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Pew has a new survey out today on the wealth gap in America, showing that the wealth gap between whites and minorities is at an all-time high. The report will be used by many enthusiasts of class warfare and racial politics to drum up a range of bad ideas and policy recommendations.
But we shouldn’t let that take our eyes off the reality behind its findings: between 2005 and 2009, American families – and especially minorities – saw their overall net worth take a big hit.
Because assets among minorities have been concentrated mostly in their homes, America is at a fragile point in our socioeconomic history: cynicism about the American Dream is real and even understandable. We have pushed homeownership as the main fulfillment of the Dream for a long time, and now it is the main reason why many Americans - and especially minorities - are feeling poorer these days.
Some key findings from the report:
Net worth is down dramatically. Between 2005 and 2009, whites saw their net worth drop 16%, while Hispanics experienced a 66% drop and blacks 53%. Let those minority figures sink in. They're huge. And they're owing to the fact that a disproportionate amount of net worth among minorities was wrapped up in homes, while whites have diversified their wealth more.
Zero or negative net worth has spiked. More than one third (35%) of black families and 31% of Hispanic families have zero or negative net worth, compared to 29% and 23%, respectively, in 2005. Among whites the figure rose from 11% to 15%. Even if people have jobs and are paying their bills, the loss of a sense of forward progress for many Americans has a dangerous dampening effect on aspiration and a willingness to try hard to get ahead.
Business equity is way down. Buried in the report, and ignored in the headlines altogether, is that – as a percentage – business equity has dropped the most for all racial groups. More than housing, more than anything. The housing bubble recession has also taken a huge toll on enterprises, especially those of minorities – business equity dropped by 54% for Hispanic and 57% for black households.
While everyone’s consumed with the debt negotiations, there are three very important points that lawmakers should take away from this report:
The politics of debt is hitting home for ordinary Americans like never before. Most Americans never knew when Washington rose the debt ceiling in the past. Now they do, because Washington's profligacy stands in stark contrast to the reality of their lives. Across America, people feel poorer – because they are. They are shedding debt as Washington takes more on. They are most interested in how the actions of lawmakers in Washington affect their prospects. Lawmakers will not earn their praise for reaching a "deal" but for finding a solution that increases opportunity.
We clearly need a renaissance of the American Dream. The Dream will likely be revived through a new emphasis on entrepreneurship and business creation, not homeownership. This was Walter Russell Mead’s point here. It makes sense because (1) we need to increase the rate that we create new companies in America if we want job growth, and (2) the downward pressure on home values will continue for some time, even as prices start to slowly climb (meaning, home values won’t rise as rapidly as we once expected them to do). New businesses and growing investments among Main Street Americans is the way forward.
Washington needs to focus on upward mobility. Whether people have had an opportunity to improve the quality of their lives has always mattered more than how unequal America is. That is, so long as people have a shot at upward mobility, they don’t care as much if the rich are richer than they are. The question for Washington is what drives upward mobility. Right now, we are living through an undemocratic recovery – that is, one that is benefitting the affluent while everyone else struggles. Republicans need to understand that what Americans want isn’t just jobs, though they want those, too: they want opportunity, a way up, a realistic shot at improving their lives over time.
Upward mobility and the American Dream are in peril at a time when Washington wants to raise the debt limit to a number larger than our entire economy. That's not only terribly ironic. It's also the main conclusion lawmakers should draw from the report as they explain to their constituents what exactly it is that they're trying to do in Washington these days.