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American Economic Crises and the Effects on Communities of Color

Racial poverty in the United States has existed since the founding of the country, when only white families could legally purchase and own land. However, in the past century, we have seen an accelerated increase in the racial wealth gap due to discriminating laws that prevent families of color from building wealth. Every time there’s an economic crisis, people of color have disproportionately experienced worse outcomes than their white counterparts. This essay explores how major economic events in the modern 20th century have shaped the concentration of racial poverty in the United States.

The United States Second Industrial Revolution marked an insurgent of the increasing wealth gap in the United States. It was a period in which industry and technology exploded around the country, leading to massive growth of cities and factories. The country’s overall economic growth is undeniably one of the most significant moments in history and transformed the lives of millions. The country experienced mass production of steel, railroads, energy and consumer products; and a decline in agriculture farms. With Industrialization came with the rising upper class who controlled the production process and gained enormous wealth. Prominent figures at this time were John D. Rockefeller and Andrew Carnegie, who were the richest men in the world, controlling oil and steel. However, the poorest Americans did not experience the economic growth that the upper and middle class were experiencing. Instead, they were working at manufacturing factories with terrible working conditions, long hours and low pay. The poverty rate was projected to be between 60-70% during this time. “About one-fourth of the population in southern rural areas consisted of poor sharecroppers and tenant farmers. Over a third of these small farmers were African Americans.”

The Great Depression of 1929 was the great equalizer. This period marked the first time that many middle class Americans experienced extreme poverty. With unemployment skyrocketing at 25%, President Franklin Roosevelt implemented the New Deal, a series of programs that aim to restore economic prosperity among Americans. However, one of the agencies established under the New Deal, the Federal Housing Administration (FHA), can be traced back as the main reason why there is concentrated poverty in cities around the country. The Federal Housing Administration was established in 1934 under President Roosevelt; it subsidized mass production of housing in suburban neighborhoods, with the exclusionary clause that stated that none of these houses would be sold to African Americans. In other words, this subsidized middle class white families to move to suburbs while African Americans were not allowed to follow. The FHA’s reasoning was that having African Americans move into the suburbs would lower the property values, making their loans more risky. This has no empirical basis. When the GI Bill was passed to subsidize WWII veterans housing, it adopted the FHA exclusionary law as well, meaning many African American vets did not benefit from this program either. Racial restrictive covenants were another way to exclude American Americans from buying homes. Restrictive covenants were mutual agreement between sellers and buyers that prevent reselling of properties to certain races. On the other hand, minority families in America were offered public housing during the Great New Deal as a well-intended progressive solution to help the working poor. After the passage of the Housing Act of 1937, public housing was built with the goal of helping the unemployed work and to clear slums. However, mismanagement and bad policy decisions have isolated low-income families and further created concentration of poverty. Public housing in America was never implemented properly to help people living in poverty. Often, these units are characterized by “the rats, leaks, mold, and lead paint.” How can one succeed in their education and job when their homes lack the most essential amenities to support them? 

We still see the legacy of these exclusionary practices today. Owning a home is one of the main ways that Americans build equity. During the time when these exclusionary laws were implemented, home prices were twice the national median income, a down payment was affordable for most. However, African Americans were not allowed to buy the homes. After the Fair Housing Act passed, home values increased and they were 5 or 6 times the national median income, making it incredibly unaffordable for many African Americans. While their white counterparts have equity to send their kids to college and to take care of their senior parents, African Americans never had that opportunity to build wealth. While African Americans’ income is 61% of white folks, their wealth is 5% of whites’ wealth. 

After years of being excluded from building wealth, the 2008 Great Recession exposed many families of color were being exploited. Though the mortgage crisis happened in 2008, predatory lending had been going since the 1990s. In a research done by Professor Jacob Faber at NYU, he found that in the period between 2003 and 2006, Black and Latino families received over 20% of subprime loans, with them two times more likely to receive subprime loans than white counterparts. Interestingly enough, banks that once ignored these middle class minorities during the redlining period, provided risky loans to families who never received proper financial education to know what they were signing up for. As a result, Black and Latino families foreclosed their home, lost their wealth and contributed to that growing racial wealth gap. Foreclosure rates in these families of color doubled their white counterparts, with 56% of people who lost their homes were non-Hispanic and white. The mortgage crisis marked an era of continual exploitation of people of color, widening the wealth gap for many generations to come.

Though we have not seen the effects of the 2020 Covid-19 Pandemic on minority families, early findings have shown that COVID-19 has affected economically disadvantaged Black and Latino families more. History of marginalization and discrimination have put these families at higher risk. Black and Latino families have lower median incomes and are more likely to work in service jobs, forcing them to expose themselves to the virus. Adrianne Haggins, MD from University of Michigan stated, “Black Americans experience a disproportionate share of environmental risk factors, and are more likely to have limited economic and educational opportunities, food insecurity and poor access to health care.” With all these socioeconomic factors, it’s not surprising that families of color are experiencing higher rates of infection. The Payment Protection Program that was supposed to help small businesses and their employees, only 1 in 10 nonwhite businesses were able to receive it. Though more research needs to be done in order to determine the effect of the pandemic on the poverty rate of the United States, with our current unemployment rate, it would not be surprising for it to increase even further. 

In the past centuries, every major economic crisis has disproportionately affected people of color more. Our institutions have failed to support them in order to better their quality of life. From downpayment assistance program to proper financial education in our communities, we need to implement programs to further increase the access to wealth and economic opportunities that will help our communities to become more economically resilient in these trying times.

Written by Hang Nguyen

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