Housing and wealth inequality

In the last 50 years, the two societies have become even more unequal. Although a relatively small black middle class has been permitted to integrate itself into mainstream America, those left behind are more segregated now than they were in 1968.
When the Kerner Commission blamed “white society” and “white institutions,” it employed euphemisms to avoid naming the culprits everyone knew at the time. It was not a vague white society that created ghettos but government—federal, state, and local—that employed explicitly racial laws, policies, and regulations to ensure that black Americans would live impoverished, and separately from whites. Baltimore’s ghetto was not created by private discrimination, income differences, personal preferences, or demographic trends, but by purposeful action of government in violation of the Fifth, Thirteenth, and Fourteenth Amendments. These constitutional violations have never been remedied, and we are paying the price in the violence we saw this week.
Nationwide, black family incomes are now about 60 percent of white family incomes, but black household wealth is only about 5 percent of white household wealth. In Baltimore and elsewhere, the distressed condition of African American working- and lower-middle-class families is almost entirely attributable to federal policy that prohibited black families from accumulating housing equity during the suburban boom that moved white families into single-family homes from the mid-1930s to the mid-1960s—and thus from bequeathing that wealth to their children and grandchildren, as white suburbanites have done.

A must read on all the policies that have entrenched and amplified segregation in Baltimore. If we learned nothing from The Wire we should have learned that the forces aligned against the black population in Baltimore was structural, built in to our institutions, and not just the work of a few pernicious people. The whole environment is hostile, toxic.

Baltimore, not at all uniquely, has experienced a century of public policy designed, consciously so, to segregate and impoverish its black population. A legacy of these policies is the rioting we have seen in Baltimore. Whether after the 1967 wave of riots that led to the Kerner Commission report, after the 1992 Los Angeles riot that followed the acquittal of police officers who beat Rodney King, or after the recent wave of confrontations and vandalism following police killings of black men, community leaders typically say, properly, that violence isn’t the answer and that after peace is restored, we can deal with the underlying problems. We never do so.
Certainly, African American citizens of Baltimore were provoked by aggressive, hostile, even murderous policing, but Spiro Agnew had it right. Without suburban integration, something barely on today’s public policy agenda, ghetto conditions will persist, giving rise to aggressive policing and the riots that inevitably ensue. Like Ferguson before it, Baltimore will not be the last such conflagration the nation needlessly experiences.

This ties closely with a 2014 paper (PDF) from MIT grad student Matthew Rognlie that argues that what's responsible for the rise in wealth inequality is not, as Piketty argues, r - g, but instead the ability for the wealthy to capture outsized returns on housing and to pass that wealth on to future generations through that real estate. 1

  1. Rognlie's paper, fascinatingly, began as a comment on economics blog Marginal Revolution on a post about Krugman's review of Piketty (search for “Rognlie” on that post to see his two comments that launched, if not a revolution, at least an intellectual salvo). Here is a great profile of Rognlie and the story of how his comment turned into a paper that was the talk of the economics world.

At the heart of Rognlie and Piketty's debate is how easy it will be for capital to substitute for labor in the future. Today it is still difficult, and thus Rognlie's prediction that the marginal returns to capital is still sound. Until robots can replace humans in more tasks, that should hold. In that environment, our best bet to decrease wealth inequality is to fight NIMBY-ism, loosen development codes, and build more housing.