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Race to the Bottom

How the recession hurled African Americans backward in time.

Back in the 1940s, when there was no pretense of equality among the races and, instead, a benign acceptance—if not, among some, a certainty—that inequality was in fact the way things should be, my mother, then a college student, journeyed 200 miles from her family’s home in north Georgia, through the slash pines and wiregrass, to teach in a one-room schoolhouse in a settlement called Keysville. It was in the cotton country south of Augusta, amid the gallberries and turpentine camps, and she stood in her rayon pleated suit and her one good pair of nylons before a room full of sharecropper children packed together from first grade to eighth. She stayed with a local family in the best room they could muster for the new teacher, bedbugs notwithstanding, and got paid $47 per month, as she recalled it, which, multiplied by the six or seven months the children would attend classes in a world dictated by the rhythms of the field, would come to a salary of $329—if she managed to last the school year.

Like other black teachers working in a rigid caste system that treated one group differently from another, she taught in an old building with old desks and hand-me-down books when she could get them, some without covers and with pages torn out, for a fraction of the pay her white counterparts were getting. In the early ’40s in Georgia, white teachers made an average salary of $960 per year; black teachers made an average of $460. In Mississippi, white teachers made $712 annually, while black teachers were paid less than a third of that—$226 per year, hardly more than field hands.

There was nothing my mother could do about it, and she tried not to give it much thought. But that chasm in pay, reported openly and without apology, would have far-reaching effects on disparities in what economists consider perhaps the key barometer of economic well-being: wealth. Wealth, meaning not riches or income, but rather the accumulated net assets passed down through the generations that can be drawn upon in times of crisis. Wealth, unlike income, takes decades to build. The gap in pay going back generations among African Americans meant that even the most promising of black workers, like my mother, having received next to nothing in material assets from their slave foreparents, had to labor with the knowledge that they were so behind it would be all but impossible to accumulate the assets their white counterparts could and that they would, by definition, have less to leave succeeding generations compared with similar white families.

There came a time when, after the twin pressures of the Great Migration from the rural South to northern cities and the civil rights movement of the 1960s, blacks were able to enter jobs, schools, and neighborhoods previously denied them and began the slow crawl toward closing the gap. By the turn of the twenty-first century, it had narrowed significantly—although white Americans still had a median net worth ten times that of black Americans. Then came the Great Recession, which wiped out the precarious gains that had been made and hurled African Americans back to the lowest point since economists began measuring the wealth gap three decades earlier.

IN 1984, THE PEW RESEARCH CENTER released the first of what would become its seminal wealth-gap studies, measuring the economic wherewithal of Americans by race, with a ratio that set forth the difference in median wealth, that is, net assets—bank accounts, retirement funds, stocks, bonds, and equity in real estate, business, and vehicles—owned by a household minus debts. That year, white wealth was twelve times that of black wealth—a median of $76,951 for white households and $6,679 for black households (in 2009 dollars). For the next decade, the gap stalled at ten to one, with each group rising or falling along parallel tracks. In 1995, with more African Americans finally in a position to benefit from the overall prosperity in the job and stock markets of the mid-’90s, the gap closed to seven to one: $68,520 in net assets for whites and $9,885 for blacks.

But the Great Recession has left blacks in a worse-off position than whites by virtually every measure. The numbers are startling. Based on the latest Pew study, released in 2011, median white wealth is now close to 20 times that of black households, the highest since the survey began. If a roof collapses, a car breaks down, a scholarship falls through, a job is lost, a child gets sick, property taxes go up, the basement floods, a breadwinner falls ill, or any combination thereof, white households can draw on $92,000 to get them through it, while black families must figure out how to weather life’s storms on $4,900.

One out of every four black households has no assets other than a car, compared with one out of 17 white households. African Americans’ cars were of lesser value ($3,000) than those of whites ($5,960), Hispanics ($3,765), or Asians ($6,683). Blacks are less likely than whites to own a home (46 percent for blacks versus 74 percent for whites), less likely to own stocks (7 percent versus 27 percent), less likely to have equity in a business (6 percent versus 12 percent), and less likely to own interest-earning assets (5 percent versus 16 percent).

The gap widened because of the double losses that disproportionately hit African Americans. First, there was the collapse of the housing market with the resulting loss of equity, if not the properties themselves. African Americans were targets for some of the worst subprime loans, even when they qualified for regular mortgages. Black borrowers with high credit scores were three times more likely to receive high-interest loans than similarly rated white borrowers. In Detroit, more than a third of black homeowners lost a home to foreclosure. As more distressed properties work their way through the system, one out of four black homeowners is expected to have lost a home by the time the current cycle concludes.

Second, African Americans had higher unemployment rates (now at 13.6 percent versus 8.3 percent overall, and 7.4 percent among whites), which forced those who had little to begin with to draw down on already limited resources. Blacks had been running in place just to stay where they were when the economic crisis knocked them further back than they had been 30 years before, evidence of how fragile those gains had been. The group that could afford to lose the least lost the most.

In a cruel twist, African Americans, with little experience or exposure to the stock market historically, were also hit especially hard in the Wall Street collapse. For decades, there had been hand-wringing over the reluctance of African Americans to risk their money in traditional wealth-building vehicles, such as stocks. Then, not long after African Americans began to enter the market in the ’90s, the market crashed. African Americans lost a greater portion of their investments than any other group, their portfolios falling 71 percent from a median of $27,468 in 2005 to $8,000 in 2009. (Whites lost 9 percent, from a median of $30,984 to $28,043.) The losses could be attributed to the likelihood that African Americans, under pressure to meet daily needs, felt forced to sell in a falling market after having bought near the top earlier in the decade. A study by Ariel Capital Management found that African American workers were more likely to borrow or sell retirement savings, even with a penalty, than were white workers, but they were less likely to be in a position to take advantage of a falling market as a buying opportunity for stocks.

Even without the setbacks of the Great Recession, it would have taken generations for African Americans to reach anything approaching parity with white Americans. What happens when one cannot make up for what was denied one’s great-grandparents, compounded over time? How long might it take this group to climb out of the hole in which it now finds itself? For how many more years can we, as a country, be content with such wide disparities in the wherewithal of fellow Americans who started from so far behind? The answers are perhaps unknowable, but surely will depend upon a resolution in the housing and economic crises and a closing of the gaps in pay, employment, schools, and other avenues of upward mobility. African Americans seem to have identified for themselves the clues to an eventual solution. It was in one of the few financial measures in the Ariel study in which they exceeded their white counterparts, perhaps by hope or necessity: More than one in four black investors, compared with 16 percent of white investors, said that sending their children to college, or leaving money to them, was their most important goal.

Isabel Wilkerson, a Pulitzer Prize winner, is the author of The Warmth of Other Suns: The Epic Story of America’s Great Migration. This article appeared in the March 1, 2012 issue of the magazine.