Redlining Never Went Away

July 20, 2017
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Redlining Never Went Away

Back in 2014, Ta-Nehisi Coates wrote a long article entitled “The Case for Reparations.” The article recounted how the economic damage done to black Americans by government policy and social oppression didn’t end with slavery. Segregation and widespread violence against black people persisted for almost a century after the Civil War. And the practice of redlining — a term that encompasses both housing discrimination and the denial of services to people in predominantly black neighborhoods — persisted even longer.

It’s certainly true that the economic gap between African-Americans and others remains wide. Here is the picture for income:

A Yawning Divide

Median household income in 2015 dollars

Source: U.S. Census Bureau

For wealth disparities, the picture is even starker, and the housing crash made it even worse:

Wealth Destruction

Median household net worth in 2013 dollars

Source: National Bureau of Economic Research

How much of this present-day differential is due to the racist policies of past eras? It’s not an easy question to answer. Much has happened between then and now, and history is a tangle of factors that are hard to separate.

But academic economists are on the case. A spate of recent papers has sought to quantify the harm done to modern African-Americans by the invisible hand of history. As a result, we’re getting some numbers to bolster Coates’ narrative.

Obviously, slavery hurt black Americans by depriving them of the fruits of their labor — lacking wages or property rights, slaves could build no wealth for centuries. But the end of slavery didn't suddenly place black Americans and others on an equal economic footing.

A new study by William Collins and Marianne Wanamaker seeks to quantify the disparities of the postbellum period. The authors combine various data sources to measure the difference between the income of fathers and sons going all the way back to 1880 — 15 years after the Civil War ended. This lets them measure differences in economic mobility, identifying which families tended to advance up through the income distribution over time, and which fell behind.

The racial differences they find are stark. For essentially all of recorded American history, poor white families were far more likely to escape poverty than poor black families. Although the black-white income gap did narrow over this time, the difference in mobility kept it from fully closing. The authors estimate that if mobility had been the same between the two racial groups, the median black worker would have reached the 30th percentile of the income distribution in 1900; in reality, this wasn’t achieved until 2000. Had the mobility of black Americans not been impaired, the authors reckon, the racial income gap would already have narrowed to a very small number.

Why the differences in mobility? Even when they account for test scores — which reflect differences in educational opportunities and natural talent — the authors find that 30 percent to 57 percent of the mobility gap remains. There are many factors that could account for this, including large-scale racial discrimination in housing and employment. Yet, the mobility gap has persisted even after the Civil Rights Act and the end of legal segregation, implying that inequities remain.

A second paper, by Ian Appel and Jordan Nickerson, has a more modest goal — to assess the impact of one particular type of redlining. Appel and Nickerson look at policies that restricted mortgage lending in certain neighborhoods back in 1940. The legacy of local discrimination can be seen in house prices today — all else equal, a redlined neighborhood tends to have house prices about 5 percent lower than other neighborhoods, partially as a result of more vacant homes. That 5 percent figure may seem like a modest difference, but it only represents one specific type of discriminatory policy at one point in time — the sum of all such policies is probably quite a bit larger. 

This paper doesn’t include the long-term effects of black Americans being forced into bad neighborhoods. But other economists have studied this. An experimental program in the 1990s called Moving to Opportunity gave poor people vouchers to escape their neighborhoods. This resulted in considerably higher income, as well as improved well-being by a variety of measures.

Income, over time, can be compounded into wealth. So evidence showing that even relatively high-earning black Americans were — and often still are — stuck in poor neighborhoods is probably a big reason for today's racial wealth gap.

In other words, though much work remains to be done, economists are slowly making headway toward quantifying the economic harm that has been done over the centuries to black Americans by racist policy and discrimination. How to go about undoing that harm is a much harder problem. But anyone who thinks that writers like Coates are cherry-picking historical anecdotes or blowing the problem out of proportion should take a look at economists’ numbers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Noah Smith at nsmith150@bloomberg.net

To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net

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