 0, everyone shares all resources equally, and in a society with a coefficient of 1, a single person would own everything. While income in the U.S. is distributed unequally, with a .574 gini, wealth is distributed far more unequally, with a gini of .834 — and financial assets are distributed with a gini of .908, with the richest 10 percent own a whopping 83 percent.

Wealth and financial assets are the ticket to long-term financial stability; those who inherit wealth need never fear relying on the safety net. And it is these few individuals, shielded from the need to sell their labor on the market, who have created the divisive “makers” and “takers” narrative. Using race as a wedge, they have tried to gut programs that nearly all Americans will rely on. They have created the mythos of the self-made individual, when in fact, most Americans will eventually need to rely on the safety net. They treat the safety net as a benefit exclusively for non-whites, when in reality, whites depend upon it too (even if people of color are disproportionately affected).

As I’ve noted before, the way the welfare state works (primarily inefficient tax credits for the middle class) has made this delusion tenable. It is therefore not that Americans believe themselves to be “temporarily embarrassed millionaires,” but rather “self-made men” (with a dose of racism), that drives opposition to the welfare state. The problem is that most people will eventually realize they won’t become millionaires, but few will realize the way government has benefited them throughout their lives.

This piece originally appeared on Salon

Our election system’s anti-minority bias is even worse than you think

In the wake of the recent gutting of the Voting Rights Act, partisans were quick to jump on the opportunity to restrict unfavorable voters. Across the country, conservatives in particular have debated fiercely whether to pursue voter suppression to remain competitive in an increasingly diverse electorate. There was, however, another way out, as I’ve argued before: Socially and economically conservative values are not unpopular, and if conservatives were to cease supporting people who made speeches at KKK rallies, they could garner enough votes to remain competitive. I worried, though, that the temptation of voter suppression would be too great. And, indeed, a new paper by Ian Vandewalker and Keith Bentele indicates that partisans have chosen the path of voter suppression to an even greater extent than previous thought.

When the conservative Supreme Court struck down key parts of the Voting Rights Act in Shelby County v. Holder, states flocked to impose voter ID laws. Early research by Bentele and Erin O’Brien found these laws were “highly partisan, strategic, and racialized affairs.” Another study finds that “where elections are competitive, the furtherance of restrictive voter ID laws is a means of maintaining Republican support while curtailing Democratic electoral gains.” Support for voter ID laws among the American population is strong, but also racially based: Voters are significantly more likely to support a voter ID law when they are shown pictures of black people voting than when shown white people voting.

Much of the extant literature has mainly been focused on voter ID laws; but Vandewalker and Bentele find that the strategy is actually more expansive than that. They have created an extensive metric that includes nine different measures of accessibility, including voter ID, absentee voting and same-day registration. They find that the accessibility of voting systems is negatively correlated with the share of the state’s population that is black (see chart). As the black population increases, voting systems become more inaccessible. The chart below includes all changes that were passed in the legislature; as of writing some of the changes were stalled in court.

The study finds that between 2006 and 2012, the most influential factor in determining whether a law would be passed was Republican control of government. It also finds that the level of anti-black stereotyping in a state (a measure based on survey respondents’ beliefs about work ethic and intelligence) strongly correlates with the proposal (though not the passage) of voting restrictions. Vandewalker and Bentele find that states with a recent increase in Democratic turnout were more likely to pass a restriction indicating “the passage of voter restrictions as a partisan response by Republicans to recent Democratic electoral gains.” States with large black populations were significantly more likely to pass restrictive laws. Finally, they note that what little voter fraud exists does not correlate at all with voter restrictions.

The GOP has dramatically expanded its control of state legislatures in recent years. Before the 2014 election, Republicans controlled 59 of the 98 state legislative chambers;they now control 67. MSNBC recently reported that Republicans are already working to pass voter ID laws in five major states. Bentele and Vandewalker’s analysis indicates that “restrictive voting laws are often discriminatory responses to minority voting strength.” They find that the correlation between anti-black attitudes in the state and a restrictive voting system increased between 2010 and 2013. Conservatives have moved beyond just pushing for voter ID and have also worked to curb early voting and other important methods to increase access.

To see the combined effect of all these different measures, I obtained the data that Vandewalker and Bentele compiled. I find that there is a strong raw correlation between their ease of electoral access index and voter turnout (see below). Using a variation of their analysis, I also find that electoral systems are significantly more open in states with a higher white population. The ease of accessibility index was also strongly correlated with voter turnout in the 2012 presidential election. Combined with the large academic literature showing that voting restrictions reduce turnout and that turnout affects the outcomes of elections, there is a strong case that the current push to reduce voting rights is rooted in partisan ambitions.

In America, it appears that nearly everything is now politicized, from sports to vaccines. However, the right to vote should not be a political pawn. To combat these attacks on voting rights, policymakers should expand early voting, enact same-day registration and reduce limits on felon voting. Congress should replace the old formula for pre-clearance with a new formula that takes into account how the racial composition of the electorate and non-white turnout affect the chance of voter restriction. All of these reforms can dramatically increase voter participation.

There is some hope: The Brennan Center for Justice recently found that “190 bills to expand voting access have been introduced in 31 states, compared to 49 restrictive measures in 19 states, the new analysis found.” This is a welcome development, however, my analysis of the Bentele dataset indicates that the overall change is positive, but modest. The chart below shows how voting access has changed between 2010 and 2014. States on the line remain the same, states above have seen voting rights contract, and states below the line have seen voting access increase. In total, 16 states increased accessibility while 14 states decreased accessibility. The mean score on the accessibility index shifted from 6.27 to 6.38 (assuming that all the passed laws go into effect).

Voting rights are still in grave danger. And in particular, the voting rights of black Americans remain precarious.

This piece originally appeared on Salon.