ECONOMY - Household Worth, the Killing of Our Economy

"Study: Housing Bust Hit U.S. Minority Households Especially Hard" PBS Newshour Transcript 7/26/2011 (includes video)

Excerpts

GWEN IFILL (Newshour): As the economy struggles to rebound, a new analysis of census data shows gaping wealth disparities have opened up among white, black and Hispanic Americans. The Pew Research Center found that this economic chasm, documented most recently in 2005, grew even worse during the housing bust and the subsequent recession.

In 2009, white households had a median net worth of just over $113,000. Compare that to $6,300 for Latinos, and not quite $5,700 for African-Americans. Between 2005 and 2009, whites lost 16 percent of their median net worth, but Latinos lost 66 percent, black households 53 percent, and Asians, who had topped white households in 2005, dropped 54 percent.
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PAUL TAYLOR, Pew Research Center: Well, we were able to look at a before-and-after set of snapshots from 2005 to 2009.

In 2005, the wealth gap ratios were roughly 10-1. And they doubled to 20-1. So, they were already big and they got even bigger. So what happened? The main driver of these disparate impacts was the housing market. Blacks and Hispanics have fewer financial assets. Wealth -- wealth is a combination of all your assets, your home, your car, your 401(k), your stocks, if you have them, minus all your debts, your mortgage, your car loan, your student loan, your credit card.

The financial portfolio of blacks and Hispanics are much more dependent on their housing wealth than on anything else. They don't have much else. So, when the housing market tanked, as it started to in 2006, it disproportionately impacted blacks and Hispanics. On top of that, there was a regional impact.

The housing market rose higher and fell more steeply in certain sections of the country. Those were sections in particular that Hispanics, but also to some degree Asians, are disproportionately located in. So you had sort of a double whammy.

GWEN IFILL: And we also have been watching, Roderick Harrison, these unemployment numbers, in which we see there is such a great gap between black unemployment, for instance, and certainly youth unemployment than white unemployment. Is this something that is connected, or is that a separate phenomena?

RODERICK HARRISON, Howard University: It's related.

I mean, wealth becomes an accumulation from income. You have to have savings to invest in a house, in stocks or bonds, in other things. And, clearly, historically, some of the wealth gap when it was 10-1 reflected the lower incomes and therefore the greater difficulty of saving and investing.

Also -- and this is going to be very important going forward -- I think we are going to have a generation of blacks and Hispanics, given this very severe drop, who won't be able to contribute, as they might historically have, to their children's education and investment in their future to perhaps a down payment for a home or other kinds of investments that typically are very important to transmitting wealth to the next generation, even before inheritance and things.
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GWEN IFILL: Are there government policies which are part of the problem or part of the solution here or are they, as we talked about predatory lending, private sector policies which should be addressed?

RODERICK HARRISON: It's both private and public.

I think one thing that we need to note is that income inequalities and class inequalities are now larger in the United States than through much of Europe. Intergenerational mobility is now greater in Europe. We used to think of ourselves as the land of opportunity. So, Europe is now making more efficient use of finding and allowing to rise talented people who are born in lower-income brackets than the United States is.

That doesn't speak well for global competitiveness. So to the degree that both private sector and -- or our reliance on free markets that have some of these negative effects, the fact that we don't have government policy to the extent in Europe that -- that tries to temper the effects of these markets, the fact that...

GWEN IFILL: Economic equality is not a goal.

RODERICK HARRISON: And it is part of, I think, what's killing the economy. Again, there is not enough consumer demand in the lower- and middle-income ranges.

It was sustained by debt, by -- by accumulating debt. People sustained their living standards. And, of course, that was unsustainable. So we're now paying -- part of one cause of the great recession, I think, is the greater income inequality and the degree to which it leaves insufficient purchasing power in the lower- and middle-income brackets.