The History of Racial Economic Inequality: Part 2, The New Deal & The American Dream

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  • President Obama often calls the 2008 economic crisis the worst economic crisis since the Great Depression. In the 1930s,  all Americans faced staggering rates of unemployment and poverty.  Economic uncertainty and despair were commonplace for most and the American Dream seemed unattainable. However, even when the entire nation was suffering, the economic realities that African Americans faced were bleaker.  The country’s  poor economic climate, coupled with the height of Jim Crow’s racist and segregationist policies, relegated many African Americans to the worst of the impoverished communities and conditions.

    President Roosevelt understood the country’s economic recovery required building a strong middle class. And despite the popular argument that government doesn’t create jobs, President Roosevelt did precisely that, along with incentivizing the greatest expansion of the middle class in history, with the New Deal. One of the boldest policies in history, the New Deal consisted of social programs with economic opportunities (e.g., Social Security; unemployment compensation; minimum wage; protection of the right of workers to join labor unions; and the G.I. Bill of Rights) that moved millions of poor Americans onto the path of economic security. It is this economic security that enabled many Americans to move to better neighborhoods, secure loans to purchase a home and/or finance a start up business – achieve the American Dream.

    However, the American Dream was not available to everyone, as these economic opportunities were not administered equitably along racial lines. Home ownership – which remains the number one source of wealth for Americans –  was inaccessible to most blacks, leading to the an expansion of the institutionalized racial economic inequities that began during slavery.

    The New Deal incentivized home ownership with the establishment of the Federal Housing Association (FHA) and low interest government backed loans.  Unfortunately for blacks, the FHA lending structure, which produced the lending structure existent today, was racially bias with loans mostly targeted towards whites and suburban housing developments and away from urban areas. Additionally, the FHA allowed, and often encouraged, housing arrangements to have “restrictive covenants” forbidding homes to be sold to African Americans.  By some estimates, 80 percent of new suburban housing developments in the 1930s and 1940s included such covenants.

    Over the next several decades, whites were generating wealth while African Americans were subjected to “white flight”, “redlining” and residing in low-wealth communities.

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