The drive for economic equality… Stuck in neutral

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Snapshot for April 30, 2008.

The Drive for Economic Equality…Stuck in Neutral

By Christian Dorsey and James Lin

The 40th anniversary of Dr. Martin Luther King’s assassination has caused many to ponder our progress in achieving his vision of economic equality. While income inequality between whites and blacks is a commonly referenced statistic, it tells an incomplete story. Wealth, or net worth, serves as a better indicator of a family’s ability to achieve economic security and upward economic mobility. When seen in this light, the gap between black and white is incredibly wide.

In 2004, blacks held $11,800 in net worth, or about 10% of the $118,300 held by whites (see Chart). When home equity is subtracted, blacks held, at the median, only $300 in net financial assets, or less than 1% of the $36,100 held by whites. Contrary to conventional wisdom, the picture has not improved in recent years. The wealth gap was narrowest in 1992, and even then, median total wealth for blacks was a mere 16% of their white counterparts.

Chart: Median household income and wealth, by race 2004

It is unclear how the housing crisis will affect the wealth gap. However, with most black wealth concentrated in home equity, and with the disproportionate number of foreclosures in black households,1 the wealth divide may continue to widen. Four decades after Dr. King’s death, African Americans will have achieved little in the way of shared and equitable prosperity.

Policy makers can develop policies aimed at building wealth in low-wealth households to guard against income shortfalls and provide them with the means to invest in education and appreciating assets—keys to economic growth. Addressing the wealth gap directly will not only alleviate an acute symptom of racial inequality, it will better position the U.S. economy to reach its full potential.

References

Wolff, E. N. 2007. Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze. Working Paper No. 502. New York: The Levy Economics Institute.

Notes

1 Rivera, Amaad et al. 2008. State of the Dream 2008: Foreclosed. United For A Fair Economy. Accessed April 15, 2008: http://www.faireconomy.org/files/StateOfDream_01.16.08_Web.pdf .