Bookkeeping

Comment: Wealth creation will not work as long as wealth extraction continues

By Jeremiah Greer

Comedy is often the lens through which we wrestle with uncomfortable truths. Chris Rock is one of many comedians who have used his comedy to honestly portray the deep political and economic oppression that black people face. In his routine, “Never Scared,” Rock dives headfirst into the ever-widening racial wealth gap, proclaiming that “there are no rich black or brown people in America. We have no wealth (expletive) Shaq is rich, the white man who signs his check is rich.

Unfortunately, he’s right, and his joke is backed up by volumes of research documenting that the racial wealth gap has grown exponentially over time. If nothing is done, people of color will be permanently excluded from the middle class. According to a report by the Institute for Policy Studies: “If the average wealth of black families continues to grow at the same rate as over the past three decades, it would take 228 years for black families to accumulate the same amount of wealth as white families have today. . That’s just 17 years less than the span of 245 years of slavery in this country.

In recent years, it has become increasingly popular to bridge the racial wealth gap. Everyone from policy advocates and government officials to nonprofits and corporate accountability officers claims to have the answers. Although many act in good faith, most of the proposed solutions are rooted in wealth creation initiatives, primarily focused on increasing homeownership, business ownership and personal savings of Black.

During his campaign and throughout his tenure thus far, President Joe Biden has pledged to address “the issue of racial equity,” incorporating many of these same ideas of wealth creation for close the racial wealth gap. Even big corporations, including JPMorganChase, Bank of America and Wells Fargo, have pledged millions of dollars to close the racial wealth gap.

While these wealth creation initiatives are laudable, most of them will fail because they fail to address the root cause of the racial wealth gap: wealth extraction.

The racial wealth gap is a systemic problem and not the product of the personal choices of black people. And no matter how many wealth-creating opportunities we create for black people and other people of color, those efforts will never be effective if we leave the processes of wealth stripping intact.

Unfortunately, racism is profitable. We live in what my organization has called an “economy of oppression,” in which white-led policymakers, businesses, and academic institutions wield economic and political power over the systems that determine lives and livelihoods. subsistence of blacks and browns.

Exclusion, exploitation and extraction sustain both economic oppression and the wealth of white elites. The exclusion of people of color denies them access to essential financial products and services needed to navigate our economies, such as bank and credit accounts. Exploitation is the intentional use of the country’s racial caste system to normalize and deeply entrench racist financial structures and double standards in our economy (eg reliance on credit scoring). Finally, the wealthy elite uses the resulting insecurity for people of color as a tool of extraction to steal their income and wealth through predatory financial products and services. The economy of oppression and those in power who support it intentionally target black people and other non-black people of color. The system is designed to financially prey on black people, which purposely criminalizes and politically silences them. The priority is always corporate profits over the lives of black people, the profits and wealth they couldn’t get if racism wasn’t profitable.

Wealth extraction in a dual financial system

The financial services industry is at the heart of the oppressive economy. This industry, which includes banks, asset management companies, insurance companies and private equity firms, controls the flow of money in our economy. Through an elaborate web of financial products, services and instruments, this system is designed for extraction – taking capital out of precisely those people who have the least to start with. We call it a “dual financial system” because it offers very different sets of products – and outcomes – for wealthy white people and for people of color.

Black people and other people of color are, by design, excluded from accessing the very products and services that provide households with financial security. This includes bank accounts, retirement and personal savings accounts, top-rated credit cards, insurance, mortgages, and small business loans. They may be excluded by geography (lack of bank branches or higher car insurance rates in formerly demarcated neighborhoods), lower wages due to job discrimination and segregation, wealth gap itself (for example, account minimums or the lack of a cushion to maintain on-time payments in an emergency), or outright lending bias.

This exclusion then leads to a vicious circle: the financial services industry exploits the very insecurity it has created by offering predatory products and services, which deprive of income and wealth, black people and other communities of color who have been prevented from accessing better .

People of color who need to fill holes in their monthly cash flow due to low wages, lack of an asset cushion, erratic cash flow, and stripped wealth are forced to contract payday loans that charge interest rates of up to 700%. Blacks also receive fewer discounts and more penalties when buying car insurance, which means we pay significantly more than white households. Additionally, when we can access mortgage credit to buy a home, we are more likely to receive mortgage products with adjustable (and often increasing) interest rates or simply face more fixed interest rates. higher than the rates enjoyed by white households. This extraction does not happen simply because the financial actors do not like blacks and browns. This is because there is much profit to be had from despair.

This dual system is amplified by the credit reporting system, as all the consequences of racial financial exclusion also lead to lower credit scores, which in turn are used to worsen exclusion. Three credit reporting megacorporations – Experian, TransUnion and Equifax – act as financial supervisors who determine who can and cannot access wealth-creating financial products, services and capital.

Although it is illegal to use race to determine access to financial services, the credit score produced by these agencies has become an indicator of racial discrimination. It’s squarely built into these scores by their reliance on measures that have a long history of bias. For example, the on-time bill payment measure favors mortgage and credit card payments (which many blacks are excluded from) over rental and cellphone payments (which more blacks have greater access to). Types of debt that are more likely to be held by black people (eg, payday loans or student loans) are treated negatively, compounding the impact of financial exclusion.

Those with high credit scores can build wealth through affordable mortgages, prime lines of credit, and low-cost credit cards. Those who don’t have a high credit score see their wealth soar because they can’t access affordable credit. Without affordable credit, they accept more expensive or possibly predatory credit or forego things that typically require credit to purchase, such as a car that doesn’t break down regularly or home repairs. Going without these things also tends to cost more in the long run and makes it difficult to build wealth.

As I testified before Congress, the credit scoring system reinforces and exacerbates racial inequality. Blacks and other non-black communities pay more for basic financial services than whites, and end up losing their wealth because of it.

Other methods of wealth extraction occur in the public safety and healthcare sectors. Over-policing in black communities and mass incarceration extracts wealth through excessive fines and fees, including the alimony debt to the state that accumulates during incarceration. A racist health care system, some states’ refusal to expand Medicaid, and the cost of living in a white supremacist society all lead to worse health care outcomes for black people and also extract wealth, in the form of excessive medical debt.

This racist process of exclusion and extraction is driven by the financial industry’s lust for profit and wealth, and it is made possible by the larger existence of our country’s racial caste system.

These systems of exclusion and extraction make it much more difficult for black households to benefit from generally recommended wealth creation strategies. For example, black homeowners experience widespread valuation discrimination, resulting in lower home valuations and lower home equity, and therefore lower wealth than white homeowners. Black businesses are often undervalued relative to white-owned businesses, reducing the overall wealth of black business owners. The inability of black people and other people of color to create wealth due to this systemic racism forces landlords, business owners, and households of color more broadly to rely on predatory debt just to survive.

Many forms of wealth extraction occur every day in America. The economics of oppression has been with us since the founding of the nation and is deeply embedded in our economic systems, as seen in our credit system and labor market. Like any thriving ecosystem, the economy of oppression is constantly evolving, thwarting our individual efforts to overcome oppression and create wealth.

Proposals to create wealth for people of color, especially black people, are important, even necessary. But until we dismantle the many systems of wealth extraction and the power structures that sustain them, the racial wealth gap will remain.

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