Race, wealth, and homeownership

Reading Jason Kuznicki’s article in the latest issue of Cato Journal, I was struck by the similarities between his historical analysis and a post Jamelle wrote a few months ago. First, here’s Jamelle (emphasis mine):

For what it’s worth, I don’t expect that to change; if we acknowledge the federal government’s role in creating generational black poverty, then necessarily have to acknowledge the federal government’s equally direct role in building the wealth of middle-class white America. As Wright notes, the Homestead Acts, the New Deal and the G.I. Bill all but created the white middle-class.  To acknowledge that – to really, truly take it and its implications seriously – is to directly undermine the myth of self-reliance and independence that we cling to as Americans. And that’s to say nothing of the fact that a full public account and understanding of the government’s role in hampering black progress will probably put us on a path towards something approaching reparations*, which – as I’m sure you’ve noticed – aren’t terribly popular.

And here’s Kuznicki on the New Deal-era Federal Housing Administration (from pg. 443 – emphasis mine):

One of the most egregious examples of the federalization of Jim Crow came in the form of the Federal Housing Administration. The FHA was created in 1934 to extend loans to relatively risky home buyers otherwise unable to obtain them. One way it sought to preserve these home buyers’ investments was, perhaps unsurprisingly, the racially restrictive covenant. The FHA explicitly recommended restrictive covenants and even insisted on them, with the announced goal of protecting the property values of FHA mortgages (Massey2007: 60–61).
The FHA also appears to have pioneered the practice of “redlining”— that is, of establishing areas into which blacks and whites are sorted when they enter the housing market, with the intent of producing segregated neighborhoods. Indeed, the red lines referenced in the term were first drawn on FHA maps. They demarcated heavily black neighborhoods, which could not receive FHA loans at all (Roediger 2005: 226–27). Even the incomes of the would-be homeowners were irrelevant (Massey 2007: 60). Historian David Roediger describes the FHA as “the open incarnation of the New Deal alliance between white supremacist southern Democrats and northern segregationist forces, in this case realtors, bankers, and white urban and suburban home owners,” whose “largesse” was “racially targeted” (Roediger 2005: 228).

Demographers continue to dispute the extent and even the existence of redlining among private real estate agents, with at least two recent studies concluding that race has not been a significant factor in the private market for homes (Holmes and Horvitz 1994, Klein and Grace 2001). The clearest form of redlining remains the eponymous redlining of the FHA. Although these practices clearly cannot explain the entire gap between black and white wealth accumulation, no one disputes that in the decades following the New Deal, home equity became the largest source of wealth for the American middle class. However, black homeownership has lagged behind, even controlling for income. Given that homeownership has been one of the key avenues of wealth appreciation for the middle class, any intervention discouraging it will likely have had disproportionate effects on wealth (Hilber and Liu 2008, Charles and Hurst 2002).

Kuznicki also highlights an interesting distinction between welfare programs that emphasize capital accumulation and eventual self-sufficiency (like the Federal Housing Administration, which provided loans to low-income homebuyers, or the GI Bill, which funded millions of Americans’ college education) and welfare programs aimed at addressing immediate material needs (food stamps, for example, or rent subsidization). This distinction is significant because many of the New Deal’s racially-segregated programs fell into the former category, whereas later, race-neutral welfare policies weren’t geared towards wealth accumulation. In short, both Kuznicki and Jamelle argue that Black Americans were frozen out of a system that helped create the American middle class. By the time segregation ended, our approach to social welfare already shifted to a needs-based system that was less equipped to encourage social mobility.

I mention this not because the story of institutionalized discrimination is particularly pleasant, but because it has real relevance to how we view the current debate over homeownership and the housing crisis. The Community Reinvestment Act and Fannie Mae and Freddie Mac’s much-maligned loans to low-income homebuyers were widely criticized on the right for inflating the housing bubble. Given that I can barely balance a checkbook, I’m in no position to determine the accuracy of these claims.  But before condemning government-subsidized loans to low-income homebuyers, the CRA’s history is worth taking into account. The CRA was originally conceived ” . . . to reverse years of redlining and other restrictive banking practices that locked the poor, and especially minorities, out of homeownership and the tax breaks and wealth creation it affords.” In other words, it was an attempt to address racial disparities that were originally widened (if not created) by government programs like the Federal Housing Administration.

One of Kuznicki’s broader arguments is that the United States government was never “race neutral” – before the Civil Rights Movement, discrimination was not just social custom, it was rigorously enforced at both the state and federal levels. As a result, he argues that the comparatively limited state interventions sanctioned by the Civil Rights Act were justified by a legacy of institutionalized racism. My question, then, is simple: Does Kuznicki’s logic also apply to social welfare programs aimed at promoting wealth accumulation? To return to the Federal Housing Administration, Black Americans were systematically excluded from a program that had a great deal to do with promoting homeownership and the subsequent growth of the American middle class.  So if the Civil Rights Act was aimed at rectifying the lingering impact of racist social policies, are programs like the CRA and other minority homeownership initiatives a justifiable response to state-sanctioned economic discrimination?

I only ask because Kuznicki’s article – which is worth reading in full – is a real challenge to  conservatives and libertarians who are generally suspicious of just about anything subsidized by the federal government. I admit I haven’t quite made up my own mind on the issue, but I’d be interested to hear other small government sympathizers on the policy implications of these lingering economic disparities.

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35 thoughts on “Race, wealth, and homeownership

  1. I see it like gay marriage, kinda.

    The ideal situation is one where the government is not really involved at all.

    Once you acknowledge that this isn’t, like, remotely an option, you get to ask “so then what?”

    At that point, you have to have a government that treats people equally. Is it the best option? No, not really. It’s the best real one, though.

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    • Agreed. But…once we’ve acknowledged that government has not, in fact, treated people equally, and that its failure to do so has lingering effects, how do we remedy those effects? Doing nothing beyond simply saying that government will now treat people equally may (and often will) simply perpetuate the government’s past discrimination even after it has adopted a truly neutral, equally protective stance. In other words, what can and should government do to remedy the lingering effects of its past discrimination to make its new race-neutral position have any actual meaning?

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      • No idea. I don’t know that it’s fixable even in theory.

        I’d suggest ending the war on drugs, ensuring that education is strong enough to provide 100% literacy for graduates (vouchers?), and providing more incentives for businessmen to open shops (and, perhaps, jobs).

        If there are cultural issues, I suppose that we could discuss them as well… but I reckon that many of them could be cleaned up by an eliminating the WoD and doing a better job educating “at risk” children.

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        • Anything that looks or smells like “reparations” will be politically unpopular, to say the least, even if one were to argue that such were deserved. Even race-neutral programs targeting poverty (which would, in theory, benefit African-Americans more) are frequently blasted by the right (and by Libertarians as well); many on the right seem to object to things like welfare BECAUSE they are seen benefiting minorities. (I’m not accusing anyone here of such, mind you).

          There’s a reason the stereotypical “welfare queen” is a black baby momma living in the ghetto, smoking crack, not a white baby momma in the trailer park, doing meth. The folks who’d rather not spend money on these sort of social programs at all (the “I’ve got mine, screw everyone else” crowd), use race-baiting to make such programs unpopular among poor whites who might otherwise benefit.

          There’s a reason that CRA was blamed for the housing crash, even though the entire claim is ludicrous on its face.

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        • No offense, Jaybird, but…considering that you think the government shouldn’t be involved at all, I’m not surprised you have no idea what they “can and should do to remedy the lingering effects of its past discrimination.”

          That seems to be a common problem among small government/libertarian types who think “governs least” means “governs not at all.”

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          • Would I be allowed to look at stuff that has actually been attempted (for example, Johnson’s War On Poverty) and say “okay, that didn’t work”?

            Or do I have to take the attitude that Johnson just didn’t have the right people implementing his plans and they weren’t funded well enough?

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      • I don’t know that I am arguing against that.

        I don’t think that the government ought be involved in marriage at all. That said, since it is, it ought to extend civil benefits to same-sex lifepartnerships.

        I see “marriage” as covered by the “free exercise” clause in the First Amendment and I’ve yet to see an argument against that particular interpretation.

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        • Sorry, it sounded to me like you were saying not to even ask “so what now” because that would mean admitting that getting government out of marriage was impossible and you weren’t prepared to do so.
          Maybe we were just using the word “society” differently? I didn’t read “we as a society” as meaning “the Majority” or “the State”.

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        • Hey Joseph, maybe I can help. I’ve read quite a few libertarian pieces. I think Jay’s position can be simplified down as follows:
          -Generally government should not be involved in marriage.
          -If it is involved in marriage and can’t be extricated from its involvement (the current situation) then the government should apply it’s involvement as evenly as possible to the maximum number of citizens.
          -Thus government involvement in marriage (specifically civil non-religious marriage) should address the needs of same sex couples.

          I think this is close to Jay’s position though I think he has some laudable personal sympathy to the needs of same sex couples in addition to that.

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  2. This just reinforces my belief that the gov’t should stay out of such things in the first place. Yes the gov’t screwed it up but I don’t want them now trying to fix it. Speaking of the FHA, I was listening to a NPR Morning Edition story that the FHA is stuck with a lot of bad loans b/c their lending standards are so low and many of their loans were always destined to fail.

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    • Exactly. That’s why so many private lenders got taken down by the sub-prime loans they made, and it’s why the commercial foreclosure rate is so high despite no government involvement in the market whatsoever.

      It’s amazing – racists draw up racist policies and it’s the government’s fault.

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  3. “Crabgrass Frontier” is one of the better works on development and it documents the red lining claim.

    The idea that the CRA caused the crisis is bunk. I link a report here: http://vox-nova.com/2008/12/03/cra-not-to-blame/ of the Federal Reserve that says the same. PDF of report here: http://www.frbsf.org/cpreport/docs/cp_fullreport.pdf Look up Barry Ritholtz if you want someone that has done yeoman’s work dispelling this myth.

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  4. hen necessarily have to acknowledge the federal government’s equally direct role in building the wealth of middle-class white America. As Wright notes, the Homestead Acts, the New Deal and the G.I. Bill all but created the white middle-class. To acknowledge that – to really, truly take it and its implications seriously – is to directly undermine the myth of self-reliance and independence that we cling to as Americans.

    Jamelle evidently believes that there were no salaried employees or small businessmen in America prior to 1933 and that the Roosevelt and Truman Administration ‘created’ this social stratum ex nihilo. (With an antecendent assist from the Lincoln Administration, without which the rural population would have been divided between latifundiaries and peons).

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    • Art Deco –

      Kuznicki’s article is pretty detailed on this point. Subsidies from New Deal programs like the Federal Housing Administration may not have single-handedly created the middle class, but they certainly helped a lot of American families accumulate wealth.

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      • Will, there is not a single data table in Dr. Kuznicki’s article.

        You can accumulate assets in one of two ways: entrepreneurial activity or by savings and investment. Both were liberally practiced prior to 1933.

        The real value of goods and services produced in this country (per capita) has about quadrupled since 1929. More income, more assets. I believe there was a secular trend toward a more equalitarian distribution of assets and income in this country between 1929 and 1969, so assets were more broadly distributed for a time, all else being equal. I imagine you could put together a considerable bibliography of literature exploring why this was so; conceivably financial innovations promoted by the FHA (e.g. thirty-year mortgages coupled to 20% down payments and issued by banks) aided in this. (Prior to 1930, mortgages were commonly issued by insurance companies for terms of five years, including a balloon payment). Dr. Kuznicki’s article is neither an econometric study nor a review of econometric literature, so is not truly engaged in an attempt to apportion responsibility between various government policies (factors exterior to public policy).

        I should note that ‘the middle class’ is a social stratum. Bourgeois life as my mother knew it during the years running from 1938 to 1952 was austere in a way that is unusual today; it was, however, bourgeois life. The economic development manifested in the movement from agrarian to non-agrarian employment created the ‘middle class’, not Mr. Roosevelt’s legislative program. In 1930, agriculture, fishing, and forestry employed less than 20% of the workforce and most people lived in town, so your urban middle class was considerable. I will wager that those of this description were much more likely in 1930 to be proprietors than they are today, and that that is a change of greater note than the ratio of the middle class to the wage-earning population.

        As for the G.I. Bill, it put persons without higher eduction at a competitive disadvantage and (0ne suspects) vitiated institutional efforts to maintain and extend the quality of secondary education. Our youth start their productive lives five years later than they did eighty years ago and (in contrast to the situation as it stood in 1950) laden with debt. How’s that working out for us?

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  5. Not sure where the GI Bill fits into all of this? I mean, sure, it’s a government benefit, but it is not an entitlement. You have to sign up for it and pay into it (I paid $100/month for the first year of my service) in order to get anything out. I do agree that it helped to create the middle class among veterans, along with VA home loans, but both programs still require the recipients to work for it, and work with it.

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    • The GI Bill is relevant because (at least after World War II) African-American service members were largely denied its benefits. Here’s an excerpt from Kuznicki’s article on the subject:

      “Particularly shabby was the treatment black veterans received at the hands of state administrators of the Selective Service Readjustment Act, better known as the GI Bill. Representative John Rankin (D-Miss.) chaired the Committee on World War Legislation, which drafted the bill, seeing to it that Veterans Administration facilities in the South, including hospitals, would be segregated by race. Rankin also zealously insisted that “no Department or Agency, or
      Offices of the United States . . . shall exercise any supervision or control whatsoever over any state educational agency,” the better to exclude black veterans from schools. Yet federal money certainly would flow to state educational agencies, to be administered locally, according to Jim Crow rules. On this point he was quite explicit: “a definite line should be drawn in the schooling on the matter of race segregation” (Katznelson 2005, 127). Recent analysis suggests that Rankin succeeded, and that, particularly in the South, the education gap between whites and blacks actually widened at least in part as a
      result of this federal subsidy for Jim Crow (Turner and Bound 2003).

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    • Also, I would hardly characterize the homestead act as a sort of “welfare program”, considering that to even right-libertarians such as Rothbard, uncultivated land is considered freely subject to homesteading. On an island situation, this is the basis of land property, and when one creates an item such as a bow by “mixing one’s labor with the land”, that is the basis of private property.

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  6. To tack on something related. Homeownership and the rise of the white flight suburbs left African-Americans in America’s cities which came out on the losing side of intra-state political battles more often than not and they really lost when America declared war on urban living to build highways.

    Which is to say that not only did the government actively deny African-Americans the same postwar wealth-building opportunities as their white counterparts, they also actively promoted economic developments that devastated urban cores and undermined the ability of city-bound/stuck blacks to build an urban middle class the likes of which we see in more urbanized countries with lower rates of home-ownership.

    Add to the mix well-meaning but disastrous policies like housing projects ala Pruitt-Igoe and the drug war.

    I’d like to think we’ve learned our lessons and can do better but a look at the achievement gap in education and other disparate outcomes demonstrate just how long way to go before we’re at a place when equality of opportunity between the races looks like more than just a pipe dream. It also amounts to another reason why – perhaps – we should less anxious to be so post-racial.

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    • I spent 17 happy years in inner-city neighborhoods and do not much care for inter-state highways or suburban town planning. That having been said…

      Detroit is devastated; Newark is devastated; both are atypical. In my home town during my young adult years, household incomes were about 15% lower in the central city than was the case in the suburban townships; the disjunction in affluence was not that radical; owner occupied housing was ample and various characteristics of housing development made neighborhoods pleasant in ways they simply were not and are not outside city limits. Home values are quite low in the shabby neighborhoods around Genesee Street and Jefferson Avenue and Hudson Avenue. However, homeowners in these areas can (given small mortgage payments) deploy income to the purchase of abstract assets like annuities. An ordinary person does not have to buy a house to accumulate assets; they do have to contain their level of personal consumption. The residents of these neighborhoods are a good deal less affluent than the mean, and that makes the work more difficult. They are less affluent because of deficits of human capital, which in turn implicates the efficacy of primary and secondary education (among other things). Neither the manipulation of housing markets or pumping money into higher education are remedies for that.

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    • Exactly. One of (IMO) the best chapters in Life Inc. makes precisely this point. These policies were based on isolating people from one another in homogenous suburbs and urban areas – keeping black people poor and out of White Suburban Consumer Paradise was crucial to the goal, because if everyone isn’t basically alike -yet also totally separated into little atomized units – the whole artifice collapses.

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  7. 2 hypotheses:

    We are the government.
    Many of us historically have been viciously racist.

    Conclusion: The government will have historically promulgated racist policies.

    One quick check of the Constitution and a history book or two and tada!, the hypotheses and conclusion are demonstrated, in fact, to be true.

    There’s virtually no federal Department unaffected by historical animosity towards blacks. DoD — even following Truman’s desegregation order, it took years and a couple more wars for darker-skinned Americans to have equal opportunity for advancement. (Quick trivia question — who was the first African-American Chairman of the Joint Chiefs of Staff?) Dept. Ag. — a huge settlement was made in recent years over the refusal of the Department to make crop loans to African Americans on terms comparable to those offered to whites. Dept. Justice — probably the most racially aware Department due to its active mandate to enforce the Civil Rights laws. But that wasn’t until the Kennedy administration. etc.

    Unfortunately, telling white people that they are the unintended (sort of) beneficiaries of years of discrimination tends not to work too well. Head over to Reason’s blog, or Volokh Conspiracy, or any of the smarter libertarian blogs, and try to start a discussion about righting even recent wrongs. Such a thing is impossible and unfair, we are told, because the government cannot identify with specificity who has been harmed and who has been benefitted. Better that bygones be bygones and that the government look only to the present and the future. Anti-poverty programs are fine, so long as they are race-neutral (and, of course, not too expensive).

    Meantime, young black men who have no work and no hope continue to flood into California prisons.

    I ain’t asking for reparations; I’m just saying that a little understanding might go a long way.

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    • I think the per capita income of the black population is around 35% lower than the general population. Even if all of this were attributable to racial discrimination, the effect on the remainder of society would be a premium of around 5% of their total income.

      Being ‘hopeless’ is not what gets you arrested, prosecuted, and sent to prison.

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      • Being ‘hopeless’ is not what gets you arrested, prosecuted, and sent to prison.

        Nope, that’s from the war on drugs and gang wars related to illegalized drugs.

        Look up the difference in penalties on Crack vs. Cocaine, the former segregationists found a stealthy and perhaps even more effective way to oppress than they had before.

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  8. Thanks for this. I’ve always known, experientially, that the commie-Dems were a bunch of goofballs, however, I had no idea they were racist goofballs.
    So FDR, JFK, LBJ, Bubba, and Jimmy and the socialist/Marxist Democrat Party have systematically oppressed the black community. If so, why do African Americans vote for these people? I mean, Martin Luther King was a Republican but even if they didn’t want to vote for the country club set there’s always independents.

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  9. “I only ask because Kuznicki’s article – which is worth reading in full – is a real challenge to conservatives and libertarians who are generally suspicious of just about anything subsidized by the federal government.”

    Is it really all that much of a challenge? It posits that the federal government, as an institution, is subject to capturte by all sorts of vile special interests groups, even to the point of impoverishing vast swaths of its own people.

    And this somehow argues for a larger role for the federal government in guiding the futues of said impoverished people?

    Let’s say some guy broke into my house, punched me in the face and stole everything I own. A few years later, he promises that he is contrite, and offers to become my life coach. Should I take him up on the offer? Should I put my kids’ education, my health care, and my retirement under his control?

    Look. As Jaybird points out, getting the feds out of it is hardly an option. But as Jamelle points out, reparations aren’t an option either. So what we are left with it a “vector,” leading us towards one of these responses or the other.

    My vector leads me away from the institution that f-ed it up in the first place. The article points us towards that institution.

    An institution that has proven itself to be serially irreponsible with regard to finances. That is leading us doen a fools path even with popular programs like social security and medicare.

    You want to hitch black families to that wagon?

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  10. A friend of mine writes on this subject:
    “It’s also possible that cultural attitudes played/play a part in lower levels of black home ownership. Not all people have the same attitude toward ownership. For instance, my father had no interest in owning a home. He came from a family of renters in a venerable neighborhood of tenants in urban Germany. After moving to the States he rented for the rest of his life. He could have bought but had no interest in doing so. He viewed home ownership as a burden– not as a source of freedom. I also know many NYC area tenants who have no interest in owning… And in my years of peering at mortgage fraud, it’s frequently struck me that many defaulting owners in low income neighborhoods were primarily attracted to the ‘no more landlord’ part of home ownership and were uninterested in other aspects. Ownership was thrust on them– frequently as an anti-racist ideal.

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  11. Oh boy, who will be courageous enough to point this out to the black community? We all know how current black leaders love to play the victim, but will they point this fact out to shift the way they do things and advocate for a more libertarian point of view? I am willing to bet NO. But this article is quite interesting

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