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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.

Along with the FHA, the GI Bill invested $95 billion into expanding opportunity for soldiers returning from World War II. Veterans were provided college or vocational education, unemployment compensation and loans to buy homes and start businesses.  While thousands of black veterans valiantly fought and died for this country, the GI Bill was applied discriminately denying them access to these housing and business loans. In New York and northern New Jersey, for example, fewer than 100 of the 67,000 mortgages insured by the G.I. Bill supported home purchases by nonwhites.

By the 1960’s, the Civil Rights movement challenged the discriminatory application of many of these policies and made advances towards achieving the American Dream a reality for more people of color.  But, for many blacks the change came too late. The racial economic inequities became generational to the extent that black middle class families struggled (and continue to struggle) to keep pace with white families.

While the civil rights era pushed blacks closer to the American Dream, a new era – the Regan Era – was on the horizon, and with it came  massive cuts to social programs that would defer the American Dream for many blacks yet again.

The American Dream is based on the ideals that by exercising hard work and personal responsibility, anyone can achieve economic prosperity. However, there is little acknowledgement that this term was coined during the 1930’s when (predominately white) Americans were benefiting tremendously from governments investments.  Too often, African Americans economic conditions are blamed on personal and moral failures and their inability to pull themselves up by their own bootstraps. But, as history shows, African Americans (then and now) do not lack the work ethic. Instead, opportunities to achieve the American Dream were not (and still are not) equally accessible. As we embark down the road to economic recovery from this most recent crisis, let us not repeat history, and leave African Americans and underserved groups behind.

(Photo: Library of Congress 1938)

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3 thoughts on “The History of Racial Economic Inequality: Part 2, The New Deal & The American Dream

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  2. SheReads on said:

    And given all these GOVERNMENT INITIATED racist policies that were instituted less than two generations ago, some still wonder why black people haven’t “caught up” yet. Yes, we have a black President, but there’s still much work to do on the ground.

    Excellent article.

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