Thursday, September 3, 2009

Dangerous Discourse About the Financial Collapse and Poverty Among Minorities

Several weeks ago, I purchased a book, “Animal Spirits", written by George A Akerlof, the Koshland Professor of Economics at the University of California at Berkeley, and Robert Shiller, the Arthur M. Okun Professor of Economics at the Cowles Foundation for Research in Economics, and Professor of Finance at the International Center for Finance at Yale University. The book, subtitled “How Human Psychology Drives the Economy, And Why It Matters for Global Capitalism”, was published this year by Princeton University Press. In the book’s preface, the authors explain that they draw “on an emerging field called behavioral economics” to describe “how the economy really works.” They claim to explain “why ignorance of how the economy really works has led to the current state of the world economy….”

After looking at the Table of Contents, I decided to read the book’s penultimate chapter first. This chapter, “Why Is There Special Poverty among Minorities?” especially appealed to me because of my interest in the intersection of business and economic issues with racial justice concerns. I was both surprised and pleased to see that a discussion about economics would include consideration of the unique issues with which people of color grapple. In my experience, most discussions about race fail to include an examination of business and economic factors, and almost all of the discourse about business and economics ignores the significance of race and racism in American society.

To say that I was disappointed in this chapter would be a gross understatement. The authors attempted to explain the persistent and seemingly intractable problem of poverty among African Americans without mentioning the economics, behavioral or otherwise, of centuries of slavery and generations of overtly racist economic policies in the decades after slavery ended. Perhaps, I thought while reading the chapter, the authors intended to deal only with recent phenomena that precipitated the current crisis. Maybe delving into an historical account of slavery’s present-day impact was beyond the scope of the book. As I read the short chapter, I searched in vain for some brief explication about this nation’s recent experiences with predatory subprime lending and its impact on communities of color. The authors never mentioned predatory lending. They wrote a chapter about poverty and minorities and the recent financial crisis without mentioning the fact that predatory lending drained billions of dollars from communities of color. They said nothing about predatory lending’s contribution to the destruction of an already fragile black middle class. The authors omitted any discussion of the fact that predatory lenders, some of them public companies and major financial institutions, targeted Black and Latino communities.

What did the authors say in this chapter? They talked about the impact of communal stories and the way narratives create insider and outsider groups – a we and a they. And then, the authors told a story about a group of black men “who hang around a carry-out store in one of Washington’s most blighted neighborhoods.” The authors describe the stories of the lives of these men, and the anger with which they live. They describe a “knife fight” between two of the men, and the refusal of some to commit to long-term relationships with the women in their lives. The authors tell stories of the employment opportunities that some of the men squander. One of the men cheats on his girlfriend and slaps her in an argument. In other words, the authors perpetuate the kind of stereotypes and narratives that inflame racial strife. The stories of these men do not explain the problem of poverty among African Americans. This problem cannot be explained without understanding slavery’s legacy and the recent targeting of Black and Latino communities by predatory lenders.


  1. Thank you for your post Professor Wade. This is powerful. I agree that we have to examine the impact of centuries of slavery and separtist policy on the lives of current African-Americans. It is a slap in the face to see such stereotypes perpetuated.

  2. I have two presentations this month where (one at Utah and the other at Washburn) I will address this issue in depth.

    My central thesis is that America still wears racial blinders, and that has caused tremendous economic costs.

    Subprime lending and predatory lending was concentrated in, and targeted at, minority communities. Many minority borrowers were steered into subprime loans, often fraudulently. The failure of regulatory authorities to intervene is a direct result of racial blindness.

    Racial stigma is the only reason why Americans could accept this outcome, as well as the persistent racial disparities in economic outcomes and educational opportunities that created fertile ground for predatory lending.

    Indeed, the very construction of the global economic (dis)order is the result of blindness to continued racial oppression. How could governing elites build globalization on a mountain of debt needed to create sufficient consumption despite stagnate (even contracting) wages that was a direct outcome of globalization built upon ever cheaper labor?

    The decisions about the contours of globalization were made in board rooms that were overwhelmingly white and male. Those board rooms were dominated by white male CEOs that used affinity bias to fatten their pay checks, at the expense of sustainable risk levels for their firms. There were no voices of opposition raising the issue of long term shareholder wealth maximization, much less long term societal wealth maximization.

    A narrow governing elite will give rise to narrow policies with narrow beneficiaries.

    That sums up how we got into this mess.

    We now need affirmative action to diversify our elite and diversify economic opportunity.

    More to come. . .

  3. PS: Thank you for that great post Cheryl!