[Senate Hearing 117-75]
[From the U.S. Government Publishing Office]
S. Hrg. 117-75
WALL STREET VS. WORKERS: HOW THE FINANCIAL SYSTEM HURTS WORKERS AND
WIDENS THE RACIAL WEALTH GAP
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING HOW THE FINANCIAL SYSTEM HAS LEFT BEHIND THE MIDDLE AND
WORKING CLASSES, LOWERED OUR STANDARD OF LIVING, CAUSED INEQUALITY, AND
CONTRIBUTED TO THE COLLAPSE OF COMMUNITIES AND FAMILIES
__________
MARCH 4, 2021
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
45-765 WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Tanya Otsuka, Counsel
Dan Sullivan, Republican Chief Counsel
John Crews, Republican Policy Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, MARCH 4, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 28
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
WITNESSES
Abbye Atkinson, Assistant Professor of Law, University of
California, Berkeley, School of Law............................ 6
Prepared statement........................................... 29
Responses to written questions of:
Senator Sinema........................................... 46
Senator Warnock.......................................... 47
Darrick Hamilton, Founding Director, Institute on Race and
Political Economy, The New School.............................. 8
Prepared statement........................................... 37
Glenn Loury, Merton P. Stoltz Professor of Social Sciences, Brown
University..................................................... 9
Prepared statement........................................... 39
Additional Material Supplied for the Record
``Building an Equitable Recovery: The Role of Race, Labor
Markets, and Education''....................................... 48
``Hidden Rules of Race are Embedded in the New Tax Law''......... 94
Letter submittted by Liberation in a Generation.................. 97
``Neoliberalism and Race''....................................... 101
Pathways--State of the Union: Housing............................ 109
(iii)
WALL STREET VS. WORKERS: HOW THE FINANCIAL SYSTEM HURTS WORKERS AND
WIDENS THE RACIAL WEALTH GAP
----------
THURSDAY, MARCH 4, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:15 a.m., via Webex, Hon. Sherrod
Brown, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. This hearing will come to order, the
Committee on Banking, Housing, and Urban Affairs. This hearing,
as we have done for a number of months, is in the virtual
format. A few reminders as we begin.
Once you start speaking, there will be a slight delay
before you are displayed on the screen. To minimize background
noise, please click the mute button until it is your turn to
speak or ask questions.
All of you should have one box on your screen labeled
``Clock'' that will show you how much time is remaining. For
witnesses, you will have 5 minutes for your opening statements,
as we have told you before. At 30 seconds remaining for your
statements and questions, you will hear a bell ring to remind
you that your time is almost expired. It will ring again when
your time has expired.
If there is a technology issue, we will move to the next
witness or Senator until it is resolved. To simplify the
speaking order process, Senator Toomey and I have agreed to go
by seniority in this hearing.
The economy is not physics. It is not governed by
scientific laws outside our control. It is made up of people
making choices about our values and what kind of society we
want to live in.
Despite what we are constantly told on TV, most Americans
share a lot of the same values. They want an economy that is
fair and just, where hard work pays off for everyone, no matter
who you are or what kind of work you do, where everyone has the
economic security to raise a family and to retire with dignity.
When you look at our economy, it does not reflect the
society most of us want.
You cannot look at decades of growing worker productivity,
with workers getting a smaller and smaller share of the profits
they create, and then think the economy looks fair.
You cannot look at a racial wealth and income gap that has
barely budged since we passed the Civil Rights Act and think
the economy looks just or that we all have equal opportunity.
You cannot look at the millions of Americans whose hard
work does not even pay the bills, while corporate profits go
up, CEO pay soars, and stock buybacks and dividends explode
upward and think that this economy reflects our values.
This state of affairs did not happen on its own. It was not
just the invisible hand of the market.
For decades, Wall Street interests--big banks, hedge funds,
private equity firms, and insurance companies--have been
calling the shots--through their lobbyists, through rigged
rules, through union busting.
We have left it to them to shape our entire economy and
make choices about our values and what kind of society we live
in.
For decades, Wall Street has rewarded the companies that
squeeze their workers the hardest--companies that cut wages,
cut retirement benefits, cut corners on worker safety.
When companies lay off workers, cut paychecks, or
subcontract work to lower-paying companies with fewer benefits,
their stock price goes up, and Wall Street calls it ``cost
cutting.''
We have allowed a system to take root that treats American
workers as a commodity, a cost to be minimized, instead of the
engine behind all of our businesses' success.
They do it so Wall Street can funnel more and more of the
profits that workers create to CEOs and shareholders.
And instead of investing those profits in something
productive, they have used that money for reckless speculation
that drove booms and busts, resulting in real estate crashes
and the dot-com bubble.
And when all of that did not make them rich enough, they
came up with ideas like credit default swaps and collateralized
debt obligations. It was Wall Street that targeted workers who
were struggling to make ends meet with subprime mortgages--
predatory loans that stole the equity workers had saved up in
their homes.
Wall Street's crash of a decade-plus ago cost the economy
tens of trillions of dollars and destroyed 53 percent of Black
wealth in this country.
Millions of families lost homes and are still trying to
recover. Wall Street got a bailout.
Then Wall Street found a new way to get paid: fund the
payday and auto title lenders and debt collectors that targeted
families who struggled to get by in what was left of this
economy.
Even after all of that, some people, including a whole lot
of people who have been running the Senate, think that we
should let Wall Street keep dictating our economy--and by
extension, the lives of everyone who gets their income from a
paycheck, not a stock portfolio.
They claim they just want ``markets to decide.'' When the
market is not fair, that means putting Wall Street in charge.
It is the same attitude that lets corporations run ad
campaigns calling their workers ``essential,'' but then spends
their profits on stock buybacks and CEO bonuses rather than a
living wage or the protective equipment workers need to avoid
this deadly virus.
Or that prompts Amazon to post a ``Black Lives Matter''
banner on its website, while unleashing every union-busting
tactic in the book to undermine workers, mostly overwhelmingly
African American workers, organizing for better working
conditions in Alabama.
If we want a fair and just society, with a growing middle
class that everyone has the opportunity to join, we have to
stop letting Wall Street run the economy.
We cannot rely on quarterly earnings reports to tell us
whether workers deserve a decent living.
For too long, we have allowed Wall Street's phony populist
allies to stoke fear and place blame and divide us by race and
religion and region. We know why they do it: to distract from
how they have been keeping the profits for themselves.
But this zero-sum view of the economy hurts everyone.
We have the largest economy on Earth, with vast resources
and talent and ingenuity. If we stop siphoning off so much of
our prosperity to the tiny sliver of people at the very top,
not only is there enough to go around for everyone; but when we
unleash all workers' talents and give them more economic
security, we will create even more economic growth.
We all learn in elementary school about Dr. King's fight
for civil and human rights. But we do not talk enough about his
fight for economic rights--and how you cannot fight for one
without fighting for the other.
We never forget that Dr. King was assassinated in Memphis
while fighting for some of the most exploited workers in the
country, sanitation workers in Memphis, Tennessee, fighting for
their civil rights and workers' rights.
As Dr. King put it: ``What does it profit a man to be able
to eat at an integrated lunch counter if he does not earn
enough money to buy a hamburger and a cup of coffee?''
If we want to take on economic inequality and shrink the
racial wealth gap, then we need to build an economy based on
the dignity of work.
That means paying all workers a living wage, giving them
power over their schedules, providing good benefits and safety
on the job, and letting them organize a union. That means
everyone gets a fair share of the wealth they create.
That means building an economy that reflects our values,
American values--not Wall Street's values--and building the
kind of society we want to live in.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman.
So the title of today's hearing is ``Wall Street vs.
Workers: How the Financial System Hurts Workers and Widens the
Racial Wealth Gap''. The title itself expresses a world view
held by many on the left that capitalism is failing far too
many people. In this world view, capitalism and a capitalist
financial system has left behind the middle and working
classes, lowered our standard of living, caused inequality, and
contributed to the collapse of communities and families.
The proposed prescriptions to cure these ills is almost
inevitable. It is expand the power and the role of Government
and reduce the economic freedom of the American people.
Let me suggest a different perspective. It is this:
Capitalism produces the best conditions for the largest number
of people by far, and the empirical case is very simple.
Capitalism clears a path for the industrious to become wealthy,
for the poor to become middle class, and for the middle class
to build a prosperous, secure life for themselves and their
children.
No economic system has lifted more people out of poverty,
created more opportunity, and produced a higher standard of
living than ours. This is no time to abandon this.
Now, there are certainly absolutely serious problems and
challenges we have throughout our society. We have communities
that struggle. We have persistent racial disparities in areas
including educational achievement. We have social pathologies
that are very serious in their scale. Do we really think that
capitalism and a capitalist financial system is the primary
cause of these problems and challenges?
At a more fundamental level, the critics are wrong about
capitalism failing too many people. In my view, capitalism
ranks with the wheel and written language among the greatest of
human achievements. Think about this. It took nearly 2,000
years, from the time of Julius Caesar to the time of George
Washington, for the Western world's standard of living to
double, and those two leaders rode into battle on the same mode
of transportation.
But with the advent of democratic capitalism, we started
doubling the standard of living every 20 years. In America, for
all the problems we have, life is much better today than it has
ever been for the vast majority of people. Wages are an
important component, but that is not the whole story. What
really matters is the living standard, and there is no question
that the standard of living of middle-class and working-class
Americans has improved dramatically over recent decades. Life
expectancy has increased. The quality of health care is better.
Average Americans live more comfortably in larger, more
comfortable homes. They have cars that are safer and more
comfortable. They have unlimited information and entertainment
services right in the palm of their hands. By any reasonable
standard, there is a much higher standard of living.
The Cato Institute did a study and found that the amount of
time an unskilled worker has to work in order to purchase a
basket of everyday items declined by 72 percent from 1979 to
2019.
And life is continuing to get better. We still have
economic mobility.
In 2016, the Urban Institute looked at five different
income groups and concluded between 1979 and 2016, the
percentage of Americans who were poor was declining and the
percentage of Americans who were rich or upper-middle class was
growing.
Pre-COVID, wage growth had been occurring across the board.
But wage growth was especially strong for minorities and
workers without a high school degree. In 2019, the overall
poverty rate reached an all-time low.
The most recent empirical experiment in expanding economic
freedom occurred during the Trump administration when we
reformed the Tax Code and rolled back excessive regulations.
And before COVID hit, we saw what the results were. It was
an economic boom. It was the lowest unemployment rate in 50
years. There were a million more job openings than there were
people looking for jobs, and workers in the bottom 10 percent,
from 2016 to 2019, received on average a $3,500 raise in real
dollars.
The economic expansion was powerful, and it particularly
benefited racial minorities. In 2019, Black and Hispanic
unemployment rates hit all-time lows. The gap in the
unemployment rate between Whites and Blacks and Hispanics
reached all-time lows. Median household incomes reached record
highs across every major demographic group, including African
American and Hispanic households.
I have always thought rising employment and wage gains
across the board is a good thing.
And let us consider how the financial system contributes to
the improved standard of living and economic growth that
Americans enjoy.
The financial system enables businesses and consumers to
access credit and capital in a way that very few countries in
the world can match. The flow of credit and capital to
businesses supports job creation, technological advancements,
and the provision of goods and services that benefit consumers.
And, likewise, that flow of credit and capital to consumers
enables them to purchase the goods and services that they
value.
Consider the example of an ordinary blue-collar worker or a
middle-income individual or family that wants to make a big
purchase, like a car or a home. I mean, it is so ordinary that
we completely take it for granted, but it is really pretty
amazing that a person of very modest means can walk onto a car
lot as a perfect stranger, and an hour later drive away in a
vehicle worth tens of thousands of dollars. It is all because a
very sophisticated financial system makes that credit available
to that consumer. That is tremendous value to American
consumers.
As we work to address the economic, social, and cultural
problems we face as a country, we need to do this in a way that
promote economic growth and freedom, not in a way that stifles
it. Economic growth does not solve all problems, but it does
make all problems easier to solve. And we can do more to ensure
that everyone has the education and the opportunity to thrive
and obtain economic mobility. That is what we should be
focusing on, not policies that undermine capitalism and a
capitalist financial system. If we do undermine the system, we
are more likely to leave everyone poorer and probably no more
equal.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Ranking Member Toomey.
I will introduce today's three witnesses. Professor Abbye
Atkinson is an assistant professor of law at the University of
California, Berkeley. Her research focuses on the law of
debtors and creditors as it affects marginalized communities.
She has been published in the Columbia Law Review, Stanford Law
Review, and several other law journals. Previously, Professor
Atkinson was a Thomas C. Gray Fellow and lecturer in law at
Stanford Law School and the Reginald Lewis Fellow at Harvard
Law School. Welcome, Professor Atkinson.
Dr. Darrick Hamilton is professor of economics and urban
policy at and the founding director for the Institute for the
Study of Race, Stratification and Political Economy at the New
School. He previously served as the executive director of the
Kirwin Institute for the Study of Race and Ethnicity at the
Ohio State University--and we miss him, if I could add that.
Dr. Hamilton is a pioneer and internationally recognized
scholar whose research involves understanding examining the
causes of consequence in racial and ethnic disparities and the
associated remedies to address those inequalities. He is also a
graduate of, not far from me, Oberlin College. Welcome, Dr.
Hamilton.
Dr. Glenn Loury is the Merton Stoltz Professor of Social
Sciences and professor of economics at Brown University. I have
two children--a child and grandchildren living in Cranston, Dr.
Loury. As an academic economist, Dr. Loury has published mainly
in the areas of microeconomics theory, game theory, industrial
organization, and economics of race and inequality. He has
written over 200 essays and reviews in journals of public
affairs, mainly on the themes of inequality and social policy.
Welcome, Dr. Loury.
Professor Atkinson, please begin. Keep your comments to 5
minutes if possible. Thank you.
STATEMENT OF ABBYE ATKINSON, ASSISTANT PROFESSOR OF LAW,
UNIVERSITY OF CALIFORNIA, BERKELEY, SCHOOL OF LAW
Ms. Atkinson. Thank you so much. Mr. Chairman Brown,
Ranking Member Toomey, and Members of the Committee, good
morning. Again, thank you for inviting me to testify before you
today. It is truly an honor for me to do so.
Again, my name is Abbye Atkinson. I teach at the University
of California, Berkeley, School of Law. I teach contract law as
well as courses on the legal structures of debt and inequality.
I am today as an academic who studies the law of creditors and
debtors as it affects traditionally marginalized communities.
I would like to make three points this morning. First,
credit, and so, by natural extension, debt, which I will call
``credit/debt'' for the rest of my remarks, has become a
critical means of carrying out Federal social welfare policies.
This is particularly true for socioeconomically marginalized
Americans, including low-income workers, women-headed
households, and African Americans. These marginalized borrowers
are encouraged to rely on consumer credit markets to make ends
meet and to improve their life circumstances. For example,
higher education as a means of upward mobility has been Federal
social provision policy for more than 50 years, and this
Federal education policy is an example of credit/debt social
provision because student loans are key to its operation. The
resulting debt burden, however, is not evenly distributed.
For example, women hold two-thirds of the outstanding $1.5
trillion in educational debt, and, similarly, educational debt
is also disproportionately concentrated in African American and
Latinx and other minority communities. And this debt overhang
limits their ability to become socially mobile, which is not
consistent with the story that we tell that by going out and
getting an education they will be able to pull themselves up by
their bootstraps. And this policy also puts the risks then born
of entrenched inequality squarely on marginalized borrowers,
and it contributes to the expanding wealth gap.
Second, credit/debt is a channel through which wealth
drains out of marginalized communities toward more affluent
entities, including lenders and their institutional investors.
For example, like marginalized borrowers, third-party
beneficiaries within our social provision system, like
retirement insecure workers, have also come to depend on
credit/debt. Public pension funds manage the retirement
security of our Nation's teachers and police officers and civil
servants, and these same public pension funds are the principal
institutional investors in private equity. This includes those
private equity funds that target marginalized debt-dependent
industries like for-profit colleges and small-dollar
installment lenders as a source of wealth extraction.
And, indeed, credit/debt as a source of retirement security
siphons the value that is perversely created by lending to
vulnerable individuals, families, and, indeed, whole
communities who have to borrow either to survive or else to be
upwardly mobile.
Moreover, some of the real winners in this version of
credit/debt-centered social provision are financial
intermediaries like private equity firms who take their cut in
fees from labor's capital on the front and reap
disproportionate profits on the back end relative to their own
investment and risk. All of this occurs largely behind the veil
of relatively minimal Federal oversight.
Last, because credit and debt has become so critical to
Federal social welfare policies across several dimensions,
Congress should not delegate the regulation of credit/debt to
private, profit-motivated interests whose stock in trade is
credit/debt. Private intermediaries have their own priorities
that are dictated by their duty to increase the bottom line for
their investors and their interests in increasing their own
bottom lines. These priorities undermine their ability to
center equality-focused goals like shrinking the gender and
race wealth gap because when push comes to shove, their
loyalties are to profits and not people.
In sum, Federal credit/debt welfare policy obscures the
inherent economic and social risks that debt and debt overhang
pose for marginalized groups, and we need policies that will
account for this particular vulnerability. This includes, among
other possibilities, robust relief when debt threatens to
overwhelm the socioeconomic benefits of borrowing.
Thank you so much for your time, Chairman Brown and Ranking
Member Toomey. Again, it is a pleasure to be here.
Chairman Brown. Thank you, Professor Atkinson. Dr. Hamilton
for 5 minutes, please.
STATEMENT OF DARRICK HAMILTON, FOUNDING DIRECTOR, INSTITUTE ON
RACE AND POLITICAL ECONOMY, THE NEW SCHOOL
Mr. Hamilton. Thank you, Chairman, thank you, Ranking
Member, and thank you, other Members. I am going to go quick
and try to say a lot in 5 minutes.
The global pandemic reveals a collective public health and
economic vulnerability and a system that actively produces
inequality, but in plain sight, beyond class, race is a focal
point. In a just world, race, gender, ethnicity, and nativity
would have no transactional value in relation to material and
psychological well-being. The amoral devaluation of Black lives
has been ingrained in the American political economy, and it is
long overdue for a reckoning.
Many Americans, Black and Brown families in particular,
have low wealth, inadequate health care, and work in precarious
but essential jobs with few workplace protections, lower wages,
and lower benefits. Indeed, the biggest preexisting condition
of them all is wealth itself. Wealthier families are better
positioned to finance elite education, access capital, finance
expensive medical procedures, reside in higher-amenity
neighborhoods, exert political influence, purchase better
counsel is confronted with an expensive legal system, leave a
bequest, and withstand financial hardship resulting from any
number of emergencies, including the global pandemic.
It is critical to note that it was never the case that a
White asset-based middle class simply emerged but, rather,
Government policies and, to a large extent, entitlements and
literally Government giveaways that provided Whites with the
finance, education, land, infrastructure to accumulate and pass
down wealth. That in and of itself is not a bad thing. But this
contrast to a history in which Black and indigenous people,
their personhood and whatever capital and resources they may
have been able to establish was always vulnerable to Government
complicit exploitation, extrapolation, confiscation,
destruction, terror, fraud, theft, and other acts of violence.
This history of disenfranchisement from full economic
participation is well documented. Policies like redlining,
highway construction, predatory contract to own housing
leasing, exclusionary zoning have all worked in tandem with
restrictive covenants, regulatory control to marginalize Black
Americans and constrain them from their full economic and
political participation.
Our unjust racial wealth gap is in and of itself an
implicit measure of the racist past rooted in a history in
which we have had Government that has privileged political and
economic interventions to afford Whites the ability to acquire
resource and intergenerational accumulation. We use words like
``choice'' and ``freedom'' to describe the benefits of a
proverbial market, but choice is an illusion if an individual
lacks basic needs like a job, adequate income, shelter, food,
and health care. We are not atomistic agents floating in
unfettered markets guided by a free will into fair and
efficient allocation. Economic freedom and authentic agency is
rooted in economic power and political power. Yet much of the
framing around the racial wealth gap focuses on poor financial
choices and decisions largely on Black, Latinx, and poor
borrowers. This framing is tied to a culture of poverty thesis
in which we presume that Blacks have an undervalue for and a
low acquisition of education. The framing is wrong; the
directional emphasis is wrong. It is more likely that meager
economic circumstances, not poor decisionmaking or deficient
knowledge, constrains choice itself and leaves borrowers with
no other option but to use abusive financial services.
Incremental changes on the margin will not cut it. We need
a profound change toward a more sustainable moral economy with
Government intervention to facilitate the assets, economic
security engagement, and human dignity of all its people,
regardless of race, class, gender, sexual identity, and
immigrant status. We need a new industrial and trade policy
that centers workers, both domestically and abroad, coupled
with an explicitly antiracist, antisexist economic rights frame
to promote our shared prosperity.
Full citizenship demands more than political rights. It
requires economic rights. We can look at the work of Nobel
Laureates George Akerlof and Robert Schiller and their critique
that the greater good presumption for market transactions by
describing the profit motive--actually, I am going to skip it
so that I can get to conclusions, and just say the sad irony is
that those that can least afford finance in times of dire need
end up paying the most for finance. Congress needs to provide
public options that directly compete with and crowd out
inferior private options that do not ensure universal quality
health care, housing, schooling, financial services, capital,
and the free mobility throughout society without the threat and
sanction of bodily harm because somebody's identity is linked
to a vulnerable or stigmatized group.
Oh, I have got a little more time. Sorry. We need to reject
the empirically unsubstantiated rhetoric that ignorance and so-
called grit and personal responsibility are the sources of
inequality along with the accompanying Government neoliberal
paternalism in which we attempt to coerce and incentivize
insinuated defective people to behave accordingly and make
better decisions. Let us change the pandemic and truly empower
people, our most treasured resource, with economic security,
dignity, authentic agency so that they can define and achieve
their desired goals.
Thank you, Senator.
Chairman Brown. Dr. Loury, 5 minutes, please. Thank you.
Dr. Loury, I think you are on mute still.
Mr. Loury. I have to figure out how to----
Chairman Brown. Well, you are on now. We can hear you.
Mr. Loury. I apologize.
Chairman Brown. That is all right. Thanks.
STATEMENT OF GLENN LOURY, MERTON P. STOLTZ PROFESSOR OF SOCIAL
SCIENCES, BROWN UNIVERSITY
Mr. Loury. Thank you, Chairman Brown, Ranking Member
Toomey, Members. Thank you for the opportunity.
Speaking about Black Americans disadvantaged and its
implications for American democracy, I draw on my many years of
study as an economist theorist and public intellectual. My
testimony rests on two observations about the dynamics of human
development and the foundations of racial identity. I will
conclude by expressing reservations about Government pursuing a
program of racial equity, meaning equal group outcomes, rather
than a program of equal opportunity for all.
First, I offer two statements of principle. Persistent
Black disadvantage is an American tragedy. It is a national not
merely a communal disgrace.
Second, where inequality is a problem, let us address it
forthrightly, but let us do so on behalf of a program of human
decency, not of racial equity.
For many, these two principles will seem to be in conflict.
Actually, they complement one another. Here, then, are my two
observations concerning human development. My studies have
taught me that human growth occurs inside of social
institutions--the family, community, school, peer group. Such
cultural institutions of human association are where
development is achieved. Informal relations among individuals
are often more important for understanding inequality than are
the formal transactions between them.
Concerning racial identity, I have learned that there would
be no races in the long run of any society unless on a daily
basis and in regard to their most intimate affairs people paid
assiduous attention to the boundaries separating themselves
from racially distinct others; that is, race is not something
simply given in nature. It is something that we are making and
remaking, all of us. This race-making relates closely to how
developmental resources come to be allocated to individuals.
I conclude from these observations that durable racial
inequality is ultimately a cultural phenomenon, implicating not
only the transfer of financial resources but more fundamentally
decisions that we make daily about with whom to associate and
identify, conceptions about identity embraced by people of all
races. What I called ``social capital'' when I introduced that
term in my doctoral thesis more than four decades ago is on
this view a critical prerequisite for creating what economists
routinely refer to as ``human capital,'' and it is this human
capital, the skills, education, work experience, and social
aptitudes, that reflect the person's human development. And
this in turn is a powerful determinant of earnings power and,
thus, of the ability to generate and accumulate wealth.
We cannot ignore the behavioral roots of racial disparity,
but we should discuss and react to them as if we were talking
about our own children, our neighbors, and our friends. We are
all in this together.
For that reason, I believe persisting racial disparity
deserves our attention, but not via racially preferential
public policy. We should recognize through law and policy that
we are in the same boat here in the United States of America,
sharing a common citizenship and a common humanity. And that
means fashioning American solutions to American problems, and
ultimately getting beyond race altogether when deciding on
public action.
As Dr. King prophetically envisioned, our civic discourse
should be grounded in an unwavering commitment to transracial
humanism. That will sound like a pipe dream in today's racially
supercharged environment, but in light of what I know about
human development and about racial identity, it is the only
viable way forward.
Indeed, there is a fatal contradiction at the heart of the
argument for group equality of outcomes. The dogged pursuit of
equal results between racial groups across all venues of human
endeavor is a formula for tyranny and racism. Here is why.
Groups are fundamental building blocks of society, an identity
focused view of the world. Groups matter. Their culture and
heritage matter. It is the music they listen to, the food they
eat, the books they read, the stories they tell their children.
These things matter, and they vary across groups.
On the other hand, group egalitarians claim that, absent
injustice, there would be equality of groups in every human
enterprise. But how can this be? Because if groups matter, some
people are going to bounce a basketball 100,000 times a month
and others are going to bounce it 10,000 times a month. If
groups matter, neighbors do not do the same things, believe the
same things, think the same things, spend their time in the
same way. Groups have their own integrity, expressing
themselves in how they live their lives, raise their children,
and spend their time. This will inevitably result in a
different presence of groups across various human activities.
They will not have the same occupational and professional
profiles. There will be differences between groups and the
proportions who are members of the National Academy of
Sciences, who are tenured members of the faculty, who are tech
entrepreneurs or hedge fund managers, small shopkeepers, single
parents, or petty criminals.
I conclude that respecting groups' integrity while
demanding group equality is a contradiction. Acting in a
determined way on that contradiction only leads to tyranny,
disappointment, and more racism.
Thank you.
Chairman Brown. I will start with Dr. Hamilton. Like the
CARES Act, President Biden's American Rescue Plan--the CARES
Act of last March--provides direct investment to the economy
both to communities and to individual workers. How has that
direct income--stimulus checks, increased unemployment
benefits--how has that affected income inequality? How do you
think it will affect the racial wealth gap?
Mr. Hamilton. Well, without it we would have a lot more
dramatic inequality than we have right now, so it is absolutely
essential. There is a concept I want to introduce which is
called ``indentured borrowers.'' If we did not provide income
supports for people in this dire need, they would be subject to
predation to take out products not by choice but by necessity
that would have put them into basically debt traps, where they
keep paying higher and higher interest rates to sustain
themselves. So that is how it is related to the wealth gap. It
prevents us on the debt end from putting people into these debt
traps.
What also is very useful and important is that it set a
precedent. It set a precedent for what Government can do with
regards to action. Again, imagine a world right now if we did
not have the initial CARES Act and the vulnerability people
would be in. And something else we should be cognizant of is
that we are in some ways kicking the can down the road. You
know, we had things like forbearance on eviction, forbearance
on foreclosure, and as a result, people were not evicted or
foreclosed upon, but they still are going to need resources to
deal with this at some point.
Chairman Brown. Thank you. Following on to that, Professor
Atkinson, you testified about the challenges we face as we try
to combat income inequality and the racial wealth gap with
lending programs, often outsourced to Wall Street. How does
using credit or debt instead of direct investment that Dr.
Hamilton just talked about, how does using credit or debt
instead of direct investment end up enriching Wall Street
instead of workers?
Ms. Atkinson. Yes, Senator Brown, so, you know, credit and
debt is a contractual relationship, right? You know, when we
use that as a means or a significant means of social provision,
it introduces risk, right? If you think that people, for
example, you know, in South Texas who needed emergency to get
pipes fixed, we imagine that, you know, in addition to their
already precarious existence that we are going to add risk onto
what--you know, their range of issues. And so, you know, when
you introduce a lender, the lender's interest is being repaid,
right? Not necessarily trying to assist that individual in
weathering an unexpected emergency or a significant need. And
as with payday loans, we know that what makes them profitable
is sort of the incidence of rollovers--right?--that people just
do not ever pay down the principal, and they keep paying fees
over and over again.
And so it is that constant rollover, that constant
repayment, the high interest rate that sort of sucks value out
of already vulnerable communities and puts it into the coffers
of lenders.
Chairman Brown. So, Professor Atkinson, Congress passed the
Civil Rights Act in 1964, the Voting Rights Act in 1965. It was
not until Dr. King's assassination that Congress passed the
Fair Housing Act. That was all going--supposed to make good on
the promise of equality. The racial wealth and income gap, as
you know, has gotten worse. Inequality is still a huge problem.
What is it about the way our economy is set up that got us
here?
Ms. Atkinson. I think, you know, that is a complex answer.
I think there are many aspects of the economy that might speak
to that. You know, for me, as someone who thinks about
financial products, I think the rise of financialization in our
economy more generally, and then our sort of vesting of big
social problems like inequality, like sexism, and sort of
trying to remedy those sorts of big problems, investing that in
financial entities, again, whose interests are--you know, we
cross our fingers that their interests would kind of align with
the broader social concerns that underpin it. But I think
financialization has a lot to do with it--``financialization''
meaning the degree to which financial products and financial
channels are now occupying more and more of a place of
significance in our economy.
Chairman Brown. Thank you. And, Dr. Hamilton, make your
answer really quick here, if you can, because we are kind of
running out of time. Your work implied the dream of the civil
rights movement cannot be realized without establishing civil
rights and economic rights for all Americans. What do you mean
by that?
Mr. Hamilton. You know, at the end of the day, choice,
political participation, is limited without some baseline level
of resources. I think that is the large point, that if you do
not have resources in your life, it is an inauthentic freedom,
it is an inauthentic choice that you can actually be deliberate
in determining your goals and outcomes.
Chairman Brown. Thank you. Thanks for that brief answer.
Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
Dr. Loury, thank you for joining us. I want to pose this
question to you. What we sometimes hear and I think we heard
this morning is that the racial wealth gap is evidence of
discrimination and structural racism. Is it your view that a
racial wealth gap is, ipso facto, and indictment of our
financial system?
Mr. Loury. I am going to answer no, though I can understand
some people answering yes here. The racial wealth gap is a
legacy of history as well as a reflection of ongoing dynamics.
I do not think, however, that broadly speaking it should be
understood as an indictment of the financial system, which is a
complex set of institutions and relationships, which, as you
noted in your opening remarks, is a necessary part of economic
development and of growth.
I do think, however, that the racial wealth gap is a
problem, but I would rather put it as a problem of Americans,
as I said in my remarks, who do not have the resources that
they need and a decent society to flourish, that to put it
strictly in racial terms for the reasons that I stated.
Senator Toomey. Right. Another question. There was a recent
study conducted by the FDIC that concluded that the rate of
unbanked Americans decreased by over a third between 2011 and
2019, reached a record low in 2019.
Now, in my view, increasing access to savings and credit
through banks and nonbanks and new technologies is a positive
development, including maybe especially for lower-income
Americans who may not have had access to that.
Do you think that democratization of finance and broad
availability of credit and financial services generally is more
of a positive or is it more of a negative for low-income
Americans, including racial minorities?
Mr. Loury. Well, that is an easy question, Senator. It is a
positive. The financial intermediation and the access to the
system for people to be able to engage in banking transactions,
as that comes closer to ordinary working people, increases
their ability to prosper within the system. A former colleague
of mine, a professor at Berkeley's School of Business named
Ross Levine, has spent many years studying the beneficial
effects of access to banking in communities, and among these in
his studies has been shown a diminution in the racial wage gap,
where areas where banking is easier to get at turn out to be
areas where racial discrimination in the labor market is less
severe. But that is just one of many studies that could be
cited in this vein.
Senator Toomey. I think I understood you to suggest that
one of the things we should focus on with respect to economic
disparities, including disparities among different racial
groups, is opportunity rather than expecting guaranteed
outcomes. It seems to me that education is a hugely important--
education plays a hugely important role in creating opportunity
for people, and I think we know that in many cases low-income
families, including and especially in racial minority
communities, often have very few choices about educational
opportunities for their kids.
Do you think that those children and those families in
those communities might be better off if parents had more
choices and we provided resources that gave parents the
discretion to choose a school that would suit their children
best?
Mr. Loury. Yes, I do, Senator, but as you know, not
everybody agrees with that proposition. I do not know that this
is a solution to the wealth gap problem. In fact, I know that
it is not a solution to the wealth gap problem. But it is
certainly an empowerment of families and children to be able to
avail themselves of the best alternatives for their education
as might be within their reach. So there are powerful interests
that play here, again, as you must know, and this is a battle
that has been going on for 30 years. But I am on the side of
expanding opportunities for families to get alternatives where
they are available to public schools, to the extent that those
schools are not well serving the children.
Senator Toomey. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
I believe Senator Smith is next. I understand that she is
here. Senator Smith from Minnesota. Is she able to go next? And
happy birthday, Senator Smith.
Senator Smith. Thank you, Senator Brown. You surprised me
there, but I am right here listening carefully, so I appreciate
it very much. And thank you also to Professor Atkinson and
Professor Loury and Dr. Hamilton. I really appreciate your
testimony, and I think that it is so interesting and so timely
for us right now.
What I am taking from your testimony is that the wealth gap
that we see in our country is not an accident of our history.
It is a design of our history. It is part of a plan. And I
think any student of this can also see pretty quickly that the
Federal Government has explicitly advanced policies that have
not only contributed to this gap but that have built this gap.
This is so obvious, I think, when we look at housing policy.
This is a matter of great interest to me because in my State of
Minnesota, a State that is often seen as a bastion of
progressive values, we have one of the worst housing gaps, one
of the worst wealth gaps of any place in the whole country.
So let me just ask you, I am interested in all of your
perspectives on this. What advice would you give our Committee
about how best to address this home ownership gap, which is so
clearly--home ownership is so clearly a way that people have
the capacity to build wealth and start to address some of these
underlying inequities? Professor Atkinson, maybe I will start
with you.
Ms. Atkinson. Good morning, Senator Smith. Thank you for
the question. You know, one way to support communities who are
trying to build wealth through home ownership, you know, I will
beat the drum of thinking about how debt affects them. Most
Americans save in their house, right? And we can think about,
you know, increased access to credit, and certainly, you know,
more people from different groups have had access to credit
since the FHA days when explicitly they did not have access to
credit. Nevertheless, as Dr. Hamilton told us when push came to
shove, when the recession hit, we can see something about the
relative strength of communities by who loses the most, right?
And 53 percent of wealth drained out of the African American
community post-recession tells us a lot about the relative
strength of that particular community or the relative lack of
strength. So I think having policies that support debt
forgiveness, for example, policies that support modification of
mortgages in times of need, to try to preserve the wealth that
many Americans put into their homes.
Senator Smith. I will turn to our other panelists, but I
cannot help but observe that when we saw the housing crisis and
the housing bubble in 2008, the communities in Minnesota that
were the most dramatically impacted were the communities that
were, I think, taken such terrible advantage of by big lenders
through the subprime mortgage crisis, and the loss of wealth,
the loss of home ownership in North Minneapolis, for example,
was dramatic, and that community is still paying the price for
that. It was predatory in every sense of the word.
Dr. Hamilton, would you like to respond?
Mr. Hamilton. I would. To me I think the answer is obvious,
and there is historical precedent, that we had the greatest
growth in home ownership and we generated an asset-based White
middle class with direct grants through GI bills and also a
Federal infrastructure with FHA loans that provided the
capacities to accumulate wealth.
The difference between a homeowner and a renter is largely
a downpayment, frankly, so only this time we should do it in an
antiracist way where we are not excluding people based on their
race but, rather, including them.
Senator Smith. Thank you. Thank you very much.
Chairman Brown. Thank you, Senator Smith.
Senator Rounds is recognized.
Senator Rounds. Thank you, Mr. Chairman.
I think one of the biggest misconceptions about this
hearing is, quote-unquote, who Wall Street really is. The
Chairman and I think some of our witnesses seem to think that
it is just a group of people that are working in Manhattan who
benefit only at the expense of working Americans. And,
actually, I just do not think that that is true, and I think we
need to explore that a little bit and lay this out. I think you
would be surprised at how broad investment in our public market
really is. Public pension systems in particular are significant
investors in equity markets. The South Dakota retirement
system, for example, has a third of its assets invested in
equities and private equity investments.
For the Ohio Public Employee Retirement System, that figure
is upwards of 48 percent, and the median public pension fund
has nearly 47 percent of its assets invested in equities. I am
concerned that if we take actions that would hurt equity
markets, the collateral damage will spread way beyond Wall
Street.
Now, according to the Bureau of Labor Statistics, for
example, nearly a third of public sector workers are non-White.
If we somehow try to blame Wall Street for inequality, won't
that also hurt our public sector workers and non-White public
sector workers in particular? And I think, you know, some
people think that they should only rely on Social Security. I
really disagree with that. I now President Obama disagreed with
that. That is one of the reasons why he tried the MyRA program.
And I think we should have the opportunity, I would just like
to start with Dr. Atkinson, if we could. It seems to me that
there has to be a recognition that if we really want to develop
wealth for individuals, it really comes from allowing them the
opportunity to invest. I think simply picking on the equity
markets is not the right direction, and I would just like your
thoughts, because I really think we need to clarify that in
this discussion.
Ms. Atkinson. Thank you, Senator Rounds. I agree with you,
you know, when we think about Wall Street, when we think about
big institutional investors, one story is that it is just the
CEOs who are, you know, pulling as much money as they can out
of the system. But another story is, just as you said, these
are pension funds; these are university endowments. There are
various institutional investors for whom the market and the
well-being of the market and the value within the market is of
great significance.
But, you know, I would posit that that is a feature of the
financial structure. That is also something that we have
created, right? So in terms of pensions, we have gone from a
world of defined benefit to a world of defined contribution
which heightens the significance then of having to have a
robust private market from which, you know, our ordinary
workers can retire with relative dignity.
So I agree with you. I do not dispute that when we think
about what Wall Street is, writ larger, there are a lot of
interests, a lot of stakeholders. But I think we have to think
about the system that we have created in which, for example, a
public school teacher who has to rely on her pension to be able
to retire, her pension fund is investing in Corinthian College
or other for-profit colleges in order to bolster. I think that
is what is perverse about the arrangement and why we have to
think about privatization in that context.
Senator Rounds. I do not mean to be argumentative on this,
but I really think we run the threat of taking away the ability
of the equity markets to make good investments for their
investors. And I think if you talk to the folks within that
pension fund that we are seeing good returns, if they were told
that we have decided that we are going to change the investment
strategies and you are stuck with what we determine, rather
than having that pension fund be able to make that
determination of how they want those funds invested--and they
can shop the market today. It just seems to me that we are
stepping beyond where we ought to be.
Ms. Atkinson. So, Senator, I will say again that I think
that, you know, when pension fund options are limited to
investing in an entity or a business whose profit margin is
dependent, for example, on people rolling over the same $100
for 7 months, you know, to pay their light bill, I worry about
that. I think we should--my suggestion is not that we should
take away choice from pension funds altogether or any other
institutional investor. But I think when we are worried about
sort of social well-being, writ large, we have to think about
where the sources of wealth originate. And if they originate,
you know, in and among already vulnerable and marginalized
communities, you know, we should not pit pension funds,
retirement workers, against someone who needed to get their
pipes fixed in South Texas--right?--and could only afford to do
that by taking a payday loan.
Senator Rounds. I take from your answer--and, Mr. Chairman,
I think I am probably out of time, but thank you very much.
Chairman Brown. Thank you, Senator Rounds.
Senator Warren from Massachusetts is recognized for 5
minutes.
Senator Warren. Thank you very much, Mr. Chairman. I am
grateful that you have brought us together today to talk about
the racial wealth gap with these leading experts.
Professor Atkinson, welcome. I am so happy to see you here.
You have written about all kinds of consumer debt, but today I
want to talk about student loan debt. About 43 million
Americans now carry $1.5 trillion in student loans. That is
more than Americans owe in auto loans or credit card loans, and
that burden of debt is stopping people from buying homes or
starting businesses. It is holding our whole economy back.
So I want to ask you about who these student borrowers are.
Some people have argued that people with student loans are
lawyers and doctors who took out debt to go to fancy schools.
Professor Atkinson, is that an accurate picture of who has
student loans?
Ms. Atkinson. Good morning, Senator Warren. It is not an
accurate picture. If anything, if we think about fancy
schools--and I will insert her the Ivy League schools, too, you
know, as examples of fancy schools--debt loads are among the
smallest among those graduates from those schools, and some of
it has to do with the schools having the resources to support
students, or else they enroll students who themselves have
resources. So, instead, you know, some of the schools that tend
to have, you know, the highest level of debt are regional
schools. For example, one school particularly--I have a set of
notes here just to think about this question, and, you know,
Alabama State University, 89 percent of students leave with an
average of $54,000 in student debt. And I want to focus on the
word ``leave.'' It does not mean that they leave with a degree,
right? They leave. And so, you know, I think it runs the gamut
of community college students, for-profit students, traditional
4-year college students, students who are just, you know,
believing what we have told them, that if you go out and get an
education, your life can be better. And what they instead is
debt.
Senator Warren. Thank you so much. That is very powerful.
You know, canceling student loan debt would expand
opportunities for millions of people and would provide a
massive stimulus for our economy. It is also a racial justice
issue.
Dr. Hamilton, you have written that canceling student loan
debt is--I think my quote here is ``one of the quickest actions
the President could take to narrow the racial wealth gap.'' So
can you tell us how student loan debt cancellation would help
level the playing field and whether or not canceling $10,000 of
student loans is enough to accomplish that goal?
Mr. Hamilton. First, I hope that Congress acts to cancel
student loan debt, but part of the reason why it is one of the
quickest actions is because I think that the President can do
it through Executive action as well. But in the context, maybe
we could talk about millennials. During the last Great
Recession, we asked millennials to wait out a struggling job
market and go to school to better themselves, to get better
credentials, and they came out with record levels of debt.
If we look at millennials when they were 30 years old in
the context of previous generations, they had the lowest home
ownership rate of every other generation dating all the way
back to the Greatest Generation that was coming out of the
Great Depression. And what is more, the racial disparity in
home ownership amongst millennials is as large as it has ever
been since we have ever been recording the data.
So, on the one hand, it is immoral when we tell people this
is your pathway for upward mobility; then we saddle them with
debt that limits their capacities to get other forms of assets
so that they can accumulate wealth. So, prospectively, we are
looking at a generation that came out of the Great Recession,
and now we are about to scar them with this pandemic recession.
So we certainly need Government to act to change their reality.
And it is not just millennials. We have people collecting
Social Security that are still paying student debt. So this is
a moral justice issue that has disparate racial effects, and in
the 21st century, it is sad that we are still talking about
financing a debt-free college education for all Americans.
Senator Warren. Well, as you know, Leader Schumer and I
have a plan to cancel $50,000 in student loan debt, so let me
just ask you: How much progress would that make in helping
close the racial wealth gap in America?
Mr. Hamilton. Yeah, I mean, I am for full cancellation, but
if the practical reality is 50, it is a lot better than
$10,000, especially when we consider the fact that, on average,
4 years after graduation, a Black graduate has about $50,000 in
debt in relation to $30,000 for a White graduate, which is also
intolerably too high.
Senator Warren. Well, thank you very much. You know,
canceling $50,000 of student loan debt is the single most
effective Executive action available to get our economy going
and to make progress toward closing the racial wealth gap, and
I hope President Biden decides to do this. Thank you both so
much for being with us today.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
Senator Lummis from Wyoming is recognized.
Senator Lummis. Thank you, Mr. Chairman. I sure wish those
students would have gone to trade schools and community
colleges instead of high-priced institutions that caused them
to leave school with massive student loan debt.
That aside, I also want to say that the name of today's
hearing is ``Wall Street vs. Workers'', but a better name might
have been ``How Wall Street Can Help Workers''. I know it is
imperfect, but every American benefits from Wall Street through
lower cost of goods and services, access to capital, buying an
affordable home, and saving for retirement. We can do better in
many areas, but ethical markets are an inherent public good.
And as a person who is an advocate for Bitcoin, I want to say
that I see that as a great leveler for people of color and for
women, both in terms of employment and for savings. It is an
opportunity to buy directly into an asset that is a great store
of value. You do not need Wall Street. You do not need layers
and layers of financial advisers and institutions.
The person who is outside building on this building can go
out after work and buy a fraction of a Bitcoin and save it, and
it is going to be a greater store of value, just like gold
would be, when he is older and ready to retire. And there are
so many more careers in cryptocurrency for women and for people
of color that I see that as a massive opportunity, because as
these Wall Street banks get into crypto, finally realize that
Bitcoin is for real, and that cryptocurrency is going to become
part of global trading and global savings, including fiat
digital assets as well as Bitcoin, I think you are going to
find that it is a great leveler for people of color and for
women.
I just got off the phone with people in Women Involved in
Crypto, and I tell you, there are a lot of women in that
workforce with expertise, and you are going to find them
matriculating as the Wall Street banks realize that this is the
next innovation in financial technology.
Now, that said, I have a question for Dr. Loury. Dr. Loury,
many Americans live paycheck to paycheck, and they cannot
afford delays in the deposit of their salary or in cashing a
check. So these can cause costly overdraft fees and even the
need to resort to unnecessary loans. We all see payday loan
companies on street corners. Americans work hard for their
money, and they deserve access to it as soon as possible.
So my question is: Can having a more innovative payment
system promote financial inclusion and make Americans' lives
easier?
Mr. Loury. Sure. Why not? No, seriously, I think that would
be a step in the right direction, although a small step. But
why not?
Senator Lummis. Well, one of the things that we are trying
to do here in the senate is educate people about the
egalitarian aspects of having same-day settlements, about
financial innovations, and about central bank digital
currencies that could also help us innovate in these ways. So
my fellow Senator Kyrsten Sinema and I are forming a Financial
Innovations Caucus to make sure that these kinds of innovations
that tend to level the playing field and take the layers out
between money and the people who earned it is more available.
So we look forward to all of you participating in that dialog
because it is important that people be close to their own
money. And when there are a whole bunch of layers between
people and their own money, and everybody in those layers is
taking a slice of their money, it is difficult for them to have
access, management, control, and innovations associated with
their own money. That is where I see the advantages of digital
currencies, specifically Bitcoin at this point, and I am
looking forward to having that dialog more as we go on.
Thank you, Dr. Loury. I yield back.
Chairman Brown. Thank you, Senator Lummis.
Senator Van Hollen from Maryland is recognized for 5
minutes.
Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member
Toomey, and to all our witnesses, thank you.
Dr. Hamilton, I have a question regarding stock buybacks.
We saw after the big tax giveaway to corporations that Trump
enacted back in 2017 that so many corporations used those funds
for stock buybacks instead of, you know, putting them into
higher wages for employees or investing in more capital.
And then former SEC Commissioner Jackson looked into this
very closely and found that executives were using stock
buybacks to cash out their own shares. He also found that
executives selling on buybacks was correlated with worse stock
performance, suggesting that stock buybacks were being used to
maximize executive pay, not supporting the long-term health of
the company.
And then more recently, Dr. Palladino at the Roosevelt
Institute issued a paper finding a very, very close correlation
between stock buyback activity and insiders selling their own
shares and looked at the practice in restaurant, retail, and
food manufacturing, industries in which millions of Black and
Brown workers struggle to make ends meet and where they are
disproportionate in the ranks of the employees. And the paper
found that curbing the practice of stock buybacks could, you
know, force these companies to invest more in their workers.
Can you comment on this issue of stock buybacks and, you
know, whether we should be looking to close the loophole that
was opened and appears to have allowed executives to use these
buybacks to pad their own wallets rather than the invest in
their employees and the success of their companies?
Mr. Hamilton. Thank you, Senator. You know, I think that is
a fine example of--an example of a Government intervention in a
way that is not morally consistent with promoting shared
prosperity.
One, we can see that there was a certain class of
individuals that benefited from a tax cut of $2 trillion, so if
we want to talk about capacities of what Government can do,
clearly we can do a whole lot. So not only was it directed at a
specific class of individuals from a moral sense that might not
have been the ones that needed it the most, but it also has
racial implications when you consider the fact that that class
of Americans is overwhelmingly White and underwhelmingly Black.
So I think the point I would like to make is, one, we have
capacity to do big, broad things, and we need to
reconceptualize the role of Government. We need to think about
Government empowering people so that that can grow our economy,
so that that can stimulate our economy. Had we used that money
instead of allowing companies to engage in stock buybacks but
endowing every American with a seed account at birth so that
when they became a young adult, they could engage in building
their assets just like anyone else in economic security, that
would be a better way to have spent that money.
Senator Van Hollen. I appreciate that, Dr. Hamilton.
Professor Atkinson, I was just listening to my colleague
Senator Lummis talk about the benefits of real-time payments. I
am pleased to hear her supporting this. It is something I have
been fighting for for a long time because, as we know, so many
Americans are going paycheck to paycheck, and, you know, the
Federal Reserve data show that about 37 percent of Americans
were $400 away from, you know, having to borrow and go into
greater debt or sell something. And it is outrageous that
millions of Americans, lower-income Americans, are losing
billions of dollars in the form of late fees because their
paychecks, for example, are not cashed in real time.
But the way to go here is not through, in my view, a
private sector structure but through the Federal Reserve and
the FedNow system. I have been asking them repeatedly to
accelerate their efforts, which currently they say by the year
2023 we will have real-time payment capacity through that
system.
But can you comment? As you pointed out, borrowing and
putting people more in debt just digs people deeper and deeper
into poverty, and why do we need to move forward on a FedNow
type system?
Ms. Atkinson. Good morning, Senator Van Hollen. You know,
so there is already financial innovation around sort of early
paychecks systems, and we have seen that sort of in the private
sector where, again, you know, there is a profit motive
involved, and so some percentage is taken in exchange for the
privilege of getting a paycheck in real time. So that is a
burgeoning area for a lot of scholarly work thinking about how
we should regulate that, whether that looks like a loan or not.
Certainly having a Federal option, a public option in
banking more generally, you know, is a way to, you know, as
Senator Lummis put it, get people closer to their paycheck--
right?--without having intermediaries sort of siphon bits and
pieces here and there in order to perform those services. So
certainly having a public option would be beneficial.
Senator Van Hollen. I appreciate that because, as you say,
you should not have to pay for the benefit of getting your
paycheck in real time, and it just drives millions of Americans
already close to the edge over the edge.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Scott from South Carolina is recognized for 5
minutes.
Senator Scott. Well, thank you, Mr. Chairman, and thank you
to the panel for being here for such an interesting
conversation. Like so many have already said, the title of the
hearing raises eyebrows, but I am not going to spend much time
on the title of the hearing itself. But I do want to spend some
time on progress and what progress looks like under pro-growth
policies and responsible regulations.
We saw before the pandemic, over the 3 years that preceded
the pandemic we saw incomes grow at the bottom quintile faster
than the top quintile. We saw the fact that America's
unemployment rate of 3.5 percent also led to the lowest African
American unemployment rate of 5.2 percent, for Hispanics about
4 percent. We saw gains in the labor force participation rate
as well as we saw home ownership go up. And when you think
about the wealth gap, you do have to stop for a moment and
pause on the fact that we saw home ownership grow during those
years from 41.7 percent to 46.4 percent, which is the highest
it has been since 2004. So if you look at pre-Great Recession,
African American home ownership had not been higher than it was
in 2019 than it was in 2004. That is a record because it leads
us toward the ability to gain equity in something, an asset
that works and increases even while you are sleeping. And that
is the chasm between the haves and the have-nots in this
country. It is driven right through this conversation around
equity and margin. And for us to understand that, I think the
education system that Dr. Loury and Mr. Toomey were talking
about earlier is an important part of the equation, frankly.
The fact of the matter is that the only parents who do not have
school choice are poor parents, and those are consistently
African American and Hispanic parents. And that correlation
between positive education options in every Zip code does
translate to what kind of income you earn in the workforce and,
frankly, how long you stay in school.
We know that 3 or 4 years ago we saw the statistics around
what your income looks like if you drop out of high school. It
was around $19,000. If you graduate from high school, it was
around $29,000. If you get a Bachelor's degree, it was around
$58,000, and a Master's even beyond that as well. So we know
that there is a correlation between your educational
achievement and your income, and we know that there is
consistently a correlation between your income and your home
ownership. And we know there is a correlation between your home
ownership and your net worth. So let me slow it down for just a
second so I can ask Dr. Loury a couple questions.
Number one, on home ownership, the fastest way to close the
wealth gap from my perspective and my personal experience as a
kid who grew up in poverty in a single-parent household, who
nearly flunked out of high school because I did not see the
importance of education, who became a business owner who
understood that it is better to create jobs and not just have a
job, it is better for us to have profit and income. So on home
ownership, home ownership was the opportunity for us to see
that profit.
Can you talk for just a minute or two--or, frankly, less,
since I only have a minute or two left--about the importance of
closing the wealth gap through home ownership?
Mr. Loury. I think it is very important. Note, however,
that I would not have made it closing the racial wealth gap. I
would have just made it empowering people, American people of
all races to avail themselves of the opportunities in this
great country. I can recall my friend Robert Woodson of the
Woodson Center in Washington working with public housing
residents in Washington, DC, formulating development--this is
way back when Jack Kemp was Secretary of Housing and Urban
Development----
Senator Scott. Yes.
Mr. Loury. ----to allow for residents to acquire equity,
ownership stake in their apartments in public housing. Very
transformative on a small scale, one little experiment, but
nevertheless.
So, no, I think this is very important. Giving people a
stake, creating individuals, giving them a way of being able to
shape their own futures, empowering them, that is the way to
go.
Senator Scott. Well, you talk about the creativity between
Jack Kemp and Robert Woodson that is celebrated by many folks
who have read and millions who understood that concept. We have
heard a lot about democratization of the market. I am a
simpleton, so I like to just think about it was easy access to
owning stocks. The average household in this country, about
half of them have stocks; African Americans, I think it is
about 31 percent have a stock portfolio, average balance around
$12,000; Hispanics, about 28 percent, average balance around
$11,000. The democratization of the market really means that
the fees associated with getting involved goes down, down,
down, and now it is down to zero. The impact of such an
opportunity on closing the wealth gap, Dr. Loury?
Mr. Loury. Well, this is just underscoring how corporate
America, Wall Street, what-not, ought not to be constructed as
the enemy. They are not our enemy necessarily. I mean, they
ought not to go without regulation and oversight
Senator Scott. Of course.
Mr. Loury. On the other hand, we all have a stake in the
prosperity of the economy, and many of us are indirectly
shareholders in that process. The more democratic, the more
widely spread is this opportunity to share in the fruits of
American economic growth, the better.
Senator Scott. Dr. Loury, my parting comments. Thank you,
Chairman Brown, for my time. I would simply say that what you
said there may be misinterpreted. What you mean by having a
stake in the market and households, your 401(k) and retirement
systems are already in the market. Therefore, we have more
Americans who are involved in the market than we know of
because we do not necessarily appreciate that powerful engine
of retirement systems. It is one of the reasons why I have
worked with Bob Johnson, the creator of BET, to make sure that
those small-dollar investors in their 401(k)s can transfer it
as the jobs move on, because it is really important for us to
stop the leakage in the 401(k)s. It is another part of creating
access to wealth and opportunities in the future, by having the
next you, the retired you, having the resources necessary to be
self-supportive.
Thank you. My time ran out so fast. I look forward to
having another conservation. Have a good one.
Chairman Brown. Thank you, Senator Scott.
Senator Cortez Masto from Nevada is recognized for 5
minutes.
Senator Cortez Masto. Thank you. Thank you for this
hearing.
Let me just bring us back to the basics here, because at
the end of the day, of course, everyone wants to have a
retirement savings. Everyone wants to be able to put their
discretionary or disposable income, whatever additional money
they have, into a 401(k) or some retirement program. But if you
do not have a livable wage and you are at or below the poverty
level, you really do not have the luxury of investing.
So let us bring it back to the basics here for a minute.
For many years, gains in productivity led to increases in real
hourly wages, but that pattern has not been the case for the
last 30 years. Productivity gains have not generally been
reflected in gains in wages. Would you all agree with that?
And, Professor Atkinson, let me start with you.
Ms. Atkinson. Good morning, first of all, Senator Cortez
Masto. You know, we can see, we can understand that there has
been wage stagnation, sort of is our constant friend over many
decades. And, you know, coming back again for me to thinking
about how credit and debt work in that context or how other
ways we have tried to sort of cover up that problem that is not
specific to--you know, it is certainly disproportionately felt
by communities of color. But it is a problem for the middle
class more generally.
Senator Cortez Masto. Thank you. I am going to stop you
there because I want to get through this really quickly, and I
so appreciate this conversation. Let me say, Dr. Hamilton,
would you agree that wages have been stagnant over the last 30
years and there are more people living at or below the poverty
level making not a livable wage but struggling?
Mr. Hamilton. It sounds like you want a quick answer.
Absolutely, and I can elaborate more, but----
Senator Cortez Masto. And we are going to get back to that.
Mr. Hamilton. OK.
Senator Cortez Masto. Dr. Loury, Professor Loury, would you
agree with that?
Mr. Loury. Well, there is a problem of wage stagnation.
Senator Scott ran through some of the statistics about recent
consequences of economic growth. I think productivity growth
over the long run should lead to greater wages, but there is
many a slip betwixt the cup and the lip on that one.
Senator Cortez Masto. Yeah, and that is the challenge. That
is our challenge. That is our challenge because I constantly
hear this talk about unemployment, oh, the unemployment was
low, so everything must be good. Well, unemployment really has
nothing to do with whether you have a livable wage or not and
whether you are living at the poverty level or below that
poverty level. Would you agree? Ms. Atkinson, let me start with
you, Professor Atkinson.
Ms. Atkinson. In the spirit of a short answer, yes, I would
agree.
Senator Cortez Masto. OK. And so this is our challenge,
and, really, we can talk about inequality because it is
existing right now, and we can talk about how we address it.
But at the end of the day, if we are not taking that
productivity, which we are investing in, and turning it into
livable wages for individuals, people are going to be
struggling.
And let me just say, you know, I come from the State of
Nevada. In southern Nevada, from our hospitality industry, you
can literally graduate from high school, and there was a time
when you could go make a good living for your family, put a
roof over your head. But because wages have been stagnant, we
have not been able to do that in this country, across the
country. And so this is our challenge.
And so I so appreciate the conversation today, but this is
where it starts for me. How do we address and invest more in
our workforce, in that wage, and bring--lift everybody up that
are struggling right now?
Let me touch on an issue--and, Dr. Hamilton, I am going to
ask you about this, because the economic gap between White
individuals and Native Americans remains stark. Among all
racial and ethnic groups, Native Americans had the highest
poverty rate at 25.4 percent compared to 8.1 percent for White
individuals. And I know you co-authored a study back in 2017
that found this substantial difference.
Can you elaborate a little bit more on that and the impact
to Native Americans?
Mr. Hamilton. You know, I love the framing of your
question. It is not the result of a deficit amongst Native
Americans but, rather, deficits in structures and resources so
that Native Americans can thrive. And, you know, we have been
talking a lot about markets. One thing we should recognize is
that if people are not empowered, they are vulnerable to
markets. So what I am talking about is not necessarily an
indictment on banks, although there is some responsibility,
too. I am talking about using Government resources to empower
people so they are not vulnerable, so that they actually can
utilize market attributes and thrive.
Senator Cortez Masto. Thank you. And, Dr. Atkinson, any--
and I know I cut you off. Please, if there is more that you
want to contribute, I would love to hear it.
Ms. Atkinson. You know, I will just add my plus one to Dr.
Hamilton's account. The question is not a wholesale indictment
of markets generally or of Wall Street generally. But it is how
can we use those resources to uplift the people who are most
vulnerable.
Senator Cortez Masto. Thank you. Thank you very much. I
know my time is up.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Ossoff from Georgia is recognized for 5 minutes.
Senator Ossoff. Thank you, Mr. Chairman. Thank you for
convening this hearing. Thank you to our panelists.
Professor Atkinson, what in your view is the relationship
between power and access to credit?
Ms. Atkinson. You know, I guess the first thing is what we
think about as power, right? Who has access to sort of we might
think network relationships and finding lending relationships
and the most beneficial lending relationships and choice, who
has no option but to go to the corner payday lender versus who
can go out and be comfortable in negotiating and looking for
the best rates. So I think power factors into that.
Senator Ossoff. Thank you. I appreciate that. There is, I
think, sometimes a false dichotomy presented in a discussion
such as the one we are having at this hearing about whether we
are discussing free markets or not. When, for example, the two
dozen largest and most powerful investment banks in the country
can access emergency cash via the Federal Reserve at zero or
near 0 percent interest rates virtually overnight, but no such
instantaneous credit facility exists for smaller banks, let
alone households, is that the free market? Or is that something
else?
Ms. Atkinson. You know, my view is that that is not a free
market. And, you know, markets do not exist outside of the
social environment and the culture in which we live, and, you
know, we can think about structuring, for example, the PPP
payments--right?--as a forgivable loan, if you will, made
available to businesses and, indeed, payday lenders and other
kinds of powerful entities and not to regular ordinary people.
So, absolutely, yes.
Senator Ossoff. And isn't it the case, Professor Atkinson,
that those major financial institutions which enjoy this
privileged access to credit markets via a Federal entity--the
Federal Reserve--then use the cash that they can access on such
favorable terms to lend at higher rates to borrowers downstream
or to make investments in equities or other financial
instruments to profit?
Ms. Atkinson. Sure. I mean, their access is not conditioned
on particular uses, particular interest rates, and I think that
is one of the troubles of, you know, if the rationale is that
by facilitating this ready, cheap money to big institutions, it
will trickle down into the communities that need it, you know,
that money is not burdened in any way, they are not required,
and if anything, in our legal standards it is that they use the
money in service of their own interests or their shareholders.
So, absolutely, the money is not--you know, that access does
not bring with it a requirement to deploy that access in ways
that help the most vulnerable people.
Senator Ossoff. Thank you, Professor Atkinson. And these
major financial institutions which via various mechanisms of
monetary policy can access cash or credit at 0 percent interest
or even simply as a transfer, sometimes we think about the
interest rate that a borrower pays as an indicator of that
borrower's creditworthiness. But these are the same financial
institutions who required a massive multitrillion bailout in
2007 and 2008 due to their own incompetence and their own
irresponsible risk taking and which have benefited from a
constant stream of loose monetary policy and quantitative
easing ever since.
So are the rates that these powerful financial institutions
pay a function of their superior creditworthiness, their
superior risk management, their superior wisdom in the
allocation of capital? Or is it a function of the powerful and
privileged position they have in a financial system that has
been structured to advantage them?
Ms. Atkinson. I think it is a function of a system that
presents or represents these entities as being crucial to the
existence of the system. I think this is where the sort of
``too big to fail'' rationale originates, and I think we should
think about individuals and communities as being, you know, too
important to fail in the same way.
Senator Ossoff. Thank you so much for your time and your
testimony.
I yield back, Mr. Chairman.
Chairman Brown. Thank you, Senator Ossoff, for your
questions.
Is Senator Warnock here?
[No response.]
Chairman Brown. OK. I think we can wrap up. Everyone in
this hearing on this Committee today agrees that inequality has
soared, and everyone agrees that there is a serious and
enormous racial wealth gap, and everyone agrees that Wall
Street contributes to both these outcomes. What we disagree
about is whose side are you on and do you think we should take
action so that more wealth goes to the people who make this
country work? Or do you think we need to protect Wall Street
profits and stock buybacks and dividends? I think we can do
better. The CARES Act and the American Rescue Act, as Dr.
Hamilton pointed out, are a blueprint for investment in workers
and infrastructure that would benefit everyone. I believe in
American hard work. You have certainly heard me talk about the
dignity of work. If we devote more of our resources to the
people who have been left out of our economy, bringing them in
not only will help reduce inequality and the racial wealth gap;
it will create even more profit for everyone. We have done it
before. It did not lead to socialism. I did not destroy
capitalism or democracy. It actually strengthened them. The New
Deal, while other countries in Europe went in a different
direction often, the New Deal strengthened American democracy
and helped build a middle class. If we take care of workers
first, we know that Wall Street also will do just fine.
Thanks to the witnesses today for providing testimony. For
Senators who wish to submit questions for the record, these
questions are due 1 week from today, on Thursday, March 11th.
For our witnesses, you have 45 days, if you would, to respond
to any of these questions.
With that, thank you all. Senator Toomey, thank you. This
hearing is adjourned.
[Whereupon, at 11:45 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
The economy isn't physics--it's not governed by scientific laws
outside our control. It's made up of people making choices about our
values and what kind of society we want to live in.
Despite what we're constantly told on TV, most Americans share a
lot of the same values--they want an economy that's fair and just,
where hard work pays off for everyone, no matter who you are or what
kind of work you do, and where everyone has the economic security to
raise a family and retire with dignity.
But when you look at our economy, it doesn't reflect the society
most of us want.
You can't look at decades of growing productivity, with workers
getting a smaller and smaller share of the profits they create, and
think the economy looks fair.
You can't look at a racial wealth and income gap that has barely
budged since we passed the Civil Rights Act, and think the economy
looks just, or that we all have equal opportunity.
You can't look at the millions of Americans whose hard work doesn't
even pay the bills, while corporate profits go up, CEO pay soars, and
stock buybacks and dividends explode, and think that this economy
reflects our values.
This state of affairs didn't happen on its own, and it wasn't just
the invisible hand of the markets.
For decades, Wall Street interests--big banks, hedge funds, private
equity firms, and insurance companies--have been calling the shots--
through their lobbyists, through rigged rules, through union-busting.
We've left it to them to shape our entire economy, and make choices
about our values and what kind of society we live in.
For decades, Wall Street has rewarded the companies that squeeze
their workers the hardest--companies that cut wages, cut retirement
benefits, cut corners on worker safety.
When companies lay off workers, cut paychecks, or subcontract work
to lower-paying companies with fewer benefits, their stock price goes
up--and Wall Street calls it ``cost cutting.''
We have allowed a system to take root that treats American workers
as a commodity, a cost to be minimized--instead of the engine behind
all our businesses' success.
They do it so Wall Street can funnel more and more of the profits
that workers create to CEOs and shareholders.
And instead of investing those profits in something productive,
they've used that money for reckless speculation that drove booms and
busts, resulting in real estate crashes and the dot-com bubble.
And when all of that didn't make them rich enough, they came up
with the idea for credit default swaps and collateralized debt
obligations. It was Wall Street that targeted workers who were
struggling to make ends meet with subprime mortgages--predatory loans
that stole the equity workers had saved up in their homes.
Wall Street's 2008 crisis cost the economy tens of trillions of
dollars and destroyed 53 percent of Black wealth in the country.
Millions of families lost their homes and are still trying to
recover. Wall Street got a bailout.
Then Wall Street found a new way to get paid: fund the payday and
auto title lenders and debt collectors that targeted families
struggling to get by in what was left of the economy.
Even after all of that, some people, including a whole lot of
people who've been running the Senate, think that we should let Wall
Street keep dictating our economy--and by extension, the lives of
everyone who gets their income from a paycheck, not a stock portfolio.
They claim they just want ``markets to decide,'' but when the
market isn't fair, that just means putting Wall Street in charge.
It's the same attitude that lets corporations run ad campaigns
calling their workers ``essential,'' but then spends their profits on
stock buybacks and CEO bonuses rather than a living wage or the
protective equipment workers need to avoid a deadly virus.
Or that prompts Amazon to post a ``Black Lives Matter'' banner on
its website, while unleashing every union-busting tactic in the book to
undermine Black workers organizing for better working conditions in
Alabama.
If we want a fair and just society, with a growing middle class
that everyone has the opportunity to join, we have to stop letting Wall
Street run the economy.
We can't rely on quarterly earnings reports to tell us whether
workers deserve a decent living.
For too long, we've allowed Wall Street's phony populist allies to
stoke fear and place blame and divide us by race and religion and
region. We know why they do it--to distract from how they've been
keeping all the profits for themselves.
But this zero-sum view of the economy hurts everyone.
We have the largest economy on earth, with vast resources and
talent and ingenuity. If we stop siphoning off so much of our
prosperity to the tiny sliver of people at the very top, not only is
there enough to go around for everyone--but when we unleash all
workers' talents and give them some more economic security, we'll
create even more economic growth.
We all learn in elementary school about Dr. Martin Luther King
Jr.'s fight for civil and human rights. But we don't talk about his
fight for economic rights enough--and how you can't fight for one
without the other.
We can't forget that Dr. King was assassinated in Memphis while
fighting for some of the most exploited workers in the country,
sanitation workers--fighting for their civil rights and workers'
rights.
As he put it: ``What does it profit a man to be able to eat at an
integrated lunch counter if he doesn't earn enough money to buy a
hamburger and a cup of coffee?''
If we want to take on economic inequality and shrink the racial
wealth gap, then we need to build an economy based on the dignity of
work.
That means paying all workers a living wage, giving them power over
their schedules, providing good benefits and safety on the job, and
letting them organize a union. That means everyone gets a fair share of
the wealth they create.
That means building an economy that reflects our values--not Wall
Street's values--and the kind of society we want to live in.
______
PREPARED STATEMENT OF ABBYE ATKINSON
Assistant Professor of Law, University of California, Berkeley, School
of Law
March 4, 2021
Mr. Chairman Brown, Ranking Member Toomey, and Members of the
Committee: Good morning, and thank you for inviting me to testify
before this Committee. It is my great honor. My name is Abbye Atkinson.
I am an Assistant Professor of Law at the University of California,
Berkeley, School of Law, where I teach Contract Law as well as courses
on the legal structures of debt and inequality. I appear here today in
my capacity as an academic who studies the law of creditors and debtors
as it affects traditionally marginalized communities and implicates the
widening racial and gender wealth gap. \1\
---------------------------------------------------------------------------
\1\ This written testimony includes material that has been
previously published as follows: Abbye Atkinson, ``Borrowing
Equality'', 120 Columbia Law Review 1403 (2020); Abbye Atkinson,
``Rethinking Credit as Social Provision, 71 Stanford Law Review 1095
(2019). It also incorporates material from Abbye Atkinson,
``Commodifying Marginalization'', 71 Duke Law Journal (forthcoming
January 2022).
---------------------------------------------------------------------------
In this regard, I'd like to make three points. First, credit, and
by natural extension, debt (hereinafter ``credit/debt'' \2\), has
become a critical means of carrying out Federal social welfare
policies, even though indebtedness contributes significantly to many of
the entrenched socioeconomic problems we rely on credit/debt to solve.
Second, credit/debt itself provides a channel through which wealth
drains from marginalized communities, toward more affluent entities.
Its burdens are not equally distributed, which exacerbates the
racialized and gendered wealth gap. Third, because credit/debt has
become so critical to Federal social welfare policies, Congress should
not delegate the regulation of credit/debt to private, profit-motivated
interests whose stock in trade is credit/debt.
---------------------------------------------------------------------------
\2\ Gustav Peebles, ``The Anthropology of Credit and Debt'', 39
Ann. Rev. Anthropology 225, 226 (2010) (noting that ``credit and debt
stand as an inseparable, dyadic unit'' and adopting the term ``credit/
debt'' because ``debt is always already a dyadic relation that requires
its opposite[, credit]'').
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Credit/Debt Has Become an Important Aspect of American Social Provision
Credit/debt has become vital to current social provision \3\
policy, particularly for socio-economically marginalized Americans,
including low-income workers, \4\ women, \5\ and African Americans. \6\
It is an important feature of our unique American public-private
welfare regime. \7\ This is true both (1) as to marginalized borrowers
themselves, who are encouraged to rely on consumer credit markets to
smooth consumption, to become socially mobile, and to address
entrenched inequality more generally; and (2) as to third party
beneficiaries, like retirement-insecure workers, who, through their
participation in public pensions, increasingly rely on wealth extracted
through the channel of ``marginalized debt,'' the array of high
interest rate, subprime, risky debt that tends to concentrate in and
among historically marginalized communities. \8\ I briefly describe
each below.
---------------------------------------------------------------------------
\3\ The term ``social provision'' refers to the range of state
policies implemented to improve general welfare, including for example,
``Nation-spanning social insurance and public assistance programs''
such as ``federally required, state run unemployment insurance;
federally subsidized public assistance; and national contributory old-
age insurance.'' E.g., Theda Skocpol, ``A Society Without a `State'?
Political Organization, Social Conflict, and Welfare Provision'', 7 J.
of Pub. Pol'y 349, 350-51 (1987); see also Ann Shola Orloff, ``Social
Provision and Regulations: Theories of States, Social Policies'', in
Julia Adams, Elisabeth S. Clemens, and Ann Shola Orloff, Modernity in
Remaking Modernity: Politics, History, and Sociology 190 (2005)
(``Social provision and regulation have taken on many public and mixed
public/private forms, from poor relief and publicly subsidized charity
to `workingmen's insurance' and pension, `social security,' `the
welfare state,' `welfare capitalism,' `the social state,' and `l'etat
providence.' '').
\4\ E.g., Abbye Atkinson, ``Rethinking Credit as Social
Provision'', 71 Stan. L. Rev. 1095, 1105-1120(2019) (hereinafter
Atkinson Rethinking) (describing debates about how to regulate the cost
of payday loans).
\5\ E.g., Abbye Atkinson, ``Borrowing Equality'', 120 Colum. L.
Rev. 1403, 1419-22 (2020) (describing 1960s and 1970s advocacy for
increased access to credit as a means of greater socioeconomic equality
for women).
\6\ Id. at 1422-24 (describing 1960s and 1970s advocacy for
increased access to credit as a means of greater socioeconomic equality
for African Americans).
\7\ See Jacob Hacker, The Divided Welfare State: The Battle Over
Public and Private Social Benefits in the United States 11-12 (2002)
(defining the American public-private welfare regime as a combination
of: (1) ``direct pension social programs'' like Social Security, (2)
``the constellation of more indirect or `hidden' Government
interventions,'' like tax breaks and Government subsidies, ``that are
designed to provide similar social benefits or shape their private
provision,'' and (3) ``publicly regulated and subsidized private
benefits'').
\8\ E.g., Taz George, Robin Neuberger, and Mark O'Dell, ``The
Geography of Subprime Credit'', Federal Reserve Bank of Chicago, (Nov.
6, 2019), https://www.chicagofed.org/publications/profitwise-news-and-
views/2019/thegeorgraphy-of-subprime-credit.
---------------------------------------------------------------------------
Credit/Debt as Social Provision for Marginalized Borrowers
The ability to borrow money in consumer capital markets is an
important aspect of Federal social provision policy. Consequently, much
of the current discourse of access to credit/debt for low-income and
other marginalized Americans rests on the assumption that credit/debt
extended on good terms is a universal public good. \9\ Moreover, on the
view that credit/debt can effectively and properly fill the void left
by welfare retrenchment, legislators and policymakers largely confine
themselves to debating the appropriate regulation of consumer credit/
debt access rather than exploring the essential qualities of credit/
debt that may make it a poor substitute for a robust, public safety
net. \10\
---------------------------------------------------------------------------
\9\ See, e.g., Marek Hudon, ``Should Access to Credit Be a
Right?'', 84 J. Bus. Ethics 17, 17 (2009) (``Credit is central to the
welfare of many citizens and the effective management of the economy in
high- and low-income countries.'').
\10\ See, e.g., Greta R. Krippner, ``Democracy of Credit:
Ownership and the Politics of Credit Access in Late Twentieth-Century
America'', 123 Am. J. Socio. 1, 2 (2017); Gunnar Trumbull, Credit
Access and Social Welfare: The Rise of Consumer Lending in the United
States and France, 40 POL. & SOC'Y 9, 10 (2012).
---------------------------------------------------------------------------
For example, the legislative debates that emerged in the wake of
the Second Circuit's 2015 decision in Madden v. Midland Funding, LLC
\11\ and the Consumer Financial Protection Bureau's Payday Rule, \12\
centered largely around the optimal regulation of credit/debt for high
risk, low income borrowers. There was otherwise minimal engagement with
the important threshold normative question of whether credit/debt, an
institution rooted in private markets, should be a viable component of
social provision for low-income Americans. Perspectives on both sides
of the aisle shared a common baseline for their arguments,
notwithstanding their differences in political ideology or methodology.
Each began from the shared premise that credit/debt can and should
benefit the working poor, thus implicitly framing credit/debt as a
valid means of social provision. \13\ These views thus implicitly
naturalized the idea that credit/debt should be a significant component
of social provision for the working poor.
---------------------------------------------------------------------------
\11\ Madden v. Midland Funding, LLC, 786 F.3d 246, 248-50 (2d Cir.
2015). In this case, the Second Circuit ruled that loans transferred to
non-national-bank entities in the secondary market are subject to State
usury caps even if the loan was originated by a national bank that
would otherwise enjoy Federal preemption from State usury caps.
\12\ 12 CFR 1041 (2020). As initially promulgated in 2017, the
Payday Rule, regulated payday lending by, for example, requiring that
payday determine whether a prospective customer has the ``ability-to-
pay'' certain types of loans before lending to the customer. The Rule
was amended in July of 2020, among other reasons, to rescind the
``ability-to-pay'' requirement. Payday, Vehicle Title, and Certain
High-Cost Installment Loans, 85 Fed. Reg. 44382 (Oct. 20, 2020)
(codified at 12 CFR 1041 (2020)).
\13\ ``Atkinson Rethinking'', supra note 4, at 1108-1120
(describing the legislative debates surrounding the so-called Madden-
fix legislation and the Payday Rule).
---------------------------------------------------------------------------
Similarly, Congress has articulated a legislative policy premised
on the conviction that by democratizing access to credit/debt,
marginalized groups, like women and African Americans, can borrow their
way to increased socio-economic inclusion, better relative economic
health, and even first-class citizenship. \14\ For example, beginning
in the mid to late 1960s and continuing throughout the 1970s, Congress
passed a suite of laws aimed at addressing inequality more broadly by
improving the ability of marginalized groups to borrow money in the
conventional consumer capital market. \15\ Significant among these
interventions were the Higher Education Act of 1965, \16\ which made it
more widely possible for financially constrained students to borrow
money for higher education; the Consumer Credit Protection Act of 1968,
\17\ which implemented a regime to make private lending fairer through
heightened transparency; the Equal Credit Opportunity Act of 1974, \18\
which prohibited lending discrimination on the basis of sex and race,
among other protected categories; and the Community Reinvestment Act of
1977, \19\ which encouraged conventional lenders to do business in
marginalized communities who had been historically excluded from
mainstream consumer capital markets.
---------------------------------------------------------------------------
\14\ E.g., Kamille Wolff Dean, ``Foreclosures and Financial Aid:
Mind Over Mortgages in Closing the Plus Loan Gap'', 4 Colum. J. Race &
L. 129, 135 (2014) (describing how ``[m]inorities were particularly
encouraged to take advantage of home ownership incentives from lenders
and the Federal Government as a means of becoming upwardly mobile.'');
Monica Prasad, The Land of Too Much 221-225 (2012).
\15\ E.g., Sara Sternberg Greene, ``The Bootstrap Trap'', 67 Duke
L.J. 233, 257 (2017) (``Congress eventually responded, and beginning in
1974, it passed legislation and a series of targeted amendments that
sought to end discrimination in credit evaluations and lending.'');
Michael S. Barr, ``Modes of Credit Market Regulation'' in Nicolas P.
Retsinas and Eric S. Belsky, Building Assets, Building Wealth: Creating
Wealth in Low-Income Communities (2005).
\16\ Higher Education Act of 1965, Pub. L. No. 89-329, 79 Stat.
1219 (codified as amended at 20 U.S.C. 1001-1107 (2018)).
\17\ Consumer Credit Protection Act, Pub. L. No. 90-321, 82 Stat.
146 (1968) (codified as amended at 15 U.S.C. 1601-1616 (2018)).
\18\ Equal Credit Opportunity Act, Pub. L. No. 93-495, 88 Stat.
1521 (1974) (codified as amended at 15 U.S.C. 1691-1691f).
\19\ Community Reinvestment Act of 1977, Pub. L. No. 95-128, 91
Stat. 1117 (codified as amended at 12 U.S.C. 2901-2908 (2018)).
---------------------------------------------------------------------------
With respect to these statutes, Congress acted in part to address
the demands of marginalized groups who, in a world in which access to
borrowed capital was increasingly synonymous with belonging, came to
believe that equal access to conventional loans and purchase money to
acquire the material trappings of American citizenship was integral to
their broader quest for equality and first-class citizenship. \20\
Consequently, each of these law embraces ``credit'' as a source of
social provision, even as they ignore the debt that inevitably flows
from taking a loan. Instead, Congress bifurcated its contemporaneous
treatment of debt, taking a relatively restrictive and regressive
approach to regulating distressed debtors in the Bankruptcy Reform Act
of 1978 (Bankruptcy Code) \21\ and the Fair Debt Collection Practices
Act of 1977. \22\
---------------------------------------------------------------------------
\20\ Greene, supra note 15, at 254-55 (``In the mid-twentieth
century, . . . civil rights and women's rights groups were behind the
push to mandate uniform standards of credit.'').
\21\ Bankruptcy Reform Act, Pub. L. No. 95-598, 92 Stat. 2549
(1978) (codified as amended at 11 U.S.C. 101-1532 (2018)).
\22\ Fair Debt Collection Practices Act, Pub. L. No. 95-109, 91
Stat. 874 (1977) (codified as amended at 15 U.S.C. 1692 (2018)).
---------------------------------------------------------------------------
Credit/Debt as Social Provision for Third Party Beneficiaries
Marginalized borrowers are not the only ones for whom social
provision policy invokes the power of credit/debt as a valid means of
social provision. Social provision policy also encompasses credit/debt
as a valid means of wealth extraction in service of retirement security
for workers. Specifically, public pension funds--which rely heavily on
investment returns to meet their obligations to retirees \23\--have
increasingly moved their enormous pools of ``labor's capital'' \24\
into ``alternative'' investments, like marginalized debt, that promise
higher yields crucial to fund pension obligations even as they portend
greater risk of loss. \25\ Consequently, marginalized debt is
increasingly an asset that rounds out the diversified portfolios of the
Nation's public pension funds. \26\
---------------------------------------------------------------------------
\23\ E.g., Pew Charitable Trusts, ``State Pension Funds Reduce
Rates of Return at 5'' (Dec. 2019) (hereinafter Pew Report) (observing
that ``[i]nvestment returns make up more than 60 percent of public
pension plan revenues [while] employer and employee contributions make
up the rest'').
\24\ E.g., David Webber, The Rise of the Working-Class
Shareholder: Labor's Last Best Weapon 8 (2018) (defining ``labor's
capital'' as ``the trillions of dollars held in public pension
funds''); Teresa Ghilarducci, Labor's Capitalism: The Economics and
Politics of Private Pensions 50 (1992) (observing that ``[p]ensions may
not be labor's wages, but labor's capital'' in part because they
function ``as an insurance fund in which every [worker] holds a
share'').
\25\ Ben Christopher, ``Riskier Bet: Why CalPERS, the Country's
Largest Pension Fund, Is Getting Into Banking'', O.C. Reg., (Jul. 9,
2020), https://www.ocregister.com/2020/07/09/why-calpers-the-countrys-
largest-pension-fund-isgetting-into-banking/, (observing that in the
search for investment returns, ``pensions [have] ventured further into
the Wild West of `alternative investments'--private equity, one-off
infrastructure projects and real estate, with each step t[aking] the
funds into potentially more profitable, but also more perilous,
terrain''); see also Gordon L. Clark, Pension Fund Capitalism 28 (2000)
(observing ``the rise of pension fund capitalism and the world of
finance with which it is intimately associated''); David F. Swensen,
Pioneering Portfolio Management: An Unconventional Approach to
Institutional Investment 55 (2009) (noting that ``[f]inance theory
posits that acceptance of greater risk leads to the reward of higher
expected returns'').
\26\ Pew Report, supra note 23, at 1; see also, Sondra Albert,
``The Subprime Crisis' Impact on Fixed-Income Funds'', AFL-CIO Housing
Investment Trust, (Nov. 13, 2007), https://www.sec.gov/Archives/edgar/
data/225030/000116923207004677/d73205--40-24b2.htm, (observing that
``public pension funds have also increased their investments in hedge
funds in an attempt to boost their returns due to larger funding
requirements'').
---------------------------------------------------------------------------
In this context, marginalized debt serves as a mechanism of social
provision because it furnishes a basis from which working people might,
at least nominally, shore up their oftenprecarious retirement
prospects. \27\ Yet, in this iteration of credit/debt as social
provision, it is the investor-pensioners who ostensibly benefit from
the borrowing, not the borrowers themselves. In addition, the financial
intermediaries, like private equity firms, who both construct and
privately regulate these channels of redistribution are significant
winners in this arrangement, reaping fees on the front end and a
disproportionate percentage of returns relative to their initial
investments on the back end. \28\ Thus, while neither lending and
borrowing nor the accumulation of wealth through investment is
inherently harmful, \29\ pension fund investment in marginalized debt
may not be a public good, when balanced against the burden that
marginalized debt and chronic indebtedness disproportionately imposes
in the lives of marginalized communities. \30\
---------------------------------------------------------------------------
\27\ E.g., Jack M. Beermann, ``The Public Pension Crisis'', 70
Wash. & Lee L. Rev. 3, 6 (2013) (observing that ``many public pension
plans are seriously underfunded either intentionally or due to
unrealistic assumptions concerning investment performance and the
amount that will be owed over time'' and that one of the worries of the
public pension crisis is the potential ``consequences to public
employees and retirees, especially those who did not participate in
Social Security, who could be left with insufficient assets for a
decent retirement'').
\28\ Ludovic Phalippou, ``An Inconvenient Fact: Private Equity
Returns and the Billionaire Factory'' 24-25, https://papers.ssrn.com/
sol3/papers.cfm?abstract--id=3623820, (``Private equity funds tend to
charge an annual management fee of 2 percent and a performance fee of
20 percent. Added to the generally higher fees already paid for target
date funds, the returns will really have to be supersized to justify
the cost of the alternative investments.''); accord Webber, supra note
24, at 81 (observing that [h]edge funds are very often a bad investment
for everyone except hedge fund managers'').
\29\ See, e.g., Atkinson Rethinking, supra note 4, at 1100
(observing that ``credit and debt often amplify the underlying set of
circumstances into which they are introduced'' and that ``where credit
and its amplifying qualities are concerned, what is good gets better,
and what is bad gets worse'').
\30\ See, e.g., Paul Kiel and Hannah Fresques, ``Data Analysis:
Bankruptcy and Race in America'', ProPublica, (Sept. 27, 2017), https:/
/projects.propublica.org/graphics/bankruptcy-data-analysis, (observing
that ``[n]ationally, bankruptcy filings are much higher among Blacks
than Whites'' and that ``[t]he higher filing rates among Black
communities can be partly explained by greater financial stress on the
population as a whole''); William R. Emmons & Lowell R Rickets, ``The
Demographics of Loan Delinquency: Tipping Points or Tip of the
Iceberg?'', Fed. Reserve Bank of St. Louis, (Oct. 18, 2016) (``Families
headed by an African American are about 81 percent more likely to be
seriously delinquent on a debt than a non-Hispanic White family while
Hispanic-headed families (of any race) are about 8 percent more likely
to be seriously delinquent than a White family.'').
---------------------------------------------------------------------------
The significance of marginalized debt in pension-fund investment
highlights two aspects of credit/debt-focused privatization in social
welfare policy. First, it shows how the current publicprivate welfare
regime has largely shifted retirement security into the hands of
private financial actors, whose fiduciary duties and profit-sensitive
incentives eschew broader moral considerations of the externalities of
retiree wealth maximization. \31\ Second, the rise of marginalized debt
as a source of retiree wealth maximization shows how in the
financialized economy, the tenuous socioeconomic condition of one
community \32\ is now openly a source of wealth accumulation for
another vulnerable community, retirement-insecure workers. \33\
Perversely then, just as credit/debt is an expedient means of promoting
and facilitating a decent standard of living for low-income and other
economically vulnerable groups, without the political burdens of
solving for ``persistent wage stagnation and other entrenched social
pathologies,'' \34\ it is also an expedient means of promoting and
facilitating a decent standard of living for older people, without the
political burden of solving for the real failures of retirement
security, like overpromising. \35\
---------------------------------------------------------------------------
\31\ Webber, supra note 24, at 9.
\32\ E.g., Peter Whoriskey, ``A Way of Monetizing Poor People: How
Private Equity Firms Make Money Offering Loans to Cash-Strapped
Americans'', Wash. Post, (Jul. 1, 2018), https://
www.washingtonpost.com/business/economy/a-wayof-monetizing-poor-people-
how-private-equity-firms-make-money-offering-loans-to-cash-
strappedamericans/2018/07/01/5f7e2670-5dee-11e8-9ee3-49d6d4814c4c--
story.html, (``Private equity firms, with billions to invest, have
taken significant stakes in the growing [small-dollar installment loan]
field.'').
\33\ E.g., Webber, supra note 24, at 8 (observing that for many
employees with public pensions, the ``loss of their jobs and pensions
would leave them on the knife's edge of poverty, if not
impoverished)''.
\34\ E.g., Atkinson Rethinking, supra note 4, at 1101.
\35\ G. Alan Tarr, ``No Exit: The Financial Crisis Facing State
Courts'', 100 KY. L.J. 785, 803 (2012) (``Some states have in the past
balanced their budgets in part by inducing public employee unions to
accept lower wage increases with the promise of future benefits
payments, and the effects of this short-term gimmick are now being
felt.''); cf. Beermann, supra note 27, at 27 (arguing that ``[u]nfunded
pension promises benefit politicians'' by ``allow[ing] for current
officials to provide services without requiring taxpayers to pay for
them until much later, when they may be out of office.'').
---------------------------------------------------------------------------
Credit/Debt Is a Means of Regressive Redistribution That Entrenches
Inequality
Credit/debt itself provides a channel through which wealth can
leave economically vulnerable communities, traveling upstream toward
more affluent entities. \36\ This regressive redistribution has grave
consequences for low-income borrowers and, more broadly, for other
communities whose economic prospects are consistently dim. For example,
as noted by political scientist, Gunnar Trumbull, ``there's a feature
of consumer credit that makes it fundamentally regressive'' because
``the poorest people who take out loans pay the highest interest
rates.'' \37\ Those payments made in the credit ``sweat box'' move
wealth out of distressed communities and into more affluent ones. \38\
---------------------------------------------------------------------------
\36\ Ctr. for Competition Pol'y, ``Gunnar Trumbull at CCP Annual
Conference'' (2011), YouTube (Jan. 20, 2012), https://www.youtube.com/
watch?v=9yQvOzinTGg.
\37\ Id. at 1:32-1:46.
\38\ Ronald J. Mann, ``Bankruptcy Reform and the `Sweat Box' of
Credit Card Debt'', 2007 U. Ill. L. Rev. 375, 384 (2007) (``Debt-based
[credit card] issuers . . . attempt to maximize the number of customers
who do not repay their account balances in full each month. That
strategy would not seem unusual, but for the fact that the most
profitable customers are sometimes the least likely to ever repay their
debts in full.'').
---------------------------------------------------------------------------
Moreover, data revealing entrenched racial and gender-based
inequality and disproportionate indebtedness deeply challenge the
notion that marginalized groups can borrow their way into greater
socioeconomic equality, without meaningfully accounting for the
consequences of debt in their lives. \39\ Indeed, the expanded ability
to borrow money has had mixed results for various marginalized groups
who continue to struggle to find socioeconomic parity. \40\ In many
cases, the subsequent increased rates of borrowing have introduced
higher levels of burdensome debt among communities least able to bear
this extra weight. \41\
---------------------------------------------------------------------------
\39\ E.g., Raj Chetty, Nathaniel Hendren, Maggie R. Jones & Sonya
R. Porter, ``Race and Economic Opportunity in the United States: An
Intergenerational Perspective'', 135 Q.J. Econ. 711, 712-18 (2020)
(studying intergenerational wealth, observing a persistent wealth gap
between African Americans and White Americans, and noting that
``reducing the Black-White income gap will require policies whose
effects cross neighborhood and class lines and increase
intergenerational mobility''); Am. Ass'n of Univ. Women, ``Deeper in
Debt: Women and Student Loans'' 1-2 (2017), https://www.aauw.org/app/
uploads/2020/03/DeeperinDebt-nsa.pdf (hereinafter AAUW Report) (noting
that women earn less than men and therefore pay back their loans more
slowly, and that ``[t]he pace of repayment was particularly slow for
Black and Hispanic women, as well as for men in those groups'').
\40\ See, e.g., AAUW Report, supra note 39, at 9, 28 (noting that
although in the last 50 years, women and people off color have made
``dramatic gains in higher education,'' these groups struggle to repay
debt on account of disparities in pay).
\41\ See Atif Mian and Amir Sufi, House of Debt 30 (2014)
(observing that ``[d]ebt is the anti-insurance. concentrate[ing] the
risks on those least able to bear it''). Mian and Sufi also observed
that ``debt significantly amplified wealth inequality during the Great
Recession.'' Id.; see also Jen Mishory, Mark Huelsman, & Suzanne Khan,
``How Student Debt and the Racial Wealth Gap Reinforce Each Other'',
(Sept. 9, 2019), https://tcf.org/content/report/bridging-progressive-
policy-debates-student-debt-racial-wealth-gapreinforce/
?session=1&agreed=1, (reporting that ``while many Black families
currently need to rely on debt to access a college degree and its
resulting wage premium, the disproportionate burden of student debt
perpetuates the racial wealth gap'').
---------------------------------------------------------------------------
The challenges that women and African Americans face with regard to
student loan shed light on this outcome. Specifically, in the present
day, student loan debt is quickly approaching a crisis of epic
proportions. \42\ Some 44 million Americans currently owe approximately
1.6 trillion dollars in outstanding educational debt. \43\ Women and
African Americans (both separately and at their intersections) are
carrying the brunt of this burden. \44\ For example, although ``college
degrees have been a pathway to greater economic and personal
independence for decades--especially for women[,] . . . acquiring those
degrees results in more debt for women than for men.'' \45\ Women
currently hold two-thirds of educational debt (over 900 billion
dollars) and are more likely than men to default on these loans. \46\
For some communities of color, and specifically for African American
women, the reality of student debt burden is even grimmer. Student loan
default rates are higher for African American and Hispanic debtors than
for White and Asian debtors, and 57 percent of African American women
borrowers in repayment reported that ``they had been unable to meet
essential expenses'' as compared to 34 percent of all women borrowers
in repayment. \47\
---------------------------------------------------------------------------
\42\ See, e.g., Michelle Singletary, ``There Seems To Be No End to
the Rise in Student Loan Debt'', Wash. Post (Sept. 12, 2019), https://
www.washingtonpost.com/business/2019/09/12/whos-blame-massive-amount-
student-loan-debtamerica/, (noting $1.6 trillion in outstanding student
loans and sharing examples of the personal impact of debt).
\43\ Richard Cordray, Watchdog: How Protecting Consumers Can Save
Our Families, Our Economy, and Our Democracy 6 (2020).
\44\ See AAUW Report, supra note 39, at 1-2.
\45\ Id. at 24.
\46\ Id. at 1-2.
\47\ Id. at 1-2.
---------------------------------------------------------------------------
At the same time, in the current American economy, structural
inequality that tracks gender and racial distinctions results in
pathological outcomes like disparity in postgraduate incomes and
racialized and gendered views that depress asset value. \48\ Indeed,
although ``women with college degrees are paid much better than women
without them, they are still paid about 25 percent less than men with
college degrees.'' \49\ Consequently, persistent inequities in gender
pay are a ``major factor that contributes to a substantial loan
repayment gap between men and women following graduation,'' \50\
leaving women and African Americans to face challenges in repayment
that confound the net present value in a loan (even in the absence of
predatory lending) for marginalized groups. \51\
---------------------------------------------------------------------------
\48\ E.g., A. Mechele Dickerson, ``Sorting the Neighborhood'', J.
Affordable Housing & Community Dev. L. 311, 321 (2015) (``Research
shows that the racial composition of a neighborhood is capitalized into
the market value of homes so that comparable homes are valued
differently depending on the racial makeup of the neighbors.'')
\49\ AAUW Report, supra note 39, at 24; see also Daniele
Kurtzleben, ``How Coronavirus Could Widen the Gender Wage Gap'', NPR
(Jun. 28, 2020), https://www.npr.org/2020/06/28/883458147/how-
coronavirus-could-widen-thegender-wage-gap [https://perma.cc/SK9Z-GH7V]
(describing how the pandemic is likely to exacerbate the existing
gendered wage gap).
\50\ AAUW Report, supra note 39, at 24.
\51\ See, e.g., Abbye Atkinson, ``Race, Educational Loans, and
Bankruptcy'', 16 Mich. J. Race & L. 1, 11 (2010) (reporting bankruptcy
data that suggests that ``attaining a higher level of education does
not appear to shield African Americans against financial ruin'' and
noting ``the tension between two Federal policies with respect to
educational attainment: educational lending policy that encourages
Americans to take on debt to finance their educations and bankruptcy
policy that makes discharge of educational debt practically
impossible''); Teresa A. Sullivan, Elizabeth Warren, Jay Westbrook, As
We Forgive Our Debtors 151-52, 158 (2001) (describing the
disproportionate impact of debt on women). Bankruptcy filings that
continue to show women and African Americans represented in
disproportionate numbers confirm this reality. E.g., Paul Kiel and
Hannah Fresques, ``Data Analysis: Bankruptcy and Race in America'',
ProPublica (Sept. 27, 2017), https://projects.propublica.org/graphics/
bankruptcy-dataanalysis (noting that ``[t]he higher filing rates among
Black communities can be partly explained by greater financial stress
on the population as a whole'').
---------------------------------------------------------------------------
Moreover, general difficulty in repayment further reveals the ways
in which debt overwhelms the capacity of credit across gender and race,
and at their intersections, to facilitate greater socioeconomic
equality. For example, ``[w]omen and men of different races and
ethnicities pay off their student loans at different rates.'' \52\ In
addition to borrowing more at the outset, women take longer to pay off
their loans than do men, which makes the sticker price for the
education much higher. \53\ African American and Hispanic women spend
an even greater time in repayment relative to White and Asian women.
Between 2009 and 2012, African American and Hispanic women paid 12
percent and 18 percent, respectively, while White women and Asian women
paid 33 percent and 60 percent of their debt respectively. \54\
Notwithstanding greater achievements in academic attainment by women
and people of color, \55\ higher education has not been able to break
the cycle of gender and race-based income inequality, \56\ which
directly affects the viability of borrowing to begin with. More than
that, it further entrenches the wealth gaps that run along both racial
and gendered lines.
---------------------------------------------------------------------------
\52\ AAUW Report, supra note 39, at 27.
\53\ Id. at 26-27.
\54\ Id. at 27.
\55\ See id. at 7-11.
\56\ Id. at 28 (noting that ``a college degree does not erase
gender and race gaps in pay'').
---------------------------------------------------------------------------
Indebtedness also has social consequences that undermine our
national goals for increased equality. Indeed, indebtedness is an
independently powerful social institution whose harm, particularly in
marginalized communities, should be broadly considered. In that regard,
policies that promote engagement in private markets in order to achieve
welfare-related ends should meaningfully engage with the notion that
economic market transactions are formed and calibrated within and by
the broader social context in which they are formed. \57\ In other
words, the market is not an autonomous institution free from sexism,
racism, ageism, and other social pathologies.
---------------------------------------------------------------------------
\57\ See, e.g., Mark Granovetter, ``Economic Action and Social
Structure: The Problem of Embeddedness'', 91 Am. J. Socio. 481, 487
(1985) (``Actors do not behave or decide as atoms outside a social
context, nor do they adhere slavishly to a script written for them by
the particular intersection of social categories that they . . .
occupy. Their attempts at purposive action are instead embedded in
concrete, ongoing systems of social relations.'').
---------------------------------------------------------------------------
For example, ostensibly economic behavior, like taking out a
private loan, is necessarily ``embedded'' within the broader social
relationships and order in which it occurs, intertwined in ways that
defy partitioned consideration. \58\ Thus, where there is a preexisting
social relationship, such as hierarchical, racialized, and gendered
subordination, it is neither feasible nor proper to isolate the
economic transactions between individuals engaged in the social
relationship, including in social relations that are defined by
subordination and hierarchy. \59\ Consequently, a policy that
encourages taking on debt as a means of social provision, including as
a catalyst to greater equality, should consider how these market
transactions are affected by specific social networks and relations,
particularly to the extent that these relationships are intractably
raced and gendered. \60\ Moreover, credit/debt also engenders moral
hierarchy that challenges the degree to which encouraging marginalized
groups to become indebted to powerful private market entities,
conventional though their products may be, can truly be a catalyst for
increased relative socioeconomic equality. \61\
---------------------------------------------------------------------------
\58\ See, e.g., Karl Polanyi, The Great Transformation: The
Political and Economic Origins of Our Time 74-76 (2001). Polanyi's view
counters the neoclassical economic view that market actors should be
understood as purely self-interested and rational individuals for whom
``social relations and their details'' are merely ``frictional
matters.'' Granovetter, supra note 57, at 484.
\59\ For example, sociologist Viviana Zelizer has argued that we
should explicitly understand the economic and social together, as
``[w]e all use economic activity to create, maintain, and renegotiate
important ties, especially intimate ties, to other people.'' Viviana A.
Zelizer, Economic Lives: How Culture Shapes the Economy 178 (2011).
\60\ See Granovetter, supra note 57, at 485-86 (discussing leading
sociological arguments for viewing economic actors as an extension of
their social circumstance).
\61\ See Rachel E. Dwyer, ``Credit, Debt, and Inequality'', 44
Ann. Rev. Socio. 237, 238 (2016) (``Creditor-debtor relationships are
inherently unequal, and the prevalence and types of credit and debt
holding in a society structures social inequality more broadly.'').
---------------------------------------------------------------------------
Because Credit/Debt Is Critical to Federal Social Provision Policies,
Congress Should Not Delegate the Regulation of Credit/Debt to
Private, Profit-Motivated Interests
Credit/debt as social provision policy for marginalized Americans
is an example of how privatized welfare has become a meaningful
``alternative form of redistribution,'' even offered as a means of
social and civil rights. \62\ Moreover, the reliance on private credit/
debt to achieve general welfare-focused ends is an example of the how
private intermediaries and actors are now, at least indirectly,
significantly responsible for important socioeconomic ends like closing
the racial wealth gap and promoting equality among all Americans. This
reliance on private actors to implement Government policy must wrestle
with the potential for private actors to diminish broader wellbeing by
prioritizing their own narrow financial interests, implicit biases, or
prior commitments. \63\
---------------------------------------------------------------------------
\62\ PRASAD, supra note 14, at 239.
\63\ See, e.g., David H. Webber, ``The Use and Abuse of Labor's
Capital'', 89 N.Y.U. L. Rev. 2106, 2144 (2014) (observing pension
funds' ``fund first'' fiduciary duty that permit a public pension fund
to select investments that may ``undermine participant employment'' as
long as those investments were ``are of equal economic value to a
plan'').
---------------------------------------------------------------------------
For example, credit/debt as a source of public pension fund wealth
accumulation, the phenomenon of public pension fund investment in
private equity reveals how the retirement security of millions of
American retirees lies in the hands of a relatively few financial
intermediaries, who freely invest in credit/debt as a means of
regressive wealth extraction. The ``fund-first'' focus that private
equity funds embrace is not aligned with the broader public mission
that public pension plans are supposed to reflect, nor is it consistent
with a robust sense of accountability for the externalities that
private equity investment in alternative assets, like marginalized
debt, may impose. \64\
---------------------------------------------------------------------------
\64\ Cf. Divya Kirti and Natasha Sarin, ``What Private Equity Does
Differently: Evidence From Life Insurance at 22'' (SSRN, Jul. 6, 2020)
(describing private equity's incursion into insurance and their
penchant for ``direct[ing] premiums from their insurance subsidies
toward risky alternative investments, like ownership stakes in other
portfolio companies''); also Bryan Ayash and ``Mahdi Rastad, Leveraged
Buyout and Financial Distress'' 4 (2019) (reporting that 20 percent of
firms taken over by private equity file for bankruptcy relief as
compared to 2 percent of control firms).
---------------------------------------------------------------------------
Indeed, by essentially privatizing significant aspects of equality
and social mobility through the promotion of credit/debt, social
provision policy encourages the most vulnerable groups to invest in
``self-help'' social mobility and equality. This is true despite an
imperfect socially constructed market, populated by private actors
still informed in significant part by discrimination, raced and
gendered hierarchy, and other social pathologies that predictably limit
(if not overwhelm) the expected social and economic returns on that
investment. \65\ Consequently, in pushing marginalized groups in this
direction, we have an obligation to address the consequences of readily
predictable failure.
---------------------------------------------------------------------------
\65\ See Christopher J. Lebron, The Color of Our Shame: Race and
Justice in Our Time 46 (2013). In describing the persistence of social
subordination along racial lines even in purportedly neutral economic
transactions like the sale of a home, Lebron observes that, ``the
fundamental move necessary to undermine racial inequality in the
deepest sense is to understand it as the problem of social value--the
fact that Blacks do not occupy equal place in the scheme of normative
attention and concern upon which our society depends in the first place
to justify the distribution of benefits and burdens, as well as to
identify those who are deserving or appropriate recipients.'' Id.
(emphasis in original).
---------------------------------------------------------------------------
Finally, like other market-based forms of privatized social
provision, credit/debt expediently cloaks the significant role of
Government intervention by functioning through Government-subsidized
private channels. \66\ In this sense, it preserves the largely
``obscured'' twotrack, hierarchical arrangement in American social
provision that has bifurcated social welfare along class lines. \67\ It
implicates the pervasive and perverse reputational divide between forms
of Government subsidy in the welfare system that tend to favor hidden
forms of Government subsidy, namely privatized social provision, over
more patent forms such as public assistance. \68\ By invoking the
market, advocates of more privatized, individualized welfare measures,
like credit, seek to reduce, at least nominally, the primacy of the
Government in direct social provision. \69\ For example, the mortgage
interest tax deduction, an ``extravagant'' subsidy that rewards private
homeowners, is less offensive to the American ethos of individualistic
bootstrap-pulling than is a direct subsidy like housing credits for
low-income Americans; yet a Government subsidy by any other name is
still a Government subsidy. \70\
---------------------------------------------------------------------------
\66\ See Chloe N. Thurston, At the Boundaries of Homeownership:
Credit, Discrimination, and the American State (2018).
\67\ Karen M. Tani, States of Dependency: Welfare, Rights, and
American Governance, 1935-1972 (2016).
\68\ See, e.g., Suzanne Mettler, The Government-Citizen Disconnect
6-7, 9-13 (2018); Derek Thompson, ``Busting the Myth of `Welfare Makes
People Lazy' '', Atlantic, (Mar. 8, 2018), https://www.theatlantic.com/
business/archive/2018/03/welfare-childhood/555119/?utm--source=atlfb
(`` `Welfare makes people lazy.' . . . [This notion] is an intellectual
pillar of conservative economic theory, which recommends slashing
programs like Medicaid and cash assistance, partly out of a fear that
self-reliance atrophies in the face of Government assistance.'').
\69\ See Thurston, supra note 66, at 221-22.
\70\ See, e.g., Marie Gottschalk, The Shadow Welfare State: Labor,
Business, and the Politics of Health Care in the United States 1-3
(2000).
---------------------------------------------------------------------------
Conclusion and Recommendations
In sum, credit/debt as social provision conscripts marginalized
groups into the belief that borrowing money can consistently and
meaningfully facilitate social wellbeing, including social mobility. It
draws attention to the aspirational upside of the creditor/debtor
relationship while obscuring the inherent economic and social risk
engendered by the act of borrowing money. \71\ It places the burden and
risk of solving for entrenched and intractable inequality entirely on
marginalized borrowers, unreasonably requiring them to lift themselves
out of socioeconomic distress. \72\ Moreover, credit/debt as social
provision for marginalized groups also opens up a channel of regressive
redistribution, providing a means to extract wealth from the most
socioeconomically vulnerable communities. In this regard, it also
commodifies the adverse conditions that predictably and consistently
churn out individuals and communities who have very limited options and
must borrow to survive and/or to become upwardly mobile.
---------------------------------------------------------------------------
\71\ See, e.g., Mian and Sufi, supra note 41, at 17-24 (describing
the economic consequences of debt on low-wealth households in the Great
Recession).
\72\ See, e.g., Mehrsa Baradaran, ``Jim Crow Credit'', 9 UC Irvine
L. Rev. 887, 943 (2019) 943 (observing that ``the state has repeatedly
placed the burden to close the wealth gap on the Black community
itself.'').
---------------------------------------------------------------------------
Congress can ease these credit/debt-related burdens in any number
of ways. For example, Congress should make the discharge of debt,
including student loan debt more specifically, in bankruptcy much
simpler to provide a backstop for those whose find themselves in
extreme financial distress. \73\ Similarly, Congress should address the
relative lack of transparency requirements imposed on private financial
intermediaries in light of their significance to credit/debt social
provision policy. \74\ Lastly, in recognition that credit/debt and
other privatemarket approaches to social welfare are limited by the
persistence of racial and gender inequality, Congress should shore up
other aspects of social provision that do not rely on a private
entity's ability to make money from the very marginalization that
Congress hopes to solve with the proffer of credit/debt as social
provision. \75\
---------------------------------------------------------------------------
\73\ Katherine Porter, ``The Damage of Debt'', 69 Wash. & Lee L.
Rev. 979, 984-985 (2012) (arguing that bankruptcy policy must be
premised on study of both the economic and non-economic consequences of
debt, particularly in marginalized communities).
\74\ Jason Kelly, ``Everything Is Private Equity Now'', Bloomberg
Businessweek, (Oct. 8, 2019), https://www.bloomberg.com/news/features/
2019-10-03/how-private-equity-works-and-took-over-everything,
(observing that ``[o]ne of PE's superpowers is that it's hard for
outsiders to see and understand the industry'').
\75\ E.g., Nathan Fiala, ``The Problem Is Bigger Than Payday
Loans'', Wash. Post: In Theory (July 1, 2016), https://
www.washingtonpost.com/news/in-theory/wp/2016/07/01/the-problem-is-
bigger-than-paydayloans/? utm--term=.6c0d29bfa235 (``What the U.S.
truly needs are policies that ensure that low-income people don't need
payday loans to begin with.'').
---------------------------------------------------------------------------
Finally, any legislative policy that promotes credit/debt as a
social good for marginalized groups must engage meaningfully with the
consequences of indebtedness. If Congress continues to address problems
of inequality and social mobility, like the wealth gap, through credit/
debt, then its policy must account for the ways in which debt itself
drives the very inequality that democratized borrowing is purportedly
deployed to correct. \76\
---------------------------------------------------------------------------
\76\ E.g., Sarah L. Quinn, American Bonds: How Credit Markets
Shaped a Nation 18 (2019) (observing that ``credit continually carries
forward the prejudices and inequalities of the past,'' and, as a
consequence, ``another way [to] think of the lightness of credit policy
[is] as historically serving the interests of White Americans'').
---------------------------------------------------------------------------
______
PREPARED STATEMENT OF DARRICK HAMILTON
Founding Director, Institute on Race and Political Economy, The New
School
March 4, 2021
Chairman Brown and esteemed Senators, thank you for having me here
today. I am Darrick Hamilton, Henry Cohen Professor of Economics and
Urban Policy and University Professor at The New School and Director of
the Institute on Race and Political Economy.
Racism, sexism and other -isms are not simply irrational prejudices
but long-leveraged strategic mechanisms for exploitation and extraction
that have benefited some at the expense of others.
In a just world, race, gender, ethnicity, and nativity would have
no transactional value in relation to material, psychological or
security outcomes.
This global pandemic actively produces inequality, and the heaviest
toll, (well beyond class), falls on vulnerable racial and gender
identity groups.
The immoral devaluation of Black lives has been ingrained in
America's political economy and is long overdue for a reckoning. It has
long been true that Black families have been denied universal and
quality health care, housing, schooling, financial services, capital,
and free mobility. Instead, they have faced of expropriation, theft,
detention and bodily harm at the hands of state, simply because their
social identities are linked to a vulnerable and stigmatized group.
Many Americans, and Black and Brown families in particular, have
low wealth, inadequate health care, and work in precarious but
``essential'' jobs that have fewer workplace protections, lower wages,
and benefits.
The biggest pre-existing condition of this pandemic is wealth.
Wealthier families are better positioned to finance elite
educations, access capital to start a business, finance expensive
medical procedures, reside in higher amenity neighborhoods, exert
political influence; purchase better counsel if confronted by the legal
system, leave a bequest, and withstand financial hardship resulting
from any emergency, including a global pandemic!
It is critical to note is that it was never the case that a White
asset-based middle class simply emerged. Rather, it was Government
policy, and to a large extent, literal Government giveaways, that
provided Whites with the finance, education, land, and infrastructure
to accumulate and pass down wealth.
Our unjust racial wealth gap is itself an implicit measure of our
racist past that is rooted in a history in which Whites have been the
beneficiaries of Government-facilitated political and economic
interventions that have afforded them access to resources and
intergenerational accumulation.
This is in contrast to a history in which for Blacks (and
Indigenous people), personhood and whatever capital and resources they
may have obtained, have always been vulnerable to Government-complicit
exploitation, confiscation, destruction, terror, fraud, theft and other
acts of violence.
The history of disenfranchisement of Black Americans from full
economic participation is well documented. Policies like redlining,
highway construction, predatory contract-to-own house leasing, and
exclusionary zoning have all worked in tandem with restrictive
covenants and regulatory controls to marginalize Black Americans and
constrain their economic participation and political power.
We use words like ``choice'' and ``freedom'' to describe the
benefits of the ``market,'' but choice is an illusion for individuals
who lack basic needs like a job, adequate income, shelter, food, or
health care.
It is literally wealth that gives us choice, freedom and
optionality.
Economic freedom and authentic agency in rooted in resources. We
are not atomistic agents floating in unfettered markets guided by our
``free will,'' into a ``fair'' and ``efficient'' allocation.
Today, wrongly, discussions of racial wealth gap are often focused
on the so-called poor financial choices and decision-making on the part
of largely Black, Latinx and poor borrowers. This framing is tied to
the ``a culture of poverty thesis'' in which Blacks are presumed to
have undervalue education and to choose to acquire less education than
Whites.
This framing is wrong--the directional emphasis is wrong--it is
more likely that meager economic circumstance--not poor decision making
or deficient knowledge--constrains choice itself and leaves poor
borrowers with little to no financial options, but to attain and use
predatory and abusive financial services.
We need a profound change towards a more sustainable and moral
economy with Government interventions to facilitate assets ownership,
economic security, civic engagement, human dignity, and social mobility
for all our people regardless of their race, class, gender, sexual
identity or immigrant status.
Incrementalism and changes on the margin won't cut it.
We need an industrial, banking and trade policy that centers
workers (both domestically and abroad), coupled with an explicitly
anti-racist and anti-sexist economic rights frame, to promote a moral
economy grounded in our shared prosperity.
There is nothing new or radical about this concept of economic
rights. President Franklin Delano Roosevelt called for ``physical
security.economic security, social security, and moral security.''
He knew that full citizenship demanded more than the political
rights: it required economic rights.
The concept of economic rights also has deep roots in our civil
rights history.
Reverend Dr. King, a leader of the Poor People's Campaign focused
on five tenants of economic rights:
The right to:
A meaningful job at a living wage
A secure and adequate income for all
Access to land
Access to capital
And to be able to play a truly significant role in our
Government (or civic engagement)
Let's discuss financial services.
In their 2015 book, Phishing for Phools (2015), Nobel Laureate
economists George Akerlof and Robert Shiller critique the ``greater
good'' presumption by describing how the profit motive creates
incentives, especially in the financial services industry, for sellers
to manipulate consumers to purchase products whether or not they are
useful to the consumer.
To address this moral hazard, which in a downturn of a business-
cycle puts our economy at risk of financial collapse, Akerlof and
Schiller recommend enhanced consumer knowledge and greater regulation.
We should go further: the public sector should be a direct provider
of basic banking accounts and financial services more broadly.
The sad irony is that those that can least afford finance end up
paying the most for finance.
Households with few assets and low incomes are compelled to turn to
high-cost, unconventional alternative financial products. They
generally are aware that these products are predatory, but they have no
alternatives.
These ``last resort,'' debt traps render recipients ``indentured
borrowers,'' having to pay higher and higher interest and fees until,
ultimately, they default on the original principle.
Congress needs to provide ``public options'' that directly compete
with and crowd-out inferior ``private options.''
We need to reject the empirically unsubstantiated rhetoric that
ignorance, so-called grit, and personal responsibility are the sources
of inequality. And we need to reject the accompanying ``neoliberal
paternalism'' in which Government attempts to coerce or incentivizes
insinuated ``defective people'' to behave accordingly and make better
decision.
Let's change the paradigm, be bold, and advocate for programs and
initiatives that truly empower people with economic security, dignity,
and ``authentic'' agency to define and achieve their goals.
Inequality is not rooted in deficient people, but rather deficient
resource allocation.
Thank you for your time today.
______
PREPARED STATEMENT OF GLENN LOURY
Merton P. Stoltz Professor of Social Sciences, Brown University
March 4, 2021
I appreciate the opportunity to address this crucially important
subject matter before this august assemblage. In these remarks I will
speak to the fact of African American economic subordination, and its
implications for the nature of American democracy. I draw on my many
years of study as economist and public intellectual to briefly make two
observations--about the dynamics of human development, and about the
foundations of racial identity. I conclude with some reservations about
the program of pursuing ``racial equity'' in a multi-racial, multi-
ethnic society. (Here I take ``equity'' to mean not just equal
opportunity for all, but equal results as between designated racial
groups.)
Why, I ask--the success of the civil-rights movement
notwithstanding--has the unequal economic status of Black Americans
persisted into the 21st century? Clear thinking about this intractable
problem requires one to distinguish the role played by discrimination
against Blacks--past and present--from the role of behavior patterns to
be found among some Blacks. This, I admit, puts what is a very
sensitive issue rather starkly. Many vocal advocates for racial
equality refuse even to consider the possibility that behavior could be
an important factor contributing to our persisting disadvantaged
status. At the same time, some critics--mostly on the right of American
politics--insist that racial discrimination is not an important
determinant of these unequal social outcomes. I will chart a middle
course--acknowledging that anti-Black biases have existed, still exist
to some degree, and should be remedied; but insisting on the imperative
of identifying and reversing those behavior patterns that prevent some
of our people from seizing newly opened opportunities.
These two positions can be recast as causal narratives. Under the
``bias narrative,'' one argues that the root cause of persisting
disparity is racism and White supremacy; we cannot get ahead until they
relent. So, since discrimination is the cause of racial inequality, we
must continue to urge reform of American society toward that end. This,
I hold, is necessary but not sufficient. Under the ``development
narrative,'' by contrast, one emphasizes the need to consider how
people acquire the skills, traits, habits, and orientations that foster
an individual's successful participation in American society. If Black
youngsters do not have the experiences, are not exposed to the
influences, and do not benefit from the resources that foster and
facilitate their human development--to that extent, they may fail to
achieve their full potential. On this view, it is a lack of development
that ultimately causes the stark racial disparities in income, wealth,
education, family structure, and much else.
These two narratives--bias versus development--need not be mutually
exclusive, of course. What is clear, however, is that, in terms of
prescribing intervention and remedy, they point in very different
directions. The bias narrative urges us to demand an end to racism and
to undertake resource transfers to and from people, based on their
racial identities, aimed at reducing wealth and income gaps. By
contrast, the development narrative puts more onus on the
responsibilities of African Americans to act in ways that realize our
full human potential.
So, what are my two observations? Over four decades ago, in my
doctoral dissertation at M.I.T., I had the good fortune to coin the
term ``social capital.'' \1\ I did so by way of contrasting my concept,
``social capital,'' with what economists called ``human capital.''
Human capital theory imports into the study of human inequality an
intellectual framework which had been developed primarily to explain
the investment decisions by firms--a framework that focuses on the
analysis of formal economic transactions. In my thesis I argued that
this framework was inadequate to the problem of accounting for racial
economic disparities. Allow me to explain.
---------------------------------------------------------------------------
\1\ ``Essays in the Theory of the Distribution of Income'', Ph.D.
Thesis, Department of Economics, Massachusetts Institute of Technology,
1976
---------------------------------------------------------------------------
My fundamental point was that associating business with human
investments is merely an analogy, not an identity--particularly if one
seeks to explain persistent racial disparities. Business investments
are transactional. Human investments are essentially relational. So,
important things are overlooked in the human capital approach, things
having to do with informal social relations. My view was, and is, that
the conventional economic theory is incomplete when it comes to
explaining racial disparities. There were two central aspects of this
incompleteness. Thus, my two observations about the dynamics of human
development and the nature of racial identity.
Observation #1
First, I stressed that all human development is socially situated
and mediated. That is, I argued that the development of human beings
occurs inside of social institutions. It takes place as between people,
by way of human interactions. The family, community, school, peer
group--these cultural institutions of human association are where
development is achieved. Resources essential to human development--the
attention that a parent gives to her child for instance--are not
alienable. Developmental resources, for the most part, are not
``commodities.'' The development of human beings is not up for sale.
Rather, structured connections between individuals create the context
within which developmental resources come to be allocated to individual
persons. Opportunity travels along the synapses of these social
networks. People are not machines. Their ``productivities''--that is to
say, the behavioral and cognitive capacities bearing on their social
and economic functioning--are not merely the result of a mechanical
infusion of material resources. Rather, these capacities are the
byproducts of social processes mediated by networks of human
affiliation and connectivity. This was fundamentally important, I
thought and still think, for understanding persistent racial
disparities in America. That was the first point I wanted to make, all
those years ago, about the incompleteness of human capital theory.
Observation #2
My second observation was that what we are calling ``race'' in
America is mainly a social, and only indirectly a biological,
phenomenon. The persistence across generations of racial
differentiation between large groups of people, in an open society
where individuals live in close proximity to one another, provides
irrefutable indirect evidence of a profound separation between the
racially defined networks of social affiliation within that society.
Put directly: there would be no ``races'' in the steady state of any
dynamic social system unless, on a daily basis and in regard to their
most intimate affairs, people paid assiduous attention to the
boundaries separating themselves from racially distinct others.
Over time ``race'' would cease to exist unless people chose to act
in a manner so as biologically to reproduce the variety of phenotypic
expression that constitutes the substance of racial distinction.
I cannot overemphasize this point. We speak casually about ``racial
equality'' and ``racial justice.'' Yet, ``race'' is not something
simply given in nature. Rather, it is socially produced; it is an
equilibrium outcome; it is something we are making; it is endogenous.
It follows that, if the goal is to understand the roots of durable
racial inequalities, we will need to attend in some detail to the
processes that cause ``race'' to persist as a fact in the society under
study, because such processes almost certainly will not be unrelated to
the allocation of developmental resources in that society.
Here, then, is my second observation, in a nutshell: The creation
and reproduction of racial inequality as a social reality in any
society rests on cultural conceptions about identity that are embraced
by people--Blacks and Whites alike--in that society. These are the
convictions people affirm about who they are and about the legitimacy
of conducting intimate relations with racially distinct others. (Here I
do not only mean sexual relations.) That is, racial inequality is
inescapably a cultural phenomenon. It implicates not only the transfer
of resources, but more fundamentally, the decisions we make daily about
with whom to associate and identify. The contrast I drew between human
and social capital all those years ago was rooted in my conviction that
beliefs of this kind ultimately determine the access that people enjoy
to the informal resources required to develop their human potential.
What I called ``social capital'' when I coined that term in 1976 is, on
this view, a critical prerequisite for creating what economists refer
to as ``human capital.'' And such human capital--skills, education,
work experience and social aptitudes--is a key determinant of an
individual's earnings power and capacity to generate and accumulate
wealth. This point is crucial, I believe, if we are to understand the
persistence of racial inequality in America.
The basic fact is that Whites have more wealth than Blacks, however
you measure. Now, partly that's a consequence of history and partly
that's a consequence of ongoing dynamics. People inherit wealth from
their forebears, from their parents, and so on. So, part of that is a
reflection of the past, but part of it is also a reflection of what's
going on in terms of the creation of wealth. Wealth does not simply
fall from the sky. Rather, it must be created. Many people will have
created the wealth that they possess through years of effort and
entrepreneurship and so on.
Moreover, I would question whether narrowing the racial wealth gap
is the right objective for public policy. The issues of low wealth
holdings that should concern us, I think, are largely issues that
transcend the racial categorization. I would be thinking about people
who lack wealth, not about people who are Black with low wealth
holdings. And, to the extent that I thought wealth inequality to be a
problem, I would address that problem across the board and not frame it
in racial terms.
There's looking backwards and there's looking forwards. I am, of
course, aware of the history of racial discrimination in this country.
That history is implicated, of course, in the gaps we observe today.
So, we can look backward as many have done and attempt to calculate and
calibrate what were the impact of redlining, of Jim Crow segregation,
of slavery, of the failure to distribute 40 acres and a mule to the
freedmen and so on, and we could try to do an estimate of what would
wealth be but for that historical thing.
But the other thing is looking forward. Wealth is a stock. Income
is a flow. So, the stock evolves over time under influence from the
flow. We can shift wealth around at a point in time. But we may not
change the steady-state wealth holdings if we don't deal with the flow.
So, that's why I want to say the creation of wealth deserves to be a
part of this conversation. Because, thinking simplistically, but I
think the arithmetic works out, if I don't change the flows, I'm going
to end up back in the same situation after a while, no matter what I
do. That is, unless we address ourselves to enhancing the capacity of
all of our people to create wealth, to develop their productive
capacities and to acquire skills, we will not be addressing the root
causes of the inequalities we can see all around us.
The first unspeakable truth: Downplaying behavioral disparities by race
is actually a ``bluff''
Socially mediated behavioral issues lie at the root of today's
racial inequality problem. They are real and must be faced squarely if
we are to grasp why racial disparities persist. This is a painful
necessity. Activists on the Left of American politics claim that
``White supremacy,'' ``implicit bias,'' and old-fashioned ``anti-Black
racism'' are sufficient to account for Black disadvantage. But this is
a bluff that relies on ``cancel culture'' to be sustained. Those making
such arguments are, in effect, daring you to disagree with them. They
are threatening to ``cancel'' you if you do not accept their account:
You must be a ``racist''; you must believe something is intrinsically
wrong with Black people if you do not attribute pathological behavior
among them to systemic injustice. You must think Blacks are inferior,
for how else could one explain the disparities? ``Blaming the victim''
is the offense they will convict you of, if you're lucky.
I claim this is a dare; a debater's trick. Because, at the end of
the day, what are those folks saying when they declare that ``mass
incarceration'' is ``racism''--that the high number of Blacks in jails
is, self-evidently, a sign of racial antipathy? To respond, ``No. It's
mainly a sign of anti-social behavior by criminals who happen to be
Black,'' one risks being dismissed as a moral reprobate. This is so,
even if the speaker is Black. Just ask Justice Clarence Thomas. Nobody
wants to be cancelled.
But we should all want to stay in touch with reality. Common sense
and much evidence suggest that, on the whole, people are not being
arrested, convicted, and sentenced because of their race. Those in
prison are, in the main, those who have broken the law--who have hurt
others, or stolen things, or otherwise violated the basic behavioral
norms which make civil society possible. Seeing prisons as a racist
conspiracy to confine Black people is an absurd proposition. No serious
person could believe it. Not really. Indeed, it is self-evident that
those taking lives on the streets of St. Louis, Baltimore,
Philadelphia, and Chicago are, to a man, behaving despicably. Moreover,
those bearing the cost of such pathology, almost exclusively, are other
blacks. An ideology that ascribes this violent behavior to racism is
laughable. Of course, this is an unspeakable truth--but no writer or
social critic, of whatever race, should be cancelled for saying so.
Or, consider the educational achievement gap. Anti-racism
advocates, in effect, are daring you to notice that some groups send
their children to elite colleges and universities in outsized numbers
compared to other groups due to the fact that their academic
preparation is magnitudes higher and better and finer. They are daring
you to declare such excellence to be an admirable achievement. One
isn't born knowing these things. One acquires such intellectual mastery
through effort. Why are some youngsters acquiring these skills and
others not? That is a very deep and interesting question, one which I
am quite prepared to entertain. But the simple retort, ``racism'', is
laughable-as if such disparities have nothing to do with behavior, with
cultural patterns, with what peer groups value, with how people spend
their time, with what they identify as being critical to their own
self-respect. Anyone actually believing such nonsense is a fool, I
maintain.
Asians are said, sardonically, according to the politically correct
script, to be a ``model minority.'' Well, as a matter of fact, a pretty
compelling case can be made that ``culture'' is critical to their
success. Read Jennifer Lee and Min Zhou's book, The Asian American
Achievement Paradox. They have interviewed Asian families in Southern
California, trying to learn how these kids get into Dartmouth and
Columbia and Cornell with such high rates. They find that these
families exhibit cultural patterns, embrace values, adopt practices,
engage in behavior, and follow disciplines that orient them in such a
way as to facilitate the achievements of their children. It defies
common sense, as well as the evidence, to assert that they do not or,
conversely, to assert that the paucity of African Americans performing
near the top of the intellectual spectrum--I am talking here about
academic excellence, and about the low relative numbers of Blacks who
exhibit it--has nothing to do with the behavior of black people; that
this outcome is due to institutional forces alone. That, quite frankly,
is an absurdity. No serious person could believe it.
Nor does anybody actually believe that 70 percent of African
American babies being born to a woman without a husband is (1) a good
thing or (2) due to anti-Black racism. People say this, but they don't
believe it. They are bluffing--daring you to observe that the 21st-
century failures of African Americans to take full advantage of the
opportunities created by the 20th century's revolution of civil rights
are palpable and damning. These failures are being denied at every
turn, and these denials are sustained by a threat to ``cancel''
dissenters for being ``racists.'' This position is simply not tenable.
The end of Jim Crow segregation and the advent of the era of equal
rights was transformative for Blacks. And now--a half-century down the
line--we still have these disparities. This is a shameful blight on our
society, I agree. But the plain fact of the matter is that some
considerable responsibility for this sorry state of affairs lies with
Black people ourselves. Dare we Americans acknowledge this?
Leftist critics tout the racial wealth gap. They act as if pointing
to the absence of wealth in the African American community is, ipso
facto, an indictment of the system--even as Black Caribbean and African
immigrants are starting businesses, penetrating the professions,
presenting themselves at Ivy League institutions in outsize numbers,
and so forth. In doing so, they behave like other immigrant groups in
our Nation's past. Yes, they are immigrants, not natives. And yes,
immigration can be positively selective. I acknowledge that. Still,
something is dreadfully wrong when adverse patterns of behavior readily
visible in the native-born Black American population go without being
adequately discussed--to the point that anybody daring to mention them
risks being cancelled as a racist. This bluff can't be sustained
indefinitely. Despite the outcome of the recent election, I believe we
are already beginning to see the collapse of this house of cards.
A second unspeakable truth: ``Structural racism'' isn't an explanation,
it's an empty category
The invocation of ``structural racism'' in political argument is
both a bluff and a bludgeon. It is a bluff in the sense that it offers
an ``explanation'' that is not an explanation at all and, in effect,
dares the listener to come back. So, for example, if someone says,
``There are too many Blacks in prison in the US and that's due to
structural racism,'' what you're being dared to say is, ``No. Blacks
are so many among criminals, and that's why there are so many in
prison. It's their fault, not the system's fault.'' And it is a
bludgeon in the sense that use of the phrase is mainly a rhetorical
move. Users don't even pretend to offer evidence-based arguments beyond
citing the fact of the racial disparity itself. The ``structural
racism'' argument seldom goes into cause and effect. Rather, it asserts
shadowy causes that are never fully specified, let alone demonstrated.
We are all just supposed to know that it's the fault of something
called ``structural racism,'' abetted by an environment of ``White
privilege,'' furthered by an ideology of ``White supremacy'' that
purportedly characterizes our society. It explains everything.
Confronted with any racial disparity, the cause is, ``structural
racism.''
History, I would argue, is rather more complicated than such ``just
so'' stories would suggest. These racial disparities have multiple
interwoven and interacting causes, from culture to politics to
economics, to historical accident to environmental influence and, yes,
also to the nefarious doings of particular actors who may or may not be
``racists,'' as well as systems of law and policy that disadvantage
some groups without having been so intended. I want to know what they
are talking about when they say ``structural racism.'' In effect, use
of the term expresses a disposition. It calls me to solidarity. It asks
for my fealty, for my affirmation of a system of belief. It's a very
mischievous way of talking, especially in a university, although I can
certainly understand why it might work well on Twitter.
Historically oppressed groups, time and again, have evolved notions
of identity that cut against the grain of their society's mainstream. A
culture can develop among them that inhibits talented youngsters from
taking the actions needed to develop that talent. Now, given such a
situation, I wish to ask: Do kids in a racially segregated
dysfunctional peer group simply have the wrong utility functions? It is
a mistake to attribute the dysfunctional behavior of an historically
oppressed group of people to their simply having the wrong preferences
when those their ``preferences'' have emerged from a set of historical
experiences that reflect the larger society's social structures and
activities. Another way of saying this is that when thinking about
group disparities social relations come before economic transactions.
When ethnic communities and their local cultures are not integrated
across boundaries of race in a society--then racial inequalities can
persist. The persistence of racial disparities derives not simply from
discrimination, but more fundamentally from the complex, morally
ambiguous and difficult-to-regulate phenomena that embody and reflect
what people see as the meanings giving significance to their lives, and
from the structure of the social connectivity to which those meanings
give rise.
All of this leads me to an important conclusion: How a diverse
society answers the question, ``Who are WE?'' is a fundamentally
significant issue. It is certainly an important question in the United
States today. Who are WE? Whose country is it? When we talk about
crime, violence, school failure, urban decay, etc., are these matters,
in the back of our minds, that we understand as US against THEM?
Because if it is US against THEM, anything is possible. It becomes
possible to say about those people languishing in the ghettos of our
great cities: ``That's not my country. That's some third world thing.''
(This was actually said during the flood of New Orleans after Hurricane
Katrina in 2005. But it's a lie. Black people in New Orleans had been
there for 250 years. They were not aliens. They were and are as
American as you can get, as American as anybody can be. That was US
down there crawling up on the rooftops. That was US huddled in the
Superdome. That was US.) My point is that these problems are a
quintessentially American affair, not simply a measure of the
inadequacy of ``Black culture.'' They reflect upon OUR social
inadequacy, I wish to argue. And I buttress that argument by observing
the incompleteness of human capital theory, by insisting that human
developmental processes are socially contextualized, and by stressing
the foundational role ``race'' plays in all of this. This is what I
mean when I, being an economist, nevertheless insist on placing
relations before transactions!
Consider the poor central-city dwellers who make up a quarter or so
of the Black American population. Dysfunctional behaviors of many in
this population is certainly part of the problem here. Conservatives'
demand for greater personal responsibility in these quarters is, in my
view, both necessary and proper. And yet, confronted with the despair,
violence, and self-destructive folly of so many people, it is morally
and intellectually superficial in the extreme to argue, as many have
done, that ``those people should just get their acts together like many
of the poor immigrants. If they did we would not have such a horrific
problem in our cities.'' To the contrary, any morally astute response
to the ``social pathology'' of American history's losers should
conclude that, while we cannot change our ignoble past, we need not and
must not be indifferent to contemporary suffering issuing directly from
that past. THEIR culture may be implicated in their difficulties, but
then so too is OUR culture complicit in their troubles: We bear
collective responsibility for the form and texture of our social
relations.
Thus, while we can't ignore the behavioral problems of this so-
called underclass we should discuss and react to them as if we were
talking about our own children, neighbors, and friends, which is to
say: This persisting Black disadvantage is an American tragedy. It is a
national, not merely a communal disgrace. Changing the definition of
the American ``we'' is a first step toward fixing the racial inequality
problem that afflicts our society. That requires seeing ourselves as
all being in the same boat, sharing a common citizenship and a common
humanity. It means fashioning American solutions to American problems--
not partitioning ourselves into rival racial populations among whom
must be brokered some kind of quid pro quo. This requires adjusting
ways of thinking on all sides of the racial divide. Ultimately, we need
to get beyond race and, as Dr. King prophetically envisioned, to ground
civic discourse in an unwavering commitment to trans-racial humanism.
That sounds like a pipedream in today's hyper-racially charged
environment. But I actually believe it is the only way forward.
Achieving a society where all individuals regardless of race are
thought of as being among US, should be the goal. If inequality is a
problem, then let us address it forthrightly. But we should do so on
behalf of a program of human decency, not one of racial equity
There is a fatal contradiction at the heart of the argument for
group equality of social outcomes. In my considered opinion we ought
not to expect this as an outcome, and we ought not to make achieving it
our goal. Equality of opportunity, not equality of results, is the only
defensible public policy goal in my view. The dogged pursuit of equal
results between racial groups across all venues of human endeavor is a
formula for tyranny and yet more racism. Here is why.
Identitarian arguments for group equality posit that we have
different groups--Jews, South Asians, East Asians, Blacks, Latinos,
etc.--and that these groups have identities which deserve to be
acknowledged and respected. When someone tells me, ``I identify as a
member of group X,'' I am given to understand that this is a part of
their personhood which warrants to be respected and given credence. So,
groups are fundamental building blocks of society in this identity-
focused view of the world. It is not a matter of indifference. We are
in these various boxes. Groups matter. A group's culture and heritage
matter to its members--the music they listen to, the food they eat, the
literature they read, the stories they tell their children--all these
things for the identitarians are important and they all vary across
groups.
On the other hand, group-egalitarians presuppose that--absent
injustice--there would be equality of groups across every human
enterprise. But how can that be? Because if groups matter, some people
are going to bounce a basketball 100,000 times a month and other people
are going to bounce it 10,000 times a month. Some people are going to
be drawn to books as a way of experiencing human culture and other
people are going to be more verbal or more spontaneous or whatever it
might be. There are differences between groups. Groups matter after
all. They're not all the same. They don't do the same things, they
don't believe the same things, they don't think the same things, they
don't spend their time in the same ways. So now I have population
groups that have their own integrity, expressing themselves in how they
live their lives, how they raise their children, how they spend their
time. This will inevitably result in different representations of the
groups' members across various human activities. The various groups'
members will not all be involved in academic pursuits, in the business
world, in the professions, or in sports and entertainment to the same
extent. They will not all have the same occupational or professional
profiles.
Now I look out at society and I see a difference between groups in
the proportion who are members of the National Academy of Sciences, who
are tenured faculty members, who are tech entrepreneurs or hedge fund
managers or traders on the floor of the stock exchange. I see
differences in the proportion who are getting PhDs in English
literature, who are small shopkeepers, single parents, or petty
criminals, etc. Groups mattered after all for the identitarians. This
groupness reflects itself to some degree in how people choose to live
their lives. And yet, the egalitarians insist that the society is
unfair unless it yields an equal proportionate representation of these
groups in every human enterprise? That is simply a logical
contradiction. Acting in a determined way on that contradiction can
only to lead to tyranny, to disappointment and to more racism.
For, if we try to flatten the cultural and behavioral distinctions
that are the substance of groupness--if we put everybody into one
social milieu, override parental autonomy and socialize the raising of
our kids--we might be able to flatten the social terrain enough to
achieve equality. But this would be tyrannical. It would extinguish our
autonomy as individual human beings to associate with each other, to
believe and to live as we please. And should such a draconian policy
fail to produce group equality--as seems more likely--we would end-up
with the question: How come there are so many Jews (or Asians, or
``Whites'' or whatever) in medical school, with PhDs in electrical
engineering, in the top 1 percent of the income distribution? That is
ultimately where identity-based group egalitarianism leads. There will
be no end to the quest for group equality if, indeed, group identities
are meaningful and persist. The presumption of group equality in the
face of group distinctions of social organization and culture leads
either to the tyrannical imposition of uniform standards in an attempt
to tamp down the authentic expression of groupness, or to finger-
pointing and suspicion every time some group of people moves ahead of
or falls behind the pack in this or that arena of achievement. A
treacherous presumption will haunt society: that any group disparity
must reflect some intrinsic unfairness that is built into the system.
That is a formula for perpetual conflict, not for ``social justice''.
And it is a temptation which should be resisted.
Thank you.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ABBYE ATKINSON
Q.1. Your testimony speaks to the importance of a strong social
safety net as an alternative to help ease marginalized
communities' reliance on credit/debt to attain economic
mobility. Many anti-poverty advocates believe that a ``housing
first'' approach is the best and most sustainable first step to
reduce poverty and improve economic mobility.
Do you share this view? If not, what aspect of the safety
net do you believe is the best starting point?
A.1. Housing is a basic human need that, if unmet, generates
and perpetuates a host of other challenges, including
entrenched financial insecurity. Consequently, I do believe
that a strong social safety net should prioritize secure and
stable housing for the poor (as it should for all Americans).
In other words, housing is a good place to start when seeking
to reduce poverty and to encourage social mobility. For
example, a recent study shows that ``low-income workers who
were involuntarily removed from their homes--by eviction,
landlord foreclosure, or housing condemnation--subsequently
experienced an involuntary dismissal from their jobs.'' \1\
Thus, by focusing on housing, social safety net programs would
promote stable employment and social mobility.
---------------------------------------------------------------------------
\1\ Matthew Desmond and Carl Gershenson, Housing and Employment
Insecurity Among the Working Poor, 63 Soc. Probs. 46, 46-47 (2016).
Q.2. Your testimony states that systems of credit/debt are
inherently regressive because the poorest Americans end up
paying the most in interest and tend to take the longest to
repay debt burdens. The U.S. method of calculating credit
scores is unique because Americans are generally required to
prove their creditworthiness to access credit, unless they have
someone else with financial means and credit cosign their
application. In many other countries, the burden is reversed,
and people are presumed to be creditworthy until their actions
demonstrate otherwise. In theory, the U.S. adopting such an
approach could help Americans access better loan products at
lower interest rates. Do you believe alternative methodologies
of credit scoring could help, in whole or in part, address some
---------------------------------------------------------------------------
of the concerns around who pays the most in interest?
A.2. Access to credit alone, whether through relaxed credit
scoring or other means, is a not a meaningful solution for the
poorest Americans. The poorest Americans often use credit as a
means to smooth income. Yet, credit is a tool that is useful
for those who can expect to have some means of repaying the
debt they owe in the future. Given the persistent economic
fragility that the working poor experience, for example,
offering credit (even by means of an alternative, more
favorable credit scoring methodology) is not a reasonable means
to address persistent and entrenched poverty. Instead, public
resources would be better spent strengthening other aspects of
the social safety net, including housing initiatives and direct
public assistance.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM ABBYE ATKINSON
Q.1. Professor Atkinson, You write in your testimony that
``Congress should address the relative lack of transparency
requirements imposed on private financial intermediaries in
light of their significance to credit/debt social provision
policy.'' Can you expand on this point by speaking to what some
steps in this direction by Congress could look like?
A.1. One important step Congress could take would be to
increase transparency requirements for private equity funds
given their significant incursion into the consumer lending
sector and their capacity as de facto stewards of American
retirement security. On behalf of their institutional
investors, including various pension funds, private equity
funds invest significantly in various aspects of consumer
lending, including in subprime consumer lending like small
dollar installment loans. Currently, however, private equity
firms are accorded significant latitude, escaping several
mandated disclosures that have been an important feature of
American securities law since the Great Depression. For
example, Rule 506 of Regulation D (of Section 4(a)(2) of the
Securities Act of 1933) presently permits private equity firms
to sell shares in their funds to as many ``accredited
investors'' as they'd like, without meaningful SEC oversight.
Given their practical significance in the solvency of an
important pillar of American social welfare and their
significant incursion into consumer credit markets, private
equity firms should be subject to greater regulation of their
internal processes.
In that regard, several members of Congress have already
proposed such increased oversight in the Stop Wall Street
Looting Act of 2019. Proposed by Senators Warren, Baldwin, and
Brown, and Representatives Pocan and Jayapal, this legislation
was referred to the Senate Committee on Finance on July 17,
2019.
Additional Material Supplied for the Record
BUILDING AN EQUITABLE RECOVERY: THE ROLE OF RACE, LABOR MARKETS, AND
EDUCATION
HIDDEN RULES OF RACE ARE EMBEDDED IN THE NEW TAX LAW
LETTER SUBMITTTED BY LIBERATION IN A GENERATION
NEOLIBERALISM AND RACE
PATHWAYS--STATE OF THE UNION: HOUSING