The Color of Wealth

In December 2013, Barack Obama declared that inequality is “the defining issue of our time” (Sargent 1). President Obama condemned national decline in economic mobility as a direct consequence of inequality, rather than lack of mobility itself.

In April 2014, Thomas Piketty released Capital in the 21st Century, a six-hundred-page tome offering a general theory of capitalism. His theory proffered that capitalism will inevitably lead to ever-widening income inequality in the 21st century as it did in 19th century Europe. This rising inequality, Piketty argued, can only be addressed by immediate, heavy taxes on accumulated wealth.

Two months later, as Hillary Clinton traveled Europe promoting her memoir, Hard Choices, she agreed with Piketty, stating that “we have unbalanced our economy too much towards favoring capital and away from labor” (Haberman 1).

Even Pope Francis gave his input, adding a religious facet to inequality in a tweet in April 2014, “Inequality is the root of social evil” (Green 1). We must reject “the absolute autonomy of markets and financial speculation” or we will never find “a solution for the world’s problems, or for that matter, to any problems” (1).

Before I begin, I must admit that this particular book review pushed me to challenge my personal biases with pure, tangible, economic reasoning, and to engage in active introspection, to identify why I resist arguments against my racial privilege. I am white, male, and what economists term ‘economically disadvantaged.’ I grew up watching my mother forego haircuts or lunch for months at a time to provide my sisters and I with certain opportunities or a better meal. We had little money to spend on tutors or trainers or club fees, and each academic, athletic, and social progressive step we took was hard won. Thus, I grew up hard and proud in my labor, and in the power of discipline and focus and determination. I don’t feel privileged or lucky. Yet the undisputable reality is that despite my social class, my discipline, focus, and determination had such potential because of the color of my skin.

The Color of Wealth lays bare a dirty secret in terms the layman can understand: for the last two centuries, Americans of color have been barred by laws and discrimination from government wealth-building programs that benefit white Americans. Government policy and practice have been the driving force for racial wealth disparity in the United States since the country’s birth. Leveraging the collective histories of Native Americans, African Americans, Latino Americans, Asian Americans, and White Americans with pure economic diction and calculation, the book shows how exploitation of people of color and programs providing resources to whites systematically established a United States in which wealth is controlled by the white majority.

The Color of Wealth is a collaboration among five women, all members of United for a Fair Economy (UFE), a non-partisan organization dedicated to challenging the concentration of wealth and power that corrupts democracy, deepens the racial divide and tears communities apart. Meizhu Lui is the executive director for UFE and has focused much of her work towards equality in Boston. Rose Brewer is a professor of African-American and African Studies at the University of Minnesota, with a Ph.D. from Indiana University. Barbara Robles received her Ph.D. in Economics from the University of Maryland, and writes frequently about Latino/a entrepreneurship, educational attainment, and consumer patterns. Betsey Leondar-Wright is UFE’s communications director and a long-time economic justice organizer and researcher. Lastly, Rebecca Adamson is founder and president of First Nation’s Development Institute and founder of First People’s Worldwide, lending her voice and experiences as a Cherokee.

Our authors tactfully broach the mammoth topic of the racial divide of held wealth with some simple economics. Government policies aimed to improve the end-distribution outcome for dis-enfranchised individuals do little to provide equal opportunity or even open the door to access a different mode of life. The key term is wealth, specifically financial wealth. Wealth is defined as economic assets, including real estate, cars, cash, stocks, pension, businesses, and anything else that can be readily converted to cash. “Income feeds your stomachs, but assets changes your head” (8). That is, individuals act differently when they have a cushion of assets to strategize around important opportunities in life. When an individual must live from paycheck-to-paycheck, they are forced to think about how they’ll make the next day. But when an individual has a set of resources that allows them to think about their future in a positive way, they can strategize about the future, create and take advantage of opportunity. From the outset, the inductive reasoning is simple and relatable, yet with powerful implications.

The Color of Wealth then offers a brief lay-man’s history of household, American historical events and policies that contributed to enormous racial divide. Ranging from government regulations ranging from the 1849 California Gold Rush to Operation Bootstrap and American-Japanese treatment in the 1950’s. In addition, over the last fifty years, the American economy has trended towards providing huge returns on held wealth– disproportionate to returns on income. Thus, the rich get richer at a far greater rate than the poor gain wealth. Our authors argue that government policies, rather than systemized racism among the populace, played the largest role in the intense racial divide. The economy is not Adam Smith’s invisible hand that operates by its own natural laws. It’s a human creation that embodies racial power differences, both caused by and causing discriminatory government policies and individual interactions. By making full restitution to marginalized groups, both whites and people of color will benefit. They argue: “By making a distinction between modest transformative assets and huge fortunes swollen by exploitation even the firmest critics of capitalism can get behind the goal of asset building for all” (29). This formulate listing of government policies designed to repress people of color offers a powerful and humbling series for one like myself, who has studied each of these events in a white classroom, rather than one that considers the marginalization. Their breadth and applicability of their argumentation positions them in the end-distribution arguments of John Rawls and Robert Nozick, contending that a balance of end-distribution (income affecting) policies with policies that offer opportunity can only change the United States’ racial divide—not just one or the other.

Our authors then launch into an analysis of the history of government obstacles to asset building for Native-American, African-American, Latino, and Asian-American people, and then of government boosts to asset building for white people. One of their most powerful examples considers the enslavement of African-Americans, and the enormous benefits of African-American dis-enfranchisement to the rise of America as a super power. Without slave labor, our authors argue, it is unlikely there would have been a successful textile industry. The business profits made off of enslavement were thereby transmitted across generations. Building those great industries on the back of slave labor certainly opened up a space for the incorporation of the white working class, and ultimately the building of the white middle class, followed by a white elite. So whether you were an owner of slaves or not, the process of building this country under conditions of racism and white supremacy opened up a space for all whites—a space ultimately denied to people of color.

So what can we do to close the racial gap? Our authors tell us. The immediate focus ought to be on education. Education has been an important tool in creating white advantage. “It was a crime to teach African slaves to read and write; Latinos have been disadvantaged by English-only classrooms; Native Americans were forced to assimilationist school settings and Asians had to sue to go to school with the whites” (293). [Truly] free public universities will result in a well-educated populace—the very cornerstone of democracy. Subsidized and readily available English classes will allow non-English immigrants enormous upward mobility.

The federal government, too, ought to use public resources to create “wealth-builder starter kits” for marginalized groups (300). These policies fall under four strategies: asset accumulation, asset leveraging policies, asset creation, and asset preservation. Universal will healthcare protects income and assets, as even just one uninsured health issue can wipe out several years of saving.

The Color of Wealth proposes small “trust funds” or “baby bonds” for each new born, where taxes from the wealthy match yearly contributions made by parents, to be available for withdrawal when the child reaches age eighteen. These funds will provide social and financial opportunities for young adults, eager to advance realize their life’s goals. However, social and fiscal capital will not facilitate this realization. The United States needs an “activist government” that invests in people and communities from the bottom up” (306). Trickle-down economics does not work. For example, at the rate of improvement in black income compared to white income, it would take 581 years to reach parity (308). Each of these structures and mechanisms should be paid for via progressive taxation, where those with greater income are taxed at higher rates than those with less financial means. Yet, they write, each of these efforts is ultimately futile unless America takes a step forward in changing public consciousness and recognize that “the rich get richer and the poor get poorer” is not a law of nature, but a man-made choice (312).

The weakest facet of the unifying argument The Color of Wealth’s authors provide is contained in the last chapter, as they present a paradigm on which rests their proposed policy changes. The paradigm is explained via a quote by W.E.B. Dubois, “To be a poor man is hard. But to be a poor race in a land of dollars is the very bottom of hardship” (288). Our authors boldly claim that the “economic and social problems in our society today are not caused by poverty per se” but by the “growing inequality between the have-too-muches and the do-not-haves” (300). Thus, their preference would be to systematize poverty rather than increase mobility through the presence of inequality.

Our authors provide an example: “But if your little dinghy is stuck in the mud and Queen Elizabeth comes sailing by and will not stop to give you a lift, then your situation becomes unbearable” (288). Yet this logic seems flawed. The mere fact that ‘Queen Elizabeth’ chooses not to help us is not inherently unjust—in fact, we benefit from her tech companies’ research and advances and her medical research and new cures. Our situation becomes unjust if Queen Elizabeth uses her capital to keep us stuck in the mud, and manipulates the macro-weapons of American politics and the American media to her own advantage.

Thomas Piketty’s theory follows identical reasoning, with a proposed progressive tax on wealth of five to ten percent for billionaires, two percent for people worth five million Euros or more, and one percent for millionaires; on top of a marginal, confiscatory tax rate of 80%. “If one follows Piketty in assuming a normal return on capital of 4% for the 21st century, a 10% tax on wealth is equivalent to a 250% tax on the resulting capital income. Combined with the 80% income tax, taxpayers would face effective tax rates of up to 330%” (Homburg 1401). This is not surprising, since Piketty, like Lui, Robles, Brewer, Leondar-Wright, and Adamson, argue that the high return on capital in the United States “inextricably intertwines” with “outright theft” (Piketty 446). If we assume criminals face one hundred percent taxation of ill-gotten gains, his favored tax rates are not far off. Unfortunately, this would be next to impossible to uphold at a national level as the rich will inevitably switch to income in untaxable forms.

In addition, The Color of Wealth does not seem to account for the moral dilemma of behavioral economics, namely free-loading or human vice. For example, among the asset leveraging policies our authors advocate for, rotating savings and credit associations (ROCSA) play a vital role. ROCSAs provide funds to be utilized by immigrant households in order to start a small business, purchase a home, or pay for a child’s education. A ROCSA requires participants to pay in a monthly sum agreed upon by the group, to be available to participants to make a request to borrow of the month’s pool of money at any time, withdrawal-tax-and interest-free. This continues until all members have had access to the funds. “The system is based on trust and social pressure. Thus, if members do not return the money at some point, their reputation in the community is tainted, something they are not usually willing to risk” (301). A system based on trust and social pressure seems far too utopian. Immigrants from different religions and ethnicities inevitably stem from different cultures and customs with widely differing mores and social values. A central tenant of modern economics is that individuals will act in self-interest. Utilitarian judgements in sacrificial moral dilemmas do not reflect impartial concern for the greater good. Thomas Murray, in his 2012 Coming Apart, notes the rapid rise of consumer bankruptcies declared within the U.S. as a sign of changing stigmas—where the shame of being unable to repay debts, living outside of your means, or living off welfare no longer exists. Consumer bankruptcies now account for fully 97% of bankruptcies filed in the United States.

Closing the racial economic gap in the United States is not just about dividing the pie into fair shares. The Color of Wealth presents it well: American economy is not a zero-sum game, in which some must lose so that others win and society advances. True progress can only be achieved if we tap the innovative spirit and cultural contributions of people of color, as well as those with white skin. In his 1964 Nobel Peace Prize address, Dr. Martin Luther King noted, “There is nothing new about poverty. What is new is that now we have the techniques and resources to get rid of poverty. The real question is whether we have the will” (312). As the twenty-first century progresses, America can choose to increase her consciousness or stiffen her will. We must develop a shared understanding of the roots of the divisions, before we can understand how to overcome them. For me, that means putting aside bias and opening my mind to consider and join the fight for worlds outside my own.

 

Works Cited

 

Green, Emma. The Atlantic: “The Pope Tweeted That ‘Inequality is the Root of Social Evil’: Big

Deal?” 2014 April 29. Web. Accessed November 2016.

Haberman, Maggie. Politico: “Clinton: Piketty Right on Labor.” 2014 July 8. Web. Accessed

November 2016 2016.

Homburg, Stefan. Applied Economics: “Critical Remarks on Piketty’s Capital in the Twenty-

            First Century.” Accessed November 2016.

Lui, Mezhui. The Color of Wealth. New York Press: New York, 2006. Print. Accessed

November 2016.

Krulick, Al. “Bankruptcy Statistics.” Debt.org. Web. Accessed November 2016.

Piketty, Thomas. Capital in the 21st Century. Cambridge: Belknap Press, 2014. Print. Accessed

November 2016.

Sargent, Greg. The Washington Post: “Inequality is ‘the defining issue of our time.’” 2013

December 4. Accessed November 2016.