Mehrsa Baradaran’s Testimony before the Joint Economic Committee Hearing Examining the Racial Wealth Gap in the United States
May 13, 2021
By Mehrsa Baradaran
“Average wealth for white families is seven times higher than average wealth for Black families.” 1 Further, “median white wealth is twelve times higher than median Black wealth.” 2 Discriminatory federal, state, and local laws and policies, which enforced segregation and created a race-based bifurcated economy, created the racial wealth gap.3 While the Civil Rights reforms ended explicit racial segregation and Jim Crow, the effects of those policies have never been addressed.4 Instead, policymakers have repeatedly proposed self-help solutions rooted in the false assumption that a wealth gap created by a failure of public policy could be remedied by private markets.5
Without major structural reforms, the wealth gap will continue to expand. A 2016 study glibly predicted that based on the current racial wealth gap, it would take 228 years for Blacks to have as much wealth as whites today.6 The prediction, though grim, is based on a false assumption: that the wealth gap will naturally close over time—albeit a very long time—without intervention. In fact, as my previous research demonstrates, it is likely that the racial wealth gap will remain in place and continue to reproduce itself.7 In other words, if nothing changes, no amount of time will close the wealth gap because of the self-perpetuating effects of capital accumulation. The prediction of 228 years of stagnation also underestimates the transformative effects of policy changes that could close the racial wealth gap quickly. Heretofore untried changes can close the wealth gap very quickly.
An essential first step in dealing with the wealth gap is to acknowledge that public policy created the wealth gap and must be used to address it. Full justice demands a recognition of the historic breach of the social contract between America’s constitutional democracy and Black Americans. And contract breach requires a remedy. The post-Civil War 13th, 14th, and 15th Amendments to the Constitution promised freedmen equal protection under the law, the end of coerced labor, and the right to vote. If we envision these rights as a binding contractual promise, we can also envision a justification for a remedy to this breach. In his landmark “I Have a Dream Speech,” Martin Luther King Jr. framed the Black American claim to justice as rooted in a broken promise, “a promissory note to which every American was to fall heir. . . . [A] promise that all men . . . would be guaranteed the inalienable rights of life, liberty, and the pursuit of happiness.” 8 King said that, “America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check . . . which has come back marked ‘insufficient funds.’” 9 Continuing in the framing of a broken contractual framing, he lays claim to a remedy: “we’ve come to cash this check, a check that will give us upon demand the riches of freedom and the security of justice.” 10
Constitutional rights are not treated like typical contractual claims, but this framing can help theorize how a remedy for centuries of racial oppression can be designed. If the promise of equality was made by the federal government and then breached, what recourse can be envisioned for Black Americans? Typically, claims of redress are called “reparations.” Viewed through the lens of contractual breach, reparations are akin to “damages.” 11 Without that recognition, the Constitution itself stands as a roadblock to redress because it demands that all individuals be neither harmed nor benefited based on group characteristics.12
Black Americans have been harmed in direct contradiction to the Constitution’s promise of equal treatment, yet they have still had to contend with its demand of equal treatment in seeking a remedy. We must accurately diagnose the problem before we can move forward with solutions. A full-scale reparations agenda is essential—true justice is difficult to achieve without such a commitment.
In contracts, there are three forms of damages: compensatory damages, reliance damages, and restitution damages or unjust enrichment. A forthcoming Article will discuss all of these claims in full, but in this Article, I will explore the basic outlines of a compensatory damages remediation program. Compensatory damages is the typical form of damages for most contract breaches and is a form of remedy where the breaching party makes the breached upon party whole and compensates them to put them in the position they would be in had the contract been fulfilled.13 What would this look like for a reparations claim? Reparations could take many forms—all of which would have to be measured in monetary outcomes as are all contractual claims. One way to measure the remedy is to focus on outcomes rather than means. For example, reparations could mean that the federal government could enlist several programs and agencies at once intended to eliminate the racial wealth gap. The means of elimination would be flexible so long as within a stated amount of time, the wealth gap was eliminated. Several other government programs are designed in this way. For example, the Congressional Budget and Impoundment Control Act of 1974 created the Congressional Budget Office (CBO) tasked with analyzing congressional bills and agency programs with a focus on cost-cutting. The CBO has a mandate to score each bill and use a cost/benefit analysis. This score is put to use when passing the bill. A similar oversight committee can be devised to score each bill and agency program on its effects on the racial wealth gap. Closing the racial wealth gap can be viewed as a specific regulatory goal and each agency can design their own program or response depending on their own specific domain. The racial wealth gap has deleterious effects on Black communities in practically every domain: environmental impact, education, credit availability, housing, and policing. Thus, a response must be multifaceted.
This Article outlines a few of the myriad of solutions that can be deployed in a multipronged reparations program. This is by no means a complete list of policy goals, but a start in imagining what remedies might be available immediately. The racial wealth gap stemmed from many sources of injustice going back to slavery, but most recently and most obviously, it has stemmed from housing segregation [which] is thus the emphasis of this Article. Home ownership is also the main store of wealth for most middle-class Americans. Yet the focus on homeownership historically has created problems, even aside from segregated housing. The FHA’s focus on housing credit built the American suburb, which led to the overdevelopment of natural land, which has resulted in damaging environmental effects. Gaps in homeownership certainly caused the racial wealth gap, but it is possible to form a remedy that does not repeat the mistakes of the past. However, because many of the other self-perpetuating forces of the racial wealth gap are linked with the long-term effects of segregation, the effects of housing segregation must be examined and targeted by policy in order to adequately remedy the racial wealth gap. Segregated housing has led to segregated schools, and even segregated tax receipts due to local zoning and tax laws. Thus, housing is a lever that can affect several other sectors. Moreover, housing credit has been a federal project since the New Deal, and it was federal agencies like the Federal Housing Administration (FHA) that explicitly created racial zoning.14 Thus, a solution rooted in housing is most directly linked to the harm in this instance, thereby justifying immediate remedial action at the same agencies (and congressional bodies) that aided and abetted the racist zoning in the first place.15