By Karen Petrou
- African-Americans were better off before the civil-rights era began than they were in mid-2019.
- Truly huge disparities lie between white and black Americans in terms of income, wealth, and inter-generational mobility.
- And that was before COVID eviscerated low-income households of color from both a health and economic point of view.
- It’s past time for equality-focused financial policy, starting first with Equality Banks.
In the wake of George Floyd’s gruesome killing, white Americans seem surprised that black anger exploded with such ferocity. Surely, many say, black lives are far better than they were when the cities last burned in 1968. In fact, African-Americans are now worse off economically than they were before the Civil Rights era and subsequent “Great Society” laws of the 1960s promised a fair seat at prosperity’s table. As American income and wealth concentrated at the tippy-top, economic inequality grew even worse than overall inequality because the tippy-top has remained almost exclusively white. As this post will show, African-Americans were enormously and disproportionately excluded from the Fed’s post-crisis “good place.” There are only anecdotal data about how COVID has ravaged communities of color from both a health and economic point of view, but the data so far are compellingly ghastly. As a result, one must add getting by while black to driving while black, jogging while black, and even birdwatching while black as a high-hazard condition overdue for substantive, structural remedy.
Data Tell a Dismal Tale
Words here cannot express what data demonstrate. In 2016, the average wealth of white households ($933,700) was seven times the average wealth of black households ($138,200) and five times that of Hispanic households ($191,200). In 2017, black household median income ($38,183) was less than two-thirds that of median white household income, with about one-third of black households earning less than $25,000 compared to only 18 percent of white households.
Before COVID, only 41 percent of black households owned their own homes, the lowest rate since the 1960s. White homeownership was below its highs, but still stands at 73 percent.
At the end of 2019, white Americans owned 85.5 percent of U.S. household wealth. That of African-Americans was 4.2 percent. Hispanic wealth share was 3.1 percent, and others held 7.1 percent. To put this into context, non-Hispanic whites were only 60.4 percent of the U.S. population as of the most recent Census Bureau data. In terms of hard cash, whites held $95.6 trillion; blacks owned $4.7 trillion.
A qualitative view of racial equality comes from the Urban League, a U.S. advocacy group. Its “Equality Index” assigns ratings based on economic and qualitative factors. In its most recent analysis, African Americans had an index of 72.5 percent versus the benchmark 100 granted to whites; the Hispanic index was 79.3 percent.
These inequality data are depressing enough, but they still do not show the real extent of underlying income and wealth distribution. A French scholar, François Bourguignon, has developed an interesting concept: intangible economic equality. He styles this the “inequality of opportunity.” This covers inequities not captured by bottom-line data because results on income and wealth may seem the same, but be substantively different due to household circumstance. For example, differences in the way a family might grow its income – getting one large pay raise versus working twice as hard – do not show up in total household labor income data. Similarly, wealth from inheritance has different market, social-welfare, and policy effects than wealth derived from one’s own invention. Housing may seem available and affordable based on aggregate loan balances and costs. However, inequality occurs if the home is purchased in an undesirable neighborhood with poor schools or at a significant distance from the place of employment.
What to Do?
Discussions of “inclusive finance” have recently focused on using “digital dollars” that are said to enhance equality by taking retail finance from banks and handing it over to the Fed and U.S. Post Office. Leaving aside complex questions about whether the Fed would be any more equal than the banks or if either it or the Post Office has the capacity to take on retail financial intermediation, the digital-dollar construct relies on affluent, younger and likely white households with fancy phones living in homes and cities with reliable, fast broadband service.
Not only do most low-income people prefer cash even to cards, but even the majority of younger Americans have been slow to adopt mobile banking.
There are a lot of reasons for this and COVID may speed remote banking, but the lessons of remote learning are instructive: while public schools ramped up almost overnight, urban areas such as the District of Columbia are still having trouble finding and then reaching students and rural counties were almost completely disconnected. Persons with disabilities are also often frozen out, as are older persons uncomfortable with doing much more than facetiming the grandkids.
This huge “digital divide” would be an equality chasm if dollars were added to the services dependent solely on the Internet. Over time, new delivery options based on a central-bank digital currency might well be warranted, but that time is not now. Black families would face all the barriers to this new form of banking that they face to the old ones and likely still more.
A better option would be special-purpose Equality Banks. As noted in a prior post, these could launch now under current law with the capacity quickly, cheaply, and equitably to deliver the financial services needed to form the backbone of economic equality for those still struggling to get by no matter how hard they try.