The Color of Wealth

In one version of history, Americans of all races have never enjoyed more equality. In another, spotlighted by law professor Richard Thompson Ford in Zócalo Public Square, we’re worse off than we were 30 years ago.

Ford discusses a Brandeis University study showing that the wealth gap between white and black families in America nearly tripled between 1985 and 2009. What gives?

Certainly, as Ford notes, the housing crash had a lot to do with it. “The Brandeis study found that disparities in home equity account for almost 30% of the wealth gap,” he writes, with homeowners in non-white neighborhoods generally far deeper underwater than homeowners in mostly-white neighborhoods.

But part of the problem is also one of compounded advantages and disadvantages dating back to slavery. Wealth passes on from parent to child; providing basic financial assistance, such as part of a down payment on a house, gives that child a head start. And whites are more likely to have that sort of wealth than blacks are. “The income gap between blacks and whites with similar levels of education has narrowed,” Ford writes. “But the wealth gap reflects disparities that are generations old.”

When Peter Drucker was writing about wealth disparity in the late 1970s and early ’80s, he considered some of the statistics to be misleading. In Drucker’s view, the “single greatest asset of the typical American middle- and working-class family” was its “future contingent claim on the pension fund of the employing company.” This wasn’t personal wealth or property, but it was “increasingly worth a great deal more than the family home or the family automobile.” Moreover, “If it were included . . . the distribution of wealth in this country would show a remarkable and progressive equality.”

Image credit: thecitizen-dv

But Drucker would probably feel differently today, with many families finding housing to be more important as a source of wealth than pension claims. As a result, he likely would have been concerned by the meager down payments and highly leveraged loans offered to low-income buyers, many of them African-American or Hispanic. “Leverage is a very dangerous thing,” Drucker warned in Technology, Management, and Society. “It works both ways.”

When Drucker looked at the plight of America’s poor, particularly among African Americans, he considered explanations that touted “racial inferiority” or “the legacy of discrimination and slavery” to be “equally racist and equally despicable.” Far more to blame, Drucker maintained in Managing in a Time of Great Change, were perverse incentives put in place by the welfare state.

Still, that doesn’t mean that he viewed African-American history as irrelevant to present-day problems. As Drucker wrote in 1993’s Post-Capitalist Society, “The legacy of the sin of slavery has been the central American challenge for 150 years and is likely to remain the central American challenge for at least another 150 years.”

What do you think accounts for the dramatic rise in wealth inequality between black and white Americans over the past three decades?