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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.

WealthAccumulation

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.

WealthAccumulation2

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.

How America can fix the racial wealth gap

One of the most persistent but unaddressed problems in the United States is our massive racial wealth gap. Wealth provides an important cushion from the threat of unemployment, medical emergency or other unforeseen events. Wealth can also help pay for college, the start of a new business or the purchase of a first home. However, most Americans struggle with debt. A recent Federal Reserve Report finds that of Americans who had savings before 2008, 57 percent reported using up some or all of their savings in the aftermath of the recession. However, wealth and debt are not distributed equally (see chart).

The racial wealth gap is caused by the fact that wealth is passed from generation. As Gregory Clark notes in his recent book, “The Son Also Rises, the residual effects of wealth remain for 10-to-15 generations. Given that most Americans are only four generations removed from slavery and one generation away from segregated neighborhoods, restrictive covenants and all white colleges, the only truly surprising fact is that the racial wealth gap is not larger. America is also uniquely susceptible to persistent wealth gaps because of our low inheritance, estate and capital gains taxes and the fact that what minimal taxes exist our fraught with loopholes. In 2010, the richest 400 households took home 16 percent of all capital gains (a sweet $300 million each), but paid the same tax rate as a worker making $80,000. At the same time, a loophole in the tax code has allowed the wealthiest to avoid $100 billion  in estate and gift taxes since 2000. On the other side, our public school system is profoundly discriminatoryour neighborhoods deeply segregated and access to credit is racially discriminatory. As Thomas Piketty recently demonstrated, “In terms of total amounts involved, inheritance has thus nearly regained the importance it had for nineteenth century cohorts” (see chart).

The biggest myth of the racial wealth gap that must be demolished is that education or rising incomes can eradicate it. As Matt Bruenig has persuasively shown, this argument is laughably absurd.  College educated Blacks have less wealth than white college drop-outs (see chart).

Bruenig also shows that high income Blacks and Hispanics also have less wealth than whites (see chart).

Between 2007 and 2010, all racial groups lost large amounts of wealth. However, the wealth reduction fell disproportionately on Hispanics and blacks, who saw a 44 percent and 31 percent reduction in wealth (compared to an 11 percent drop for whites). This was due to blacks and Latinos disproportionately receiving subprime loans, both because of outright lending discrimination and housing segregation.A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African Americans has tripled between 1984 and 2009. They find five main factors responsible for driving the gap, which together explain 66 percent of the growth in inequality. The factors, in order of importance, are number of years of homeownership, household income, unemployment, college education and financial support or inheritance.

The most frustrating problem with the racial wealth gap is that it is not abating. While half of whites say that “a lot” of progress has been made towards Martin Luther King Jr.’s dream,  the data show that the racial wealth gap has only increasing since 1983 (see chart).

What is to be done?

There are several important public policy changes that can alleviate the racial wealth gap. The first is to prevent the further accumulation of debt. While debt is often seen as a problem attributable to individuals, the academic literature is clear that broader economic forces are at largely responsible for the run-up of debt. Credit card debt is particularly harmful for people of color who often face discriminatory lending practices. A recent study of credit card debt finds that people of color pay a far higher IPR on average than white borrowers. The CARD act has already been a boon to consumers, but underlying drivers of debt, such as rising inequalityretirement insecurity and lack of health insurance must also be addressed.

Higher education debt must also be addressed. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022.” However, student debt is not distributed equally, but rather falling primarily on students of color and low-income students. That’s because in our age of austerity, governments are spending less money on higher education, shifting the burden of paying for college onto students. Federal and state governments need to step up and fund an investment in the next generation.

On the other side, however, we must also foster wealth-building initiatives. Historically, homeownership has been a pathway to the middle class, but deep residential segregation means that Blacks and Hispanics often own homes that are far less valuable than white homes (see Table 3). Further, in the wake of the crisis many banks are buying up foreclosed houses and renting them out. That means income for people of color is no longer becoming wealth for people of color, but rather wealth for rich bankers.  One solution would be a first-time homeowners tax credit that is weighted to benefit low and moderate income households, rather than the mortgage interest deduction, which favors the wealthy. FICO credit scores should replaced with more reliable credit measurements.  But the ideal way to reduce wealth inequality, not only between people of color and whites, but also between the richest .1 percent and the rest of us, is a baby bond.

A baby bond is an endowment given to Americans at birth and maintained by the federal government until they are 18. The bond functions in a similar way to Social Security and can be sued to pay for college, buy a house or start a business. Hillary Clinton, in fact,briefly floated the possibility of a baby bond during her 2008 campaign, although the modest $5,000 sum she proposed is certainly smaller than ideal. Britain brieflyexperimented with a baby bond proposal, although it later became the victim of Tory Austerity.  Dr. Darrick Hamilton and William Darity Jr., leading proponents of  a baby bond, propose a progressive bond that caps at $50,000 for the lowest wealth quartile bond could close the racial wealth gap in three generations.  Their proposal would be given to three-quarters of Americans (based on wealth eligibility). They estimate that such a program would cost $60 billion a year, about one-tenth of the 2014 defense budget.

The baby bond need not increase the deficit. A recent CBO report finds that right now, tax credits primarily benefit the wealthiest, at a cost of nearly $1 trillion a year. This money could easily fund an extensive baby bond program that would, over time, eliminate the racial wealth gap. Another option would be to restore progressivity to our tax system. Because the baby bond program would not be explicitly targeted at people of color but rather would benefit most Americans, it could easily win broad support (much as Social Security is currently untouchable). Any presidential candidate should make the baby bond a central plank of their 2016 if they want to seriously address the problem of wealth inequality. Without such a proposal, wealth, and therefore political power will become increasingly concentrated in the hands of a small elite. It may already be too late.

This piece originally appeared on Salon

There is no American dream for black children

Recent events in Ferguson, Missouri, have once again made the nation consider the durability of racial injustice as a defining factor of the American experience. Black children go to increasingly segregated schools, experience significantly less mobility than whites and are far more likely to be incarcerated for nonviolent crimes. The American dream has always been defined by upward mobility, but for black Americans, it’s harder to get into the middle class, and a middle-class lifestyle is more precarious.

There are numerous factors that help explain why blacks have lower levels of upward mobility, but a surprisingly unpersuasive one is family structure. Conservatives like to tout the research of Raj Chetty and others who find that, “The fraction of children living in single-parent households is the single strongest correlate of upward income mobility among all the variables we explored.” But this observation comes with a caveat — children in two-parent households fare worse in areas with large numbers of single parents. There is reason to believe the causation is reversed. Rather than single-parent households causing low upward mobility, low upward mobility and rampant poverty lead to single-parenthood.

Two researchers from the National Bureau of Economic Research — Melissa Schettini Kearney and Phillip B. Levine — find that single motherhood is largely driven by poverty and inequality, not the other way around. They write,

The combination of being poor and living in a more unequal (and less mobile) location, like the United States, leads young women to choose early, non-marital childbearing at elevated rates, potentially because of their lower expectations of future economic success.

A report by the British Rowntree Foundation had a similar finding: “Young people born into families in the higher socio-economic classes spend a long time in education and career training, putting off marriage and childbearing until they are established as successful adults.” Women in the slow track, in contrast, face “a disjointed pattern of unemployment, low-paid work and training schemes, rather than an ordered, upward career trajectory.” This is largely due to “truncated education.”

Most recently, Bhashkar Mazumder finds that, among those between the late 1950s and early 1980s, 50 percent of black children born into the bottom 20 percent of the income scale remained in the same position, while only 26 percent of white children born into the bottom 20 percent of the income scale remained in the same position. His research finds that the role of two-parent families for mobility is less important than conservatives assert. While living in a two-parent households increases upward mobility for blacks, it has no effect on upward mobility for white children, nor does it affect downward mobility for either race.  If marriage has a significant effect, it is not marriage per se, but rather income and parenting effects that are at work; married people by default have more incomes and more time to spend with children. The solution, then, is paid leave, universal pre-K and government-provided daycare, not wealthy conservatives clutching their pearls and chastising young people for not getting hitched.

So, marriage fails to explain black-white gaps in mobility. What, then, is responsible for the lack of upward mobility among blacks?

1. Housing segregation

Racial segregation explains how it’s so easy for the black middle class to slip back into poverty. As sociologist John R. Logan writes, “The most recent census data show that on average, black and Hispanic households live in neighborhoods with more than one and a half times the poverty rate of neighborhoods where the average non-Hispanic white lives.” This has profound implications for upward mobility.

A 2009 study by Patrick Sharkey finds that, “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.” Sharkley finds that if black and white children grew up in similar environments, the downward mobility gap would shrink by 25-to-33 percent. As the chart below shows, black children are far more likely to grow up in high poverty disadvantaged neighborhoods, which makes upward mobility difficult. (Source)

2. War on drugs and mass incarceration

The war on drugs disproportionately targets people of color: One in 12 working-age African-American men are incarcerated. While whites and blacks use and sell drugs at similar rates, African-Americans comprise 74 percent of those imprisoned for drug possession. The U.S. prison population grew by 700 percent between 1970 and 2005, while the general population grew only 44 percent. The effects of incarceration on upward mobility are profound.

Bruce Western finds that, “by age 48, the typical former inmate will have earned $179,000 less than if he had never been incarcerated.” This impact, however, is more profound for blacks. Western finds that incarceration reduces lifetime earnings for whites by 2 percent, but Hispanics and blacks by 6 percent and 9 percent, respectively. All of this means that men who are incarcerated will live a life at the bottom. For men who begin life in the lowest income quintile, only 2 percent of those who are incarcerated will make it into the top fifth, while 15 percent of those who are not incarcerated will.

3. Segregated employment opportunities

In “When Work Disappears,” Harvard sociologist William Julius Wilson points to the importance of occupational segregation — the fact that African-Americans who are often concentrated in poor urban areas struggle to get jobs in the suburbs or places with a long commute. Only 2.9 percent of white workers rely on public transportation, compared to 8.3 percent of Latino workers and 11.5 percent percent of black workers.

An excellent example of occupational segregation is in Silicon Valley, where data released after pressure from advocacy groups like Color of Change suggests that at Facebook, Twitter, LinkedIn, Yahoo, Google and eBay, only 3 to 4 percent of workers are black or Hispanic. However, a study by Working Partnerships USA finds that, “While Blacks and Latinos make up only 3 to 4 percent of the disclosed companies’  core tech workforce, they are 41 percent of all private security guards in Silicon Valley, 72 percent of all janitorial and building cleaning workers, and 76 percent of all grounds maintenance workers.” (Source)

Much of the problem is social networks. Recent research by Nancy DiTomaso finds that favoritism perpetuates inequality, even in the absence of racial bias. She finds that most employees relied on social networks to obtain a majority of the jobs they held in their lifetime. Because social networks tend to be segregated, this fosters occupational segregation. Miles Corak shows that many children get their first job through their parents, further solidifying the effect of social networks on occupational segregation.

Marianne Bertrand finds that changing the names on résumés to those that are traditionally white or black affects call-backs for jobs. White-sounding names were 50 percent more likely to get called for an initial interview. She also finds that whites with better résumés were 30 percent more likely to get a call-back than whites with worse résumés, but for blacks, more experience only increased call-backs by 9 percent. Another barrier to employment can be social networks.

4. Wealth gaps

Wealth is an important part of a middle-class lifestyle. When a family or individual is struck with illness or the loss of a job, wealth provides support. When a child attends college or is trying to get on his or her feet, a family with wealth can help pay the bills. The large wealth gaps between black families and white families, then, helps explain why black families have such high levels of downward mobility. The recently released Survey of Consumer Finances allows us an opportunity to examine wealth gaps. Matt Bruenig finds that, “The median white family has a net worth of $134,000. The median Hispanic family has a net worth of $14,000. The median black family has a net worth of $11,000.”

Between 2007 and 2010, all racial groups lost large amounts of wealth. However, the effects fell disproportionately on Hispanics and blacks, who saw a 44 percent and 31 percent reduction in wealth, compared to an 11 percent drop for whites. This was due to blacks and Latinos disproportionately receiving subprime loans, both because of outright lending discrimination and housing segregation. A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African-Americans has tripled between 1984 and 2009. They find five main factors responsible for driving the gap, which together explain 66 percent of the growth in inequality. The factors, in order of importance, are number of years of homeownership, household income, unemployment, college education and financial support or inheritance

5. Two-tiered education system

The U.S. increasingly has a two-tiered education system, with students of color trapped in underfunded schools. (Source)  A recent study finds that, “schools with 90 percent or more students of color spend a full $733 less per student per year than schools with 90 percent or more white students.”

Schools today are becoming more segregated, rather than less segregated. The average white student attends a school that is 72.5 percent white and 8.3 percent black, while the average black student attends a school that is only 27.6 percent white, but is 48.8 percent black. These schools are underfunded and understaffed. In 2001, the American Civil Liberties Union filed a lawsuit after 18 public schools had “literature classes without books,” computer classes where students discuss what they would do if they had computers, “classes without regular teachers” and classes without enough seats where students stood in the back.

Mazumder finds that student scores on the Armed Forces Qualification Test (a comprehensive test taken toward the last few years of high school) can help explain differences in upward mobility between blacks and whites. He also finds that completing 16 years of education is a crucial factor in upward mobility. The fact that AFQT scores help predict upward mobility is often used by those who argue that racial differences in intelligence largely explain differences in upward mobility. However, since the AFQT is taken in high school, a better explanation is that differences in AFQT scores represent the combined impacts of poverty, bad schools, wealth gaps, substandard healthcare and segregated employment opportunities working together to reduce long-term mobility.

The idea that there are biological factors reducing upward mobility for African-Americans is both odious and entirely false. As Nathaniel Hendren told me when discussing his research,

We can absolutely reject that theory. In order to believe that theory, you have to believe that the spacial differences across the U.S. are differences in some kind of transmission of genes. Suppose you move from one area to another and you have a kid. Does your kid pick up the mobility characteristics of the place you go to? Now obviously, your genes don’t change when you move. What we find is that kids start to pick up the mobility characteristics of the place they move to, and they do so in the proportion to the amount of time they end up spending in that place. The majority of the differences across places are casual. If people lived in different places, they would have different outcomes.

This all leads to the saddest conclusion — were it not for poorly conceived policies, we could have more upward mobility in the U.S. While conservatives like to point at cultural factors and throw up their hands, a far more productive solution is to redress our massive public policy problems — like the war on drugs and dropout mill schools — that are proven to reduce upward mobility.

The conservative mind-set is ahistorical — we are told to throw away the legacy of slavery and segregation and expect blacks to pull themselves up by their own bootstraps, ignoring the structural dynamics keeping them down. Research by Graziella Bertocchi and Arcangelo Dimico finds that counties with higher concentrations of slave ownership in 1870 had higher levels of poverty and racial inequality in 2000. Matthew Blackwell finds that Southerners who live in counties with higher levels of slave ownership in 1860 express more racial resentment and are more likely to oppose affirmative action. As Marx noted, “Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past. The tradition of all dead generations weighs like a nightmare on the brains of the living.”

 

 

This article originally appeared on Salon.

Beyond Ferguson: 5 glaring signs that we’re not living in a post-racial society

In the wake of the Ferguson shooting, a recent Pew poll finds that 47 percent of whites believe that “race is getting more attention than it deserves,” with regards to the death of Michael Brown, while only 18 percent of African-Americans feel the same. Meanwhile, a similar Pew study found that whites are far less likely to see discrimination in the treatment blacks receive by the education system, the courts and hospitals. Such views are held by many Americans, who believe that “blacks are mostly responsible for their own condition.” Police killings of unarmed blacks are certainly the most visible manifestation of systemic racism, but data show that racism still manifests itself frequently in everyday life.

In America, race determines not just where someone lives and what school he or she attends, it affects the very air we breathe. Although many whites wish to believe we live in a “post-racial” society, race appears not just in overt discrimination but in subtle structural factors. It’s impossible to delineate every way race affects us every day, but a cursory examination of major structural racial problems can give us a feeling for how far we still have to go.

1) Education

Education is an important key to fostering upward mobility and alleviating inequality. However, schools today are becoming more segregated, rather than less segregated. At the peak of integration, 44 percent of black Southern students attended majority white schools. Today, only 23 percent do. This is particularly worrying because recent research by Rucker C. Johnson finds that school desegregation benefited black students, because it “significantly increased both educational and occupational attainments, college quality and adult earnings, reduced the probability of incarceration, and improved adult health status.”

Researchers have increasingly referred to a rise of “apartheid schools,” which are almost entirely non-white. In 2003, one-sixth of all black students were educated in such “apartheid schools.” These districts are underfunded and understaffed, and frequently referred to as “dropout factories.” So students of color are far less likely than their white peers to attend schools with a full range of advanced courses.

As ProPublica documents, more and more schools are squeezing out of court oversight. The result, according to Sam Reardon and his colleagues, is increased racial segregation.

(Source)

At the college level, the situation is little better. A recent report by Anthony Carnevale and Jeff Strohl finds that college education in America consists of “a dual system of racially separate and unequal institutions despite the growing access of minorities to the postsecondary system.” They find that students of color are less likely to end up in the most selective schools than white students with the same qualifications.

2) Wealth

There is a large racial wealth gap between blacks and whites in America, partially driven by income but exacerbated by racially biased housing policies (which will be examined below). A recent research brief by the Institution on Assets and Social Policy finds that the wealth gap between white families and African-Americans has tripled between 1984 and 2009. The recession has only exacerbated the gap, with whites losing 11 percent of their wealth between 2007 and 2010, while blacks lost 31 percent and Hispanics 44 percent.

(Source)

The housing crash disproportionately affected blacks and Hispanics, who were more likely to receive subprime loans even when compared to whites with similar credit scores. In one instance reported by the New York Timesa loan officer at Wells Fargo said the bank “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.” However, even before the recession, disparities inemployment, college education, homeownership and inheritance helped solidify racial wealth gaps. Instead of wealth, more and more Americans, particularly people of color, are burdened with debt.

3) Job Markets

Unemployment is particularly high among African-Americans, the result of both explicit discrimination and occupational segregation.

Occupational segregation, or the delegation of blacks to jobs with low upward mobility and wages, is rife. People of color are primarily affected by practices like just-in-time scheduling, which gives workers little warning before a shift.

Part of the problem is infrastructure and education. People of color are far more likely to rely on public infrastructure, and therefore suffer from cuts to public transportation. Decades of housing segregation have trapped African-Americans in jobless areas with badly understaffed schools. Social networks reinforce the patterns, since most Americans get their jobs through friends and family connections. Outright discrimination plays a role as well: Marianne Bertrand finds that applicants with white-sounding names are 50 percent more likely to receive a call-back than applicants with black-sounding names with the same credentials.

4) Upward Mobility

Possibly the defining American attribute is the dream of upward mobility. Sadly, this tends to be more farce that fact — America lags behind other developed countries in measures of upward mobility. But recent research by Raj Chetty, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, shows that levels of upward mobility vary across the country — and is strongly predicted by income inequality and racial segregation. They write: “Income mobility is significantly lower in areas with large African-American populations.” (Whites in the areas also had lower levels of mobility.)

Specifically, they note the importance of segregation, “areas that are more residentially segregated by race and income have lower levels of mobility.”

(Source)

A recent Pew Research Center study shows that not only do blacks have lower levels of upward mobility; among those that do make it into the middle class, their children are more likely to slide back into poverty. In what may be the most depressing footnote I’ve ever seen in a chart, Pew notes that there are not enough observations of blacks in the fourth and fifth (read: highest) quintiles of income to make observations about upward mobility.

 

(Source)

In a recent study, Bhashkar Mazumber finds that out of all children born between the late 1950s and early 1980s, 50 percent of black children born into the bottom 20 percent of the income scale remained in the same position, while only 26 percent of white children born into the bottom 20 percent of the income scale remained in the same position. He also finds, like Pew, that African-Americans in the middle class are on far more precarious footing than whites: 60 percent of black children born in the top half of the income distribution fell to the bottom half later in life, but only 36 percent of white children born in the top half of the income distribution fell to the bottom half later in life.

Surprisingly, Mazumber finds that “[w]hile these results are provocative, they stand in contrast to other epochs in which blacks have made steady progress in reducing racial differentials.” While we like to believe we are constantly progressing, these data suggest we may be backsliding with regard to mobility and race.

5) The War on Drugs

The socioeconomic realities discussed above cannot be divorced from the war on drugs: It is a war that is primarily fought against people of color in the country. One in 12 working-age African-American men is incarcerated; and while whites and blacks use and sell drugs at similar rates, African-Americans comprise 74 percent of those imprisoned for drug possession.

The U.S. prison population grew by 700 percent between 1970 and 2005, while the general population grew only 44 percent. According to the Bureau of Justice statistics, around half of federal prisoners’ most serious offense is drug-related. The war on drugs has undermined the legitimacy of law enforcement and eroded their esteem in the eyes of the public. Even before the Ferguson shooting, 70 percent of blacks agreed that, “blacks in their community are treated less fairly than whites” when dealing with the police.

Instead of housing those who have committed violent crimes, U.S. prisons are increasingly teeming with nonviolent offenders. Formerly incarcerated people struggle to find work, and are therefore more likely to turn to crime in the future, creating a vicious and counterproductive cycle. A Pew study finds that the costs of incarceration are often hundreds of thousands of dollars in lost wages. Even when they are no longer incarcerated, former inmates are often deprived of basic rights, including franchise. Around 13 percent of African-American men have been denied the right to vote.

This is to barely touch on the empirical literature on school punishmentaccess to healthcare, a history of racially biased federal policy and the other deep issues that we face. The most disturbing fact is that in almost all of these areas, we have actually seen previous progress eroded, even while we proclaim ourselves a post-racial society. It’s time to take an honest look at race in America. We probably won’t enjoy it. But we need it.

This piece originally appeared on Salon.

You can blame America’s inequality and shrinking middle class for rising student debt

Co-Written with Mark Huelsman.

There is a tendency among elite opinion makers to believe that debt accrued while gaining a college degree is “good debt” that isn’t problematic because, as the thought goes, those with college degrees tend to make enough money to recoup their debt over a lifetime. Student debt is supposedly an equalizer—a way for students to gain access to credit in order to get a degree that will give them an equal chance to enter the middle class and achieve the American Dream. Sadly, like many pundit platitudes, this assertion is grounded in fantasy, not fact.

In fact, this is only true for some students—those who were fairly wealthy in the first place. College is certainly worth the cost, but that at present it is saddling poor and middle-class students with student debt is actually preventing them from participating in the wealth-building processes that previous generations have enjoyed.

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The debate over student debt usually focuses on those right out of school, but that masks that a substantial portion of those with student debt struggle mightily to pay off their loans in a timely manner, delaying (sometimes in perpetuity) their entry into the middle class. Research by the US Federal Reserve Bank of New York finds that many borrowers still haven’t paid off their student loans by their 40s and 50s.

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For students just out of school, upward of 15% of their federal student loans are in default within three years of students leaving school, and delinquency rates for student loans have continued to rise during and after the recession, even as delinquencies in every other form of loan—including mortgages, home equity loans, credit cards, and auto loans—have declined.

The inability to pay off debt is a really big deal, because these students are more likely to take any job that comes their way to pay off their loans than invest in themselves. Research from Demos finds that if “current borrowing patterns continue, student debt levels will reach $2 trillion sometime around 2022. Another report concludes that, “an average student debt burden for a dual-headed household with bachelors leads to a lifetime wealth loss of nearly $208,000.” Given that wealth inequality has returned to Gilded Era heights, this finding should be disturbing.

The problem is that, rather than being seen as a social investment, college education is increasingly seen as a commodity—something that is accessible for the wealthy, but out of reach for the poor, and increasingly, the middle class. Sure enough, student debt is highly correlated to income level with the wealthiest having the lowest amount of debt as a portion of their income (see table).

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Poor and middle class students are much more likely to take on student loans—in fact, nearly 9 in 10 graduates who receive Pell Grants also needed to borrow to finance their degree, compared to 53% of graduates who did not receive Pell Grants. These students will spend more time paying off their debt and less time saving for retirement or other needs, creating a vicious cycle of deepening wealth inequality.

There is a more tenuous, but equally important way in which rising inequality has increased student debt among the poor and middle class – through the political system. Recently, Martin Gilens and Benjamin Page sent the internet alight with their assertion that “economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence.” This finding is corroborated by Larry BartelsDorian WarrenJacob HackerPaul Pierson and Kay Lehman Schlozman who have all recorded similar findings.

Although this elite and corporate control of the political system is bad a priori, it has particular importance in the case of education. In their study of the political attitudes of the wealthiest 1%, Larry Bartels, Benjamin Page and Jason Seawright find that the wealthiest 1% have different policy priorities than average voters. For instance, while 78% of the general public agree with the statement, “The federal government should make sure that everyone who wants to go to college can do so,” only 28% of the wealthy agree. Elites are also far less likely to agree that, “The federal government should spend whatever is necessary to ensure that all children have really good public schools they can go to,” by a margin of 35% to 87%. They also believe that cutting deficits is a more important priority than funding education, and believe that education is a lower spending priority than the middle class.

This helps explain why states have slashed spending for education while also cutting taxes—those with the most influence over policy have little to gain from public education, but much to gain from cutting taxes. It also explains why there is very little national attention paid to community colleges, which educate 4 in 10 college students, and who are disproportionately impacted by state budget cuts.  Research by Greg Duncan and Richard Murnane shows that wealthy spend far more supplementing their children’s incomes than the poor, which means that state level cuts have a devastating impact on the poor (see chart).

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Robert Hiltonsmith and Tamara Draut find that in the aftermath of the Great Recession, 49 states (all but North Dakota) cut spending on higher education and that state spending on higher education hit an all-time low in the wake of the recession (see chart). This, essentially, results in higher tuition. Draut and Hiltonsmith find that, “Nationally, average tuition at 4-year public universities increased by 20% in the four years since 2008 after rising 14% in the four years prior.” Tuition continues to grow as a share of the median income, which means all families but the very rich have to take out large debts to pay for their education. This, in turn, means that recent graduates are paying off loans, rather than building wealth.

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College is an important pathway to the middle class and one of the most effective ways to fight inequality. As it becomes increasingly difficult for students to gain an education, it closes gateways to upward mobility. The effect is particularly potent for blacks. A recent study by Bhashkar Mazumder finds that, “blacks have experienced substantially less upward intergenerational mobility and substantially more downward intergenerational mobility than whites.” He finds that this gap shrinks among those with 16 years of schooling.

One simple way to move away from the debt-for-diploma system is for the government to shift from a policy of loans to a policy of grants. There is no reason why college education should primarily be funded by expensive, high interest loans. In the past, Pell Grants helped the poor and middle class attend college, but Pell Grants make up an increasingly low percentage of the cost for college (see chart).

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At a bare minimum the government could allow students to refinance their debts at a lower level; most other countries have policies that allow students to pay off debts as a portion of their income and eventually allow the debts to be forgiven. In Britain, students don’t begin paying off their loans until they find stable employment, and then they pay in proportion to their earnings. Australia similarly ties the cost of paying off the loan to the income of the graduate, and loans themselves come with no interest attached. In Denmark, education is considered a right by the people and an investment by the government, and is therefore free. Some students are even offered a stipend by the government to defray costs. Norway and Sweden have  similar systems of higher education. The US has attempted to implement loan repayment schemes that allow students to pay in accordance with their income, but the default repayment plan on federal student loans is still an arbitrary 10-year time period—a time when borrowers tend to make less, and when saving for retirement could benefit them the most. But enrollment in these plans have been slow, likely due to the fact that our system is needlessly complex and opaque (to wit, there are upwards of 9 different repayment plans one can choose on student loans).

Education, and especially college education is a pathway to the middle class, and most Americans think it is more important than ever. But as society becomes more unequal, access to debt-free education becomes harder and harder.

Originally published on Quartz. 

Six ways America is failing its people

Although the U.S. is one of the richest societies in history, it still lags behind other developed nations in many important indicators of human development – key factors like how we educate our children, how we treat our prisoners, how we take care of the sick and more. In some instances, the U.S.’s performance is downright abysmal, far below foreign countries that are snidely looked-down-upon as “third world.” Here are six of the most egregious examples that show how far we still have to go:

1. Criminal Justice

We all know the U.S. criminal justice system is flawed, but few are likely aware of just how bad it is compared to the rest of the world. The International Center for Prison Studies estimates that America imprisons 716 people per 100,000 citizens (of any age). That’s significantly worse than Russia (484 prisoners per 100,000 citizens), China (121) and Iran (284). The only country that incarcerates a higher percentage of its population than we do is North Korea. The U.S. is also the only developed country that executes prisoners – and our death penalty has a serious race problem: 42 percent of those on death row are black, compared to less than 15 percent of the overall population.

Over two and a half million American children have a parent behind bars. A whopping 60 percent of those incarcerated in U.S. prisons are non-violent offenders, many of them in prison for drug charges (overwhelmingly African-Americans). Even while our crime rate has fallen, our incarcerated population has climbed. As of 2011, an estimated 217,000 American prisoners were raped each year ­– that’s 600 new victims every day, a truly horrifying number. In 2010, the Department of Justice released a report about abuse in juvenile detention centers. The report found that 12.1 percent of all youth held in juvenile detention reported sexual violence; youth held for between seven and 12 months had a victimization rate of 14.2 percent.

2. Gun Violence

The U.S. leads the developed world in firearm-related murders, and the difference isn’t a slight gap – more like a chasm. According to United Nations data, the U.S. has 20 times more murders than the developed world average. Our murder rate also dwarfs many developing nations, like Iraq, which has a murder rate less than half ours. More than half of the most deadly mass shootings documented in the past 50 years around the world occurred in the United States, and 73 percent of the killers in the U.S. obtained their weapons legally. Another study finds that the U.S. has one of the highest proportion of suicides committed with a gun. Gun violence varies across the U.S., but some cities like New Orleans and Detroit rival the most violent Latin American countries, where gun violence is highest in the world.

3. Healthcare

A study last year found that in many American counties, especially in the deep South, life expectancy is lower than in Algeria, Nicaragua or Bangladesh. The U.S. is the only developed country that does not guarantee health care to its citizens; even after the Affordable Care Act, millions of poor Americans will remain uninsured because governors, mainly Republicans, have refused to expand Medicaid, which provides health insurance for low-income Americans. Although the federal government will pay for the expansion, many governors cited cost, even though the expansion would actually save money. America is unique among developed countries in that tens of thousands of poor Americans die because they lack health insurance, even while we spend more than twice as much of our GDP on healthcare than the average for the Organization for Economic Co-operation and Development (OECD), a collection of rich world countries. The U.S. has an infant mortality rate that dwarfs comparable nations, as well as the highest teenage-pregnancy rate in the developed world, largely because of the politically-motivated unavailability of contraception in many areas.

4. Education

The U.S. is among only three nations in the world that does not guarantee paid maternal leave (the other two are Papua New Guinea and Swaziland). This means many poor American mothers must choose between raising their children and keeping their jobs. The U.S. education system is plagued with structural racial biases, like the fact that schools are funded at the local, rather than national level. That means that schools attended by poor black people get far less funding than the schools attended by wealthier students. The Department of Education has confirmed that schools with high concentrations of poor students have lower levels of funding. It’s no wonder America has one of the highest achievement gaps between high income and low income students, as measured by the OECD. Schools today are actually more racially segregated than they were in the 1970s. Our higher education system is unique among developed nations in that is funded almost entirely privately, by debt. Students in the average OECD country can expect about 70 percent of their college tuition to be publicly funded; in the United States, only about 40 percent of the cost of education is publicly-funded. That’s one reason the U.S. has the highest tuition costs of any OECD country.

5. Inequality

By almost every measure, the U.S. tops out OECD countries in terms of income inequality, largely because America has the stingiest welfare state of any developed country. This inequality has deep and profound effects on American society. For instance, although the U.S. justifies its rampant inequality on the premise of upward mobility, many parts of the United States have abysmal levels of social mobility, where children born in the poorest quintile have a less than 3 percent chance of reaching the top quintile. Inequality harms our democracy, because the wealthy exert an outsized political influence. Sheldon Adelson, for instance, spent more to influence the 2012 election than the residents of 12 states combined. Inequality also tears at the social fabric, with a large body of research showing that inequality correlates with low levels of social trust. In their book The Spirit Level, Richard Pickett and Kate Wilkinson show that a wide variety of social indicators, including health and well-being are intimately tied to inequality.

6. Infrastructure

The United States infrastructure is slowly crumbling apart and is in desperate need for repair. One study estimates that our infrastructure system needs a $3.6 trillion investment over the next six years. In New York City, the development of Second Avenue subway line was first delayed by the outbreak of World War II; it’s still not finished. In South Dakota, Alaska and Pennsylvania, water is still transported via century-old wooden pipes. Some 45 percent of Americans lack access to public transit. Large portions of U.S. wastewater capacity are more than half a century old and in Detroit, some of the sewer lines date back to the mid-19th century. One in nine U.S. bridges (or 66,405 bridges) are considered “structurally deficient,” according to the National Bridge Inventory. All of this means that the U.S. has fallen rapidly in international rankings of infrastructure.

America is a great country, and it does many things well. But it has vast blind spots. The fact that nearly 6 million Americans, or 2.5 percent of the voting-age population, cannot vote because they have a felony on record means that politicians can lock up more and more citizens without fear of losing their seat. Our ideas of meritocracy and upward mobility blind us to the realities of class and inequality. Our healthcare system provides good care to some, but it comes at a cost – millions of people without health insurance. If we don’t critically examine these flaws, how can we ever hope to progress as a society?

Originally published on The Rolling Stone.

How Other Countries Do Student Loans

Congress will likely hammer out some sort of deal, which Republicans will love and Democrats will be forced to swallow, but it’s worth considering whether we view education in entirely the wrong way here in America.

In Britain, where my girlfriend lives, students don’t begin paying off their loans until they find stable employment, and the cost is in proportion to their earnings. Australia similarly ties the cost of paying off the loan to the income of the graduate. In Denmark, education is considered a right by the people and an investment by the government, and is therefore free. Some students are even offered a stipend by the government to defray costs. Norway has a similar system of higher education, in Sweden, students pay only a small fee. In America, the university is considered a commodity, one that can easily purchased by the wealthy, but not the poor. These represent a fundamentally different cultural attitude: elsewhere,  education is a public good, an investment or a right, in the U.S., it’s a privilege reserved for wealthy elites.

The OECD measures the difference in test scores between children from a high socioeconomic background and a low socioeconomic background. In the U.S., the difference is 112 points. In Denmark, by contrast, it’s s of 93 points, in Finland, it’s 62 points, in Canada 65, Norway, 77. Unequal primary education, combined with the high cost of college mean that while the U.S. has remained relatively high among college attainment rates (although it is falling), attainment rates for minorities are abysmal.

That’s how the U.S. can have both one of the best education systems and one of the worst education systems in the world: wealthy students have access to top-notch preschools, test prep, summer camps and summers schools and then a high-end university education, while poor students get left in the dust.

Public funding for tertiary (university) education and pre-school education in America is far below that of other OECD countries. (Grey represents public funding, light blue represents household funding, and dark blue represents other private expenditures). In many countries, the government funds tertiary education almost entirely, but the average for public funding is about 70%. In the U.S. public funding amounts to only 40% of a student’s college education, with another 40% paid out of pocket.

But it’s not just funding that’s different: poor children and rich children are taught differently. Whereas the children of  wealthy and middle-class parents are allowed free intellectual inquiry with teachers open to questions, the education of poor children is bureaucratized and dull. Jonathan Kozol described a program called “Success for All” (a curriculum designed for inner-city students) in Shame of a Nation,

[When the school adopted SFA] a martial regimen which teachers spoke of as “a reign of terror,” which included “silent lunch” and, for certain periods of time, even “silent recess,”had been instituted at the school. Children who, on occasion, fell into the natural rambunctiousness of students of their age were denied their recess altogether and compelled instead to remain indoors sitting cross-legged on the floor while other children had a chance to go outside. A fifth-grade teacher told me that her class, a nice group of children who were generally well behaved, was punished for one episode of misbehavior by the loss of recess for more than two months. In order to allow more time for drilling children for their literacy tests, music, art, natural science, and, in some respects most damaging, the social sciences were virtually abandoned at the school.

The problem with education is that for poor children, we’ve tried to make it capitalistic: ruthless, competitive, privatized. We’ve tried to fatten the cows by weighing them. And the result is obvious: a rigid class structure. Remember Waiting for Superman? The few black children who make it into the super-duper education system must leave their family to live in a small boarding house and study nearly every waking hour. Should we be surprised that wealthy students are prepared for higher education, inquiry and investigation, while poor students are prepared for technical high schools and then a minimum wage job.

Is it any wonder that the American dream is dying? Economists like Miles Corak have discovered that upward mobility is now lower in America than a host of other European countries, among them, Denmark, Sweden, Canada, France, Germany, Norway and Finland. Is it, as George Carlin claimed, “called the American dream because you have to be asleep to believe it?” Could this be because of the extraordinary cost of college education in the U.S.?

What can we do? Lowering student loans below the rate paid by the big banks who destroyed the economy and the lives of millions Americans would be a good first step. But it’s also a band-aid. Much like Nixon and Reagan ignored the plight of the power by launching a War on Drugs, Conservatives have obscured the true cost of poverty by advocating school choice union-busting. When I read of proposals to fix schools by privatizing them, I’m reminded of Slajov Zizek’s words,

It is not without irony to note how ideologists who once mocked this critical defense of socialism as illusory, and insisted that one should lay the blame on the very idea itself, now widely resort to the same line of defense: for it is not capitalism as such which is bankrupt, only its distorted realization.

We need government funded day care and mandatory maternity leave. We need to make our society more equal. Richard G. Wilkinson and Kate Pickett have found that more equal societies have higher education scores.  We need to integrate our schools, which are more race and class-segregated now than in the 1970s. New research shows that the U.S. cities that have the most upward mobility have high spending per pupil and low rates of racial segregation. That will mean more busing programs and measures to actively integrate schools. Interestingly, some European countries have moved towards the more capitalistic model of education we have here in America. The result, “educational choice tends to intensify class segregation through the effects of different preferences and information costs.” If we want to really improve schools we have to strike at what is causing some of them to fail: poverty, prison and segregation.

We need to treat education as both an investment in the economy and in informed, intelligent and active citizens. Remember that the biggest boom in American innovation came after WWII, when millions of Veterans attended college under the GI bill. Remember that the American dream, as enshrined by James Truslow Adams, was a place where, “each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Many, like Charles Murray, believe that these policies are overly romantic, that education should be a commodity and the best education should be saved for the super-bright. He thinks poor students are failing because, well, they just aren’t as smart as rich kids, not because they haven’t had the same opportunities.

I disagree. As Stephen Jay Gould once noted, “I am, somehow, less interested in the weight and convolutions of Einstein’s brain than in the near certainty that people of equal talent have lived and died in cotton fields and sweatshops.” Could the next Einstein by dissuaded from college because of our flawed education system?

A version of this article originally appeared on Salon.com

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