Understanding the 'Color of Money'

One of the perennial myths surrounding the civil rights movement of the 1960s is that its leaders extinguished, more or less, the issue of racial inequality in the United States.

But that was hardly the case.

Take the racial wealth gap: Median black wealth is 13 times lower than median white wealth, according to a 2014 study by the Pew Research Center.

How did we get here? The history of the racial wealth gap is long and intertwined with America’s shameful treatment of black Americans, as Mehrsa Baradaran, author of The Color of Money: Black Banks and the Racial Wealth Gap and a professor of law at the University of Georgia specializing in banking law, noted at an event on Tuesday, hosted by New America’s Family-Centered Social Policy program.

“In the 20th century, intergenerational wealth for the majority of the population was created through home ownership,” Baradaran said. “In the previous century, it was land. You cannot gain wealth without land or a home. All of that wealth excluded the black population.”

A system of segregated banking and black banks were developed in response to discriminatory Jim Crow-era laws, because black Americans weren’t allowed to get credit from, or make deposits in, white-owned banks. Post-Jim Crow, black banking and a new focus on “black capitalism” allowed policymakers to avoid difficult discussions around societal integration and paying monetary reparations to black Americans. Baradaran’s book details then-President Richard Nixon’s development and use of black capitalism, or the dubious idea that black-owned businesses and communities could generate their own wealth without the kinds of direct intervention generations of whites had enjoyed.

But while these aspirations and efforts had the trappings of helping black communities, they did nothing to generate true change.

“I call it a policy decoy,” Baradaran said. “There’s this idea of self-sufficiency, or putting the burden of the racial wealth gap on the black community to self-finance their way out of it. This myth that a beleaguered community that is segregated from the main avenues of commerce can lend to themselves—that’s never worked.”

The insufficiency of this approach has fueled other, more recent and localized efforts to bridge the racial wealth gap. Risha Berry is a project management analyst for the Office of Community Wealth Building for Richmond, Virginia. Berry’s office is the first of its kind and is charged with the ambitious task of reducing poverty in Richmond by 40 percent by 2030.

“It was created as a task force to look at ways to really solve poverty within the city,” Berry said. “And not from the standpoint where we just study, and study again, and make recommendations, but to have some fundamental change in the way we do things within city government. Poverty is an outgrowth of some structural conditions that have been created. We need to go into the community for solutions, rather than looking at it from a census tract.”

In a similar vein, Tishaura Jones, treasurer of St. Louis, Missouri, has worked since her election in 2012 to ensure that there are opportunities for economic growth within the city. She created the Office of Financial Empowerment in City Hall to help people to open bank accounts, save, and make better choices with their money. To that end, the office features the College Kids Children’s Savings Account Program and the Alternative Lending Guide; it also supports efforts to revitalize public transportation in St. Louis. The city does all of this with an eye to creating economic mobility for its citizens.

But it isn’t just about spurring economic growth. Across the country, there’s also a push to reduce the financial burden routinely placed on black Americans. Anne Stuhldreher, director of financial justice for the city and county of San Francisco, California, and a New America CA fellow, works to reform the fines and fees that all too often devastate marginalized communities.

“When traffic court fines and fees exceed people’s abilities to pay them, a spiral of despair can be set into motion,” Stuhldreher said. “The ticket can grow through late fees, your credit can be impacted, you can lose your driver’s license, which can cause you to lose your job. These fees are high pain, low gain. They can really hurt families, but bring in very little revenue because people don’t have the money to pay them.”

Stuhldreher pointed out court experiments and pilot systems that have made fines and fees bearable and that have been apportioned according to people’s incomes. These studies have found that people are more likely to pay apportioned fees, and, more than that, they’ve indicated that the overall revenue that flows to the city goes up, while the disproportionate impact frequently levied by fees goes down.

Focusing on reforms and programs for economic growth and mobility may be able to help to reduce the wealth gap caused by inefficient government structures, ones still operating in service of their original, racist design. But without acknowledging the racial divide in the United States in the first place—and without massive political will, empowerment, and government support—fully bridging that gap will be nearly impossible.

“We know how to close the wealth gap because we’ve already done it. We did it for white Americans after the Great Depression—it’s a mixed economy, banks, government,” Baradaran said. “You secure mortgages and make them risk-free. We did it, and it didn’t cost very much money. It actually increased money. We have just refused to do it for black communities. So if we’re going to talk about bridging the gap, we’ve got to talk about it in a way that is large and federal and targets the problem. But we have to start with confronting our country’s history in an honest way.”