The Debt We Still Owe
by William "Sandy" Darity
September 10, 2020
This interview with William "Sandy" Darity, Samuel Dubois Cook professor of public policy, African and African American studies and Economics at Duke, head of the Samuel Dubois Cook Center on Social Equity at Duke, and co-author of the book From Here to Equality: Reparations for Black Americans in the Twenty-First Century, was conducted and condensed by franknews.
What is wealth?
It's important to distinguish wealth from income because I think that people frequently confuse the two. Income is a flow of resources that people receive, primarily their earnings. Wealth is a stock of resources-- the difference between what you own and what you owe - the net value of your personal property.
Wealth, in the context of debt, is the difference between your assets and your liabilities.
Wealth is important because it provides a resource that can offset income losses in emergencies - situations where an individual might lose a job, or a family is confronted with a catastrophic illness. In all of these situations, if you are part of a wealthier household or family it is easier to cope with the situation because you can draw upon your wealth to compensate for your loss in income.
What opportunities are you locked out from if you can't accumulate wealth?
Wealth provides you with an opportunity to more fully participate in the political process in the United States. Electoral politics in the U.S. are driven by money.
Wealth provides you with the opportunity to buy your way into higher amenity neighborhoods that include higher-quality schools for your children. And if you are dissatisfied with the public schools, you can purchase private education for your children.
It becomes possible for wealthier families to make sure that their sons and daughters leave college with a degree in hand and no significant amount of student debt.
Wealthier households have the capacity to transfer resources across generations in a way in which households that have little or no wealth cannot. There are intergenerational benefits that are associated with being part of a wealthier family. You could argue that wealth begets wealth in the sense that if you start with higher levels of wealth, you have more opportunities to acquire more wealth. You can particularly think about people who are interested in business ownership or self-employment of some sort. If they initially start out with a larger stake of resources, it makes it possible for them to bear more risk and to be more likely to sustain a successful enterprise.
How do you view the racial wealth gap in the US?
In the United States, the racial wealth gap is something that I interpret in the context of the historical relationship between two groups - black folks and white folks. The racial wealth gap is enormous. The survey of consumer finances indicates that on average the net worth of a black household is $800,000 less than the net worth of a white household.
Our best estimates show that black Americans, particularly those who were descendants of persons who were enslaved in the United States, constitute about 13% of the nation's population, but collectively possess only about 2.5% of the nation's wealth.
That is an enormous disparity. The origin, I believe, is in the immediate aftermath of the Civil War. That's the point at which the newly emancipated did not receive any form of restitution. Although they had been promised 40-acre land grants per household, there was a failure to implement that.
How does the wealth gap differ from the income gap?
The average black household has somewhere around 60% of the income of the average white household. But the wealth disparities are far larger. The typical black household has about 10% of the wealth of the typical white household. This is a far more staggering differential.
This is a differential that is not closed by greater educational attainment. Black heads of households with a college degree have two-thirds less the net worth than white heads of households who never finished high school. These kinds of disparities in terms of the absolute magnitude of the difference in wealth, get larger and larger with higher levels of educational attainment. I also must add that income differentials do not well explain wealth differentials because whites who are the poorest in terms of income, those who are in the lowest 20% of the income distribution, have a median level of wealth of about $15,000. It is zero for blacks who are in the same income zone.
How does household debt feed into that?
My colleague Fenaba Addo is much more of an expert on the debt side of the ledger than I am.
But, I want to say at the outset that the major reason we have these substantial differences in wealth between blacks and whites is really because of the asset side of the ledger, not the debt side. Blacks have so much fewer in the way of assets than whites; that's what depresses the black wealth level in comparison with the white wealth level.
The average amount of indebtedness that blacks hold is not as high as the absolute amount of indebtedness that's held by whites on average.
However, black indebtedness relative to black asset holding is dramatically higher. That is what is associated with the enormous debt differential in wealth between the two communities.
Additionally, in particular categories, the black debt is higher on average than the white debt level. For example, student debt is actually indicative of the degree of black motivation to pursue higher education with fewer resources. We actually now know that for a given level of household income young blacks students will pursue and attain more years of schooling and more credentials than young white students who are from households with a similar level of income. If that's the case, if folks are trying to do more with less, it pushes them into indebtedness to pursue higher education. That's a category in which black debt is on average higher.
Obviously these statistics are not static. Which direction is the wealth gap moving right now?
I think that because of the COVID-19 crisis, it must be moving in a direction of widening the black-white differential.
The best evidence that we have, and this is really stunning, is 41% of black-owned businesses have gone out of operation due to the COVID crisis. Whether or not that's permanent is not entirely clear, but close to half are no longer conducting their operations. That means that this potential source of wealth has evaporated virtually overnight. We don't have any data that's been collected on what the wealth levels look like in the present moment, but it's fairly easy to speculate that the situation has to be significantly worse.
There's also evidence the gap became explosively larger over the course of the past 70 years. A lot of that has to do with the question of who has the capacity to purchase significant amounts of financial assets and who has the capacity to enter into the real estate arena.
How have government programs contributed to the disproportionate accumulation of wealth?
Let me start with The Homestead Act of 1862. First enacted in 1862 and spanning the subsequent 70 years, allocations of land grants were made in the Western part of the United States. These were made almost exclusively to white families. About 1.5 million white families gained access to these plots of land during the course of the operation of the Homestead Act. According to Trina Williams' research, about 45 million, if not more, white Americans living today are beneficiaries of the effects of the Homestead Act land grants. This was one initial policy that drove a wedge between black and white wealth. Particularly because the formerly enslaved received no restitution, even though they had been promised 40-acre land grants.
In the 20th century, much of public policy that's been directed at wealth-building has focused on homeownership rather than outright land acquisition. Virtually all of those policies and practices have worked to the advantage of white homeowners, and to the disadvantage of potential black homeowners.
We can start with the introduction of restrictive covenants that were designed to exclude blacks from access to homeownership in particular neighborhoods. Then we have redlining, which denied blacks credit for purchasing homes in particular neighborhoods. Then we also have the New Deal legislation, which first introduced any significant amount of federal home loan subsidies to facilitate homeownership. Black people were disproportionately excluded from the New Deal plans and policies.
And then we come to the GI Bill, which is perhaps the most important legislation passed in the 20th century by the US Congress to facilitate upward mobility. It did so by providing returning veterans from World War II with two types of benefits. One was financial support for attending a college or university. As a result, you had a significant number of individuals who were, what we now call first-generation college students. The other dimension of the GI bill was the provision of home mortgage subsidies that facilitated people buying their way into the middle class through homeownership.
Again, this was also disproportionately executed on behalf of white Americans. In fact, to get the legislation passed with the support of Southern senators, it was essential that the program was designed to be decentralized. Therefore, it was conducted at the local level where local authorities would exercise, complete discretion over who would receive the resources. This disproportionate benefit for whites took place both North and South, but in some of the Southern States, it was extraordinarily extreme.
For example, in the state of Mississippi out of all the returning black veterans, only two received the benefits associated with home buying.
Who were the elected officials of Mississippi at that time?
There was a particular Congressman who was decisive in this process - Congressman John Elliott Rankin, a Democrat from Mississippi.
Democrats in Mississippi were segregationists then...
In the 19th century, the Republicans were much more associated with black emancipation than the Democrats. Although, the president who reversed the policy of allocation of 40-acre land grants as restitution was Republican Andrew Johnson.
In the 20th century, the process of resistance to black empowerment and black improvement was largely in the hands of Democrats from the Southern States. However, in the late 1940s, the Republican party progressively moved away from being the party of Abraham Lincoln to being the party of Strom Thurmond. Today the Republican party appears to be even more strongly allied with anti-black sentiment and anti-black policies than the Democratic party, even though I'm not at all satisfied with what the Democratic party is doing either.
It seems like people on all sides are just very dissatisfied with this election.
It's fascinating how our electoral process actually produces candidates that it's very difficult to be enthusiastic about. But one of them is so extremely dangerous that maybe there is no choice, but to vote for the other. And the one that I think is dangerous in the extreme is Trump, to be clear.
Are there things that you are hoping to see from Biden and Harris in the next 60 days or so that would make you feel more enthusiastic about supporting them?
I actually don't expect to see anything from them in the next 60 days. It's not a question of hope. I don't place any hope in them doing something that's different from what they've already committed themselves to doing.
Some of your work was discussed in the context of this larger election cycle – specifically baby bonds. What are baby bonds?
I think baby bonds are a terrific idea. And I've worked on it since 2009.
The idea of baby bonds is that every American child would receive an endowment at birth that they can access once they reach young adulthood. The amount of the endowment would vary with the wealth position of their families. The program would be universal, but the payments would not be uniform.
A child that's born into a household that has the same wealth level as Bill Gates might get a $50 donation into a trust account. A child that's born into a family at the lowest end of the wealth distribution would get between $50,000 and $60,000.
I want us to be cautious about not confusing this kind of a program with a reparations project. Reparations would focus on eliminating the racial wealth differential between blacks and whites in its entirety. While baby bonds can be useful in terms of mitigating general wealth inequality, and perhaps on the margins, reducing racial wealth inequality, it will not substitute for a reparations program that targets the wealth gap between blacks and whites as the object for closure.
I really liked how you phrased reparations as a national debt that we already have. Why is it important to talk about it in that language specifically?
I think the redress should go to living descendants of persons who were enslaved in the United States and those living descendants have a claim that is anchored on the failure to provide the 40-acre restitution that was promised at the end of the Civil War. There have been intergenerational consequences of the failure to provide that form of redress.
It's important to talk about that as a sustained debt or obligation of the United States government. Reparations are a 155-year-old, overdue debt.