How the U.S. Government Locked Black Americans Out of Attaining the American Dream
. . . Mehrsa Baradaran, a law professor at the University of Georgia, researches banking law, and how the U.S. government, in conjunction with the financial sector, has exacerbated economic inequality. In her new book, The Color of Money: Black Banks and the Racial Wealth Gap, she tracks the persistence of the racial wealth gap, from the end of slavery to today. Baradaran thoroughly diagnoses the ways the U.S. government and white-owned banks have historically shut out black Americans from prosperity, while boosting white Americans into the middle and upper classes. I talked with Baradaran about the structural causes of inequality, the cynical political messaging around black entrepreneurship by white politicians, and Jackie Robinson’s foray into banking.
Let’s start at the beginning. What is the genesis of the racial wealth gap? It all starts with slavery. When we fought over slavery and, as an institution, it dissolved, we never confronted the justifications around it. Those things lingered, and so did this desire, this need—especially in the South—to use blacks as labor and not capital. Black bodies were capital, but blacks themselves could not control capital. They had to be labor. That lingered well after slavery.
In order to create wealth, you need capital. And if you are capital, and if you’re only subscribed to labor based on Jim Crow laws—which is exactly the purpose for Jim Crow in the southern economy, post-slavery—then you can’t build wealth. So that’s the genesis of the wealth gap. What I show in the book is that it doesn’t resolve itself. From the Civil War until today, the wealth gap has barely budged. In fact, the total amount of wealth owned by the black population has not grown at all appreciably—not noticeably—in the last 150 years . . .
In order to create wealth, you need capital. And if you are capital, and if you’re only subscribed to labor based on Jim Crow laws—which is exactly the purpose for Jim Crow in the southern economy, post-slavery—then you can’t build wealth. So that’s the genesis of the wealth gap. What I show in the book is that it doesn’t resolve itself. From the Civil War until today, the wealth gap has barely budged. In fact, the total amount of wealth owned by the black population has not grown at all appreciably—not noticeably—in the last 150 years.
OK, let’s talk about the flip side of that: racial inclusion. How historically, middle-class white people were included in these sweeping government programs that helped them get a business loan, get a college education, get a house. I feel like that’s something that gets left out of the conversation, is delineating how many sweeping government programs there have been with the express purpose of building up white wealth.
To the extent that white Americans became middle class, it is through the credit infrastructure that was bolstered and sponsored by the federal government. Starting in 1934, there are all of these agencies and programs—the Home Owners Loan Corporation, the Federal Housing Administration, the FDIC insurance program—that loosened up credit and capital. All of a sudden, mortgage credit was abundant. Anyone could get mortgage credit. Blue-collar workers could afford a mortgage. A mortgage became much more affordable than renting in the city. So they all moved out to the suburbs.
The most important distinction for who could get these mortgages or not was race. They mapped out the country through racial zones. This was explicit, through government programs. This created the white suburbs, and created generational prosperity. It also created the black ghetto. The wealth gap existed before then, because of Jim Crow and segregation, but in the 20th century, these government credit facilities cemented the wealth gap for our generation.
