Beyond Pandemic’s Upheaval, a Racial Wealth Gap Endures

Not since Lyndon Baines Johnson’s momentous civil rights and anti-poverty legislation has an American president so pointedly put racial and economic equity at the center of his agenda.

President Biden’s multitrillion-dollar initiatives to rebuild infrastructure in neglected and segregated neighborhoods, increase wages for health care workers, expand the safety net and make pre-K and college more accessible are all shot through with attention to the particular economic disadvantages that face racial minorities. So were his sweeping pandemic relief bill and Inauguration Day executive orders.

Yet as ambitious as such efforts are, academic experts and some policymakers say still more will be needed to repair one of the most stubborn and invidious inequalities: the gap in wealth between Black and white Americans.

Wealth — one’s total assets — is the most meaningful measure of financial strength. Yet for every dollar a typical white household has, a Black one has 12 cents, a divide that has grown over the last half-century. Latinos have 21 cents for every dollar in white wealth.

Such disparities drag down the American economy as a whole. A study by McKinsey & Company found that consumption and investment lost because of that gap cost the U.S. economy $1 trillion to $1.5 trillion over 10 years, or 4 to 6 percent of the projected gross domestic product in 2028.

Mr. Biden started talking about the wealth divide on the campaign trail, calling on the Federal Reserve to take on a new role and “aggressively target persistent racial gaps in jobs, wages and wealth.”

Vice President Kamala Harris and several Democratic senators have supported proposals targeted specifically at the gap — from increasing Black homeownership to establishing trust accounts for newborns (“baby bonds”). And senior economic advisers who have joined the Biden team, including Cecilia Rouse and Jared Bernstein, have talked about the need for programs that attack structural inequities, noting that disparities in income over time create more entrenched gaps in wealth.

Heather Boushey, a member of the White House Council of Economic Advisers, said the president’s proposals were intended to work together to make sure that unexpected or temporary economic jolts — like the loss of a job — didn’t snowball into a disastrous tumble.

“No one thing alone is going to check the box to close the wealth gap, but the combination of all these things together will make real progress,” said Ms. Boushey, who has written frequently about the issue.

Government support is crucial, economists say, because there is so little that individuals can do on their own to close the wealth gap. The most surprising finding that researchers at the Federal Reserve Bank of St. Louis established after a decade-long study of inequality and financial vulnerability was that no matter what financial decisions you make or schools you attend, roughly 80 percent of those yawning disparities are determined by your skin color, the year you were born and your gender.

“There’s a lot you don’t control,” said Ray Boshara, who headed the research effort. “These larger forces really have an impact on your ability to accumulate wealth.”

Imagine playing a game of Monopoly with a set of rigged rules. Your opponent gets $2,000 in cash, rolls with two dice at every turn, and earns $200 every time he circles the board and passes “Go.” You, by contrast, begin with only $1,000, roll with a single die and earn $100 at “Go.”

At the game’s end, you can hand off whatever cash and property you’ve accumulated to a friend or family member, and the next round just continues.

The rigged game helps explain the origins of the wealth gap. The heavy hand of a history studded by intimidation and terrifying violence, segregation and unfair housing, zoning and lending policies has prevented generations of Black families from gathering assets.

In the 19th century, when the government distributed the country’s most realizable asset — land — during the Homestead Act, African-Americans were left out. In the 20th century, when the focus shifted to building a berth in the middle class through homeownership, African-Americans were again largely excluded from federal mortgage loan support programs and the G.I. Bill of Rights. Tax policies, in turn, favored the wealth-building strategies that were offered to whites.

Even New Deal assistance programs like unemployment insurance that were created to help people survive the Depression excluded agricultural and domestic workers, who were overwhelmingly Black.

Again and again, African-Americans were shut off from the capital that makes capitalism work.

“That’s how we built the racial wealth gap,” said William A. Darity Jr., an economics professor at the Sanford School of Public Policy at Duke University. “Unless you have a comparable program focused on building Black wealth, you’re not going to do much about it.”

Unequal outcomes in one generation turn into unequal opportunities in the next. Without assets, Black parents cannot offer as much financial support to help pay for their children’s education, first home or efforts to start a small business.

Black graduates, for example, have to take out bigger loans to cover college costs, compelling them to start out in more debt — on average $25,000 more — than their white counterparts.

Recognizing an uneven playing field is not as obvious as it might seem. The lopsided Monopoly rules were developed by social scientists at the University of California, Berkeley, nearly a decade ago as part of an experiment on money’s effect on human behavior.

They found that winners consistently credited their hard-earned skills and smarts for their success rather than a skewed playing field.

That all-too-human response clouds thinking about inequality, said Paul Piff, who led the research team and is now a psychologist at the University of California, Irvine.

Americans, much more than people from other countries, interpret “their advantages in terms of things they themselves have earned or deserved as opposed to thinking it’s the result of an unfair world,” Professor Piff said. “Then the inequalities you’re seeing aren’t unfair, they’re just necessary outcomes of things that people did or didn’t do,” he said, so you are less willing to do anything about them.

Mr. Boshara at the St. Louis Fed said the implications were particularly pertinent in thinking about the racial wealth gap.

“People feel they’ve earned everything they have, but the evidence just doesn’t support that,” said Mr. Boshara, who is helping to lead a follow-up research initiative at the bank, the Institute for Economic Equity. “It counters the American narrative that everybody who has something made it on their own.”

Challenging shibboleths about hard work and personal responsibility can meet resistance. People often take immediate offense, interpreting the argument as detracting from their own demonstrable hard work, skills and talent. What the research highlights, though, are the outside forces that prevent other individuals who are just as talented and hardworking from achieving the same success.

The same house in a Black neighborhood will fetch less money than it would in a white one. A Black worker with the same credentials as a white colleague will earn less. Even among college graduates, the Black jobless rate tends to be twice as high as the rate for whites. Such inequities operate like an invisible tax on African-Americans, a tax on being Black.

The pandemic has underscored how crushing unpredictable and uncontrollable twists in circumstances can be. When Congress approved the $1.9 trillion relief plan, Mr. Biden pointed out that millions of Americans were jobless and lining up at food banks “through no fault of their own.”

“I want to emphasize that,” he added. “Through no fault of their own.”

The pandemic has hit African-Americans and Latinos hardest on all fronts, with higher infection and death rates, more job losses, and more business closures.

Proposals that confront the wealth gap head on, though, are both expensive and politically charged.

Professor Darity of Duke, a co-author of “From Here to Equality: Reparations for Black Americans in the Twenty-First Century,” has argued that compensating the descendants of Black slaves — who helped build the nation’s wealth but were barred from sharing it — would be the most direct and effective way to reduce the racial wealth gap.

Vice President Harris and Senators Bernie Sanders of Vermont, Elizabeth Warren of Massachusetts and Cory Booker of New Jersey have tended to push for asset-building policies that have more popular support. They have offered programs to increase Black homeownership, reduce student debt, supplement retirement accounts and establish “baby bonds” with government contributions tied to family income.

With these accounts, recipients could build up money over time that could be used to cover college tuition, start a business or help in retirement.

Several states have experimented with small-scale programs meant to encourage children to go to college. Though those programs were not created to close the racial wealth gap, researchers have seen positive side effects. In Oklahoma, child development accounts seeded with $1,000 were created in 2007 for a group of newborns.

“We have very clear evidence that if we create an account of birth for everyone and provide a little more resources to people at the bottom, then all these babies accumulate assets,” said Michael Sherraden, founding director of the Center for Social Development at Washington University in St. Louis, which is running the Oklahoma experiment. “Kids of color accumulate assets as fast as white kids.”

Without dedicated funds — the kind of programs that enabled white families to build assets — it won’t be possible for African-Americans to bridge the wealth gap, said Mehrsa Baradaran, a law professor at the University of California, Irvine, and the author of “The Color of Money: Black Banks and the Racial Wealth Gap.”

She paraphrased a 1968 presidential campaign slogan of Hubert Humphrey’s: “You can’t have Black capitalism without capital.”