June 19, 2020 / 2:11 PM / 23 days ago

Breakingviews - U.S. racism’s $13 trln legacy is just the start

"Black Lives Matter" is written in a shop window in the Dorchester neighborhood of Boston, Massachusetts, U.S., June 18, 2020.

NEW YORK (Reuters Breakingviews) - Around the time the United States formally abolished slavery in 1865, African Americans owned 0.5% of the United States’ wealth. Today they own under 3%, even though around 13% of the population is defined by the U.S. census as “black or African American.” This isn’t an accident of history – it’s a result of government policies and institutional bias. The interest keeps compounding.

The value of income lost during slavery is staggering. The U.S. practice lasted for nearly 250 years – almost equivalent to the time from the signing of the Declaration of Independence in 1776 until today. University of Connecticut Professor Thomas Craemer estimates the present value of unpaid wages for just the 89 years after independence to be nearly $20 trillion using a 3% interest rate. Use a 6% rate, and that reparations bill rises to almost $7 quadrillion. That is around 50 times global GDP.

Then there is the question of land. An 1865 order set aside land for black households, widely remembered as a promise of “forty acres and a mule.” A Roosevelt Institute report by Duke University Professor William Darity and writer Kirsten Mullen estimates that at least 40 million acres should have been allocated. If the value grew at a 6% compound interest rate, it would today be worth over $3 trillion – more than the market capitalizations of Amazon.com and Apple combined.

But lost land and wages are only the beginning of the wealth transfer from black to white Americans. It includes racial segregation laws, mass incarceration, employment discrimination and exclusions in government programs. And the Federal Housing Administration established in 1934 wouldn’t insure mortgages in most minority communities for decades, putting housing, a major source of American wealth, out of reach through a practice known as redlining.

So instead of starting at the beginning, an alternative way in is to look at the reality today. Households that identify as black or African American have roughly $800,000 less in mean net wealth than their white counterparts, according to Federal Reserve data. Apply that to the population using census data, and the wealth gap comes to over $13 trillion. Closing it would cost the equivalent of 12% of white wealth. Money doesn’t make up for centuries of violence and bias – but without economic justice, other attempts to right major wrongs don’t stand much of a chance.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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