Freakonomics Radio - 426. Should America (and FIFA) Pay Reparations?

Episode Date: July 16, 2020

The racial wealth gap in the U.S. is massive. We explore the causes, consequences, and potential solutions. Also: another story of discrimination and economic disparity, this one perpetrated by an international sporting authority. The first of a two-part series.

Today on Freakonomics Radio, what can a ladies' soccer team from early 20th century England teach us about the racial wealth gap in 21st century America? How is the famous suburb of Levittown, New York, a textbook example of de jure discrimination? And are reparations for slavery an idea whose time has come? We will hear arguments in favor. So the material redress would, in a retrospective way, bring about justice by affecting the racial wealth gap. Arguments against.

Do we in America in the 21st century really want to construct a social security magnitude social intervention based on race. And a hat full of other ideas to address the wealth gap. We need an affirmative action program in housing. Baby bonds is an idea from people as far back as Thomas Paine. We'll do our best to avoid empty sloganeering. I think you're playing with words and avoiding the hard work of trying to discover complex historical causal chains. And we may end up poking a bear or two.

It's not letting white people off the hook or America off the hook for its historical crimes, to observe that some of the stuff that's holding us back is within our reach to be able to deal with. The first of a two-part episode starting right after this. From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. The story we're telling over the next couple episodes will have some twists and turns. So where shall we start? The story really starts in the First World War when the men were off fighting at the front and women were brought into factory work. And there was a factory which made railway locomotives called Dick Kerr.

The Dick Kerr factory was in Preston, England, north of Liverpool. And the women in that factory decided to challenge the men to a game of soccer. Soccer, or football, was already incredibly popular in England, at least among men. Now, the Dick Kerr ladies formed a team. And it turned out to be very popular. And so the women started playing more and more games. They did this to raise money for the troops at the front. And they continued this throughout the war.

When the war ended, they carried on. And again, they played for charity. In December of 1920, for instance. They played a game at the ground of Everton Football Club in Liverpool, Goodison Park. This was against another women's team called the St. Helens Ladies. And they attracted a crowd of 53,000 people, which was a complete sellout crowd. The Dick Kerr Ladies won, 4-0. And a sort of crowd very few men's teams could have attracted at the time.

Oh, this, by the way, is Stefan Szymanski. Right. He's an economist at the University of Michigan. I'm the soccer guy. People say, if there's an economics of soccer issue, they say, Stefan, he's your guy. And today, Stefan's our guy, because the story of the Dick Kerr ladies' soccer team is indeed an economic story. I should say here, a lot of what I'm telling you is based on a book by Gail Newsham. So I do want to give her credit.

The book is called, in a league of their own, the story of the Dick Kerr ladies' football team. Who were their opponents at this time? Was it other women's teams? Was it men's teams? Were they other teams from other factories? Were they semi-professional? All of the above. They would play exhibition games.

They started playing against foreign national teams. Women were playing other sports like tennis and golf and so on. And so this was a point when the sport might really have taken off and women's soccer become a sport in its own right. But it didn't. Why? Remember, men's soccer in England was already well established with many levels of professional, semi-professional and amateur teams. The overseer of the sport was called the Football Association, or the FA. The Football Association is the governing body of soccer in England, and it was founded in 1863. So it's important to say that already the FA was discouraging women's soccer. So back as far as 1902, they'd suggested

that their affiliated organisations ought not to permit games against lady teams. So what happened after that match in 1920 when the Dick Kerr ladies team drew more than 50,000 fans at Everton's home park? The owners of the men's professional teams complained about the game at Everton because they saw it as a threat. If women's soccer became popular and could attract those kinds of gates, that would take away from the men's professional team. They persuaded the FA to pass a resolution and the resolution read as follows. Complaints having been made as to football being played by women, the council feels impelled to express their strong opinion that the game of football is quite unsuitable for females and ought not to be encouraged. For these reasons, the council requests the clubs belonging to the

association to refuse the use of their grounds for such matches. And that was the ban. That was the ban. A ban on women playing soccer in England, and not just in the professional arena. Because women couldn't play. And not only women could play, girls couldn't play at school. There were no girls teams in schools, because all the schools are affiliated to the Football Association as well. So really, this ban rooted out the possibility of women's soccer in England and in other countries for more than half a century. Why were females forbidden to play in other countries as well? Because the English Football Association was the most powerful member of the

International Football Association, known as FIFA. You've probably heard about FIFA, yes? FIFA is a famously corrupt organization. FIFA runs the World Cup. There have been endless scandals about bribery and corruption within the FIFA organization. FIFA's previous president, Sepp Blatter, was pushed out in 2015. And people hoped that this would bring in a new generation of transparency and openness, but it seems to have actually gotten worse. So it's a very troubled and non-transparent institution.

Okay, we've gotten a bit ahead of ourselves, but here's the point. Back in 1921, it was England's Football Association that declared the ban on ladies' football. But it was ultimately supported by FIFA. So the most important thing to understand about women's soccer is that FIFA banned it until 1971. So essentially, any organization that was associated with FIFA, if it allowed women to use their facilities, then they would be excluded from FIFA. Ladies soccer died out completely. For half a century, there's little or no evidence of it being played. History is, of course, full of such ruptures, intentional or otherwise. Some are mere wrinkles

in the human timeline. Others are cause for indignation or far worse. Some ruptures are irrevocable. Others are repaired over time. In either case, how do you measure the counterfactual? How do you account for what might have happened had the rupture not occurred? Here is Stefan Cheminsky's guess. I think if they hadn't been banned, women's soccer today would be like women's tennis. There would be organized leagues playing commercially, and it would be a global phenomenon.

There are professional women's soccer leagues in many places, but their audience is rather small compared to the men's game, which is the most popular sport on Earth. According to FIFA, roughly one of every two humans watched at least part of the men's game, which is the most popular sport on Earth. According to FIFA, roughly one of every two humans watched at least part of the men's 2018 World Cup. As for women's soccer being a global phenomenon? Well, every four years it is, or at least it seems to be, if you live in America.

The three-time world champions take on the European champions. Last year, the U.S. women's national team faced the Dutch women in the World Cup final in France. Lovely run, great goal! Brilliant goal! The final score, 2-0. The United States of America

are crowned champions of the world. It was the U.S. women's fourth World Cup victory. And for the very first time, they've done it on European soil. Well, the US Women's National Soccer Team is undoubtedly the greatest team on earth and has been for some time now. Since the Women's World Cup started in 1991, the US women have been in the final pretty much every time, and they've won the championship more than any other country.

So the U.S. women are world beaters, year in and year out. How about the U.S. men's national team? The U.S. men's national soccer team has had a relatively poor history, to be frank. In the most recent men's World Cup, the U.S. team failed to reach the 32-team field. They were eliminated by Trinidad and Tobago. Trinidad and Tobago has a population of 1.4 million, the U.S. 330 million. To be fair, a lot of small countries punch above their weight in soccer because in many places it is the primary sport. In the U.S., men's soccer competes against the NFL, the NBA, Major League Baseball, and more. Women's soccer, meanwhile, is far more prominent in the U.S. than in most other countries. So you might think the Women's Professional League in America, the NWSL, would pay well.

I asked Stefan Szymanski how NWSL salaries compare to the U.S. Men's Pro League, MLS. So the median salary in the MLS is just under $200,000. And the median salary in the NWSL is around $30,000. So that's quite a big gap. A big gap indeed, although quite typical for men's versus women's sports. Tennis is the outlier in the major tournaments. At least men and women get equal prize money. But look at pro basketball.

Last year, NBA players made on average about $7.5 million a piece. The WNBA average was $116,000. How are these wages determined? As we all know, wages are typically set by some combination of supply and demand, along with other factors like risk and productivity. In most industries, supply and demand create what seems like a sensible equilibrium that produces a sensible wage. But pro sports is a bit different.

Like other fields of entertainment, it's more of a tournament model, with a handful of big winners who win really big. Are the big winners really that much better than the ones who don't even get into the arena? Consider Beyonce. Last year, she earned about $80 million. I'm sure she worked very hard and she's super talented, but is she 1,000 times more talented? Did she work 1,000 times harder than, say, a singer who records in her basement and maybe runs her church choir and teaches music in an elementary school? The actor Bradley Cooper made about $57 million last year. Cooper really $56.95 million nicer and better looking and more talented than some other actor who's making $50,000 a year, tips included? There's been a lot of conversation the last couple decades about equal pay for equal work. If two people are doing pretty much the same job,

shouldn't they make the same money? Shouldn't a woman make the same as a man if they're doing the same work? Shouldn't a non-white person make the same as a white person if they're doing the same work? Of course, you do have to factor in the quality of their work and their productivity. In some jobs, quality and productivity are tricky to measure. Think about a school teacher or a politician. But other fields lend themselves to this sort of measurement incredibly well. Right. Fields like sports. Well, sports are special in many ways because productivity is something that's easy to

identify. You can see how good somebody is. You can see how much they contribute to winning and so forth. And you can measure that quite accurately, which is generally the problem when I'm thinking about pay in most workplace circumstances. So what do sports economists like Stefan Szymanski know about the relationship between productivity and pay in sports? What we know is that there are very close correlations for men between their productivity and what they get paid. And there are also reasonably close correlations between the productivity of women in the sports that they play and what they get paid. Where there's a difference, though, is that women tend to get paid less, sometimes a lot less than the men playing the comparable sport.

Yes, that does seem to be wildly true. Now, you could point to the demand component of wages. It is clear that for whatever reason, many more people watch men play basketball than watch women. This leads to more revenue on the men's side, some of which is distributed as wages. But how would you like it if your wage were set primarily by the demand for your services? Demand is largely out of your control. What you can control is your productivity. So how should your wage be set even if you are plainly more productive than another worker, but demand is lower. This brings us back to the U.S. Women's National Soccer Team, the winners of four World Cups, which is half of all

the Women's World Cups ever held, including the most recent one in France. The U.S. Women's team was in the news not only for their dominant performance, but afterward for their frustration with how they are compensated. This morning, negotiations breaking down between women's soccer and the U.S. Soccer Federation over the fight for equal pay. Here is co-captain Megan Rapinoe. I think it's fair for us to ask that when we play a game and we win that game, or we tie that game or we lose that game, that we should be paid the same as our male counterparts. Equal rights! Equal rights!

Even before their latest World Cup victory, the women had filed a lawsuit seeking higher pay. The female players have been consistently paid less money than their male counterparts, the suit read. This is true even though their performance has been superior to that of the male players. Yeah, so the women initially tried to go to arbitration over their compensation, and that then morphed into a lawsuit under the Equal Pay Act, and the women claiming they were being paid less for equivalent work than the men. The main issue really is the recognition of the superior level of performance of the U.S. women compared to the U.S. men. In May of this year, a judge ruled against the women, noting that they had actually earned more than the men once you include World Cup prize money,

although the judge did allow to proceed a narrower claim of discriminatory workplace conditions. The women intend to appeal the ruling on wage discrimination since the reason they earned that money was that they won the World Cup, while the U.S. men didn't even qualify for their World Cup. So it follows that the women would earn more. But the argument was that they earned far less than the men would have earned if they had won their World Cup. A large part of the pay for the players appearing in the World Cup comes from the prize money distributed by FIFA.

FIFA, remember, is the historically corrupt and opaque but nevertheless omnipotent governing body of soccer? FIFA allocated $440 million as prize money to be shared amongst the competing teams for the Men's World Cup, but only $30 million for the women. So in terms of the US national teams, for example, in terms of reaching the quarterfinal, which the US men don't and which the US women always do, getting to the quarterfinals for the last World Cup would have been worth over $550,000 to the men, but only $90,000 to the women. Okay, so the total revenue pool, $440 million for the men's, that's all countries in the men's World Cup finals, versus $30 million. Those numbers are derived from what? In other words,

does the men's World Cup earn something like 14, 15 times what the women's does? Well, one of the problems with evaluating parity between men and women is FIFA doesn't even really offer very clear data on how much money the Women's World Cup generates. We know the Men's World Cup generates about $6 billion, and the Women's World Cup presumably generates significantly less than that. However, many people have observed that this is partly a failing of promotion on the part of FIFA. A failing of promotion on the part of FIFA. In other words, women's soccer might be a lot more valuable if FIFA and other institutions had been growing the game the way men's soccer has been grown, or at the very least, not

forbidding women to participate for 50 years. So the most important thing to understand about women's soccer is that FIFA banned it until 1971. And this brings us back, finally, I know, to the ladies' soccer team of the Dick Kerr Locomotive Factory. When the male soccer fraternity banned women from playing in 1921, it effectively quashed the competition. They can't organize themselves. They can't create the competition. They can't organize themselves,

they can't create a following, they can't attract investors, they can't do anything that a commercial business might do in order to grow something for which there's a demand. So, Stephan, you're an economist, and you guys are always teaching us that competition is what makes markets thrive. But throughout history, we see that many firms who subscribe to economic theory when it's good for them, when they see competition that they think is not good for them, all of a sudden they don't want economics to work the way it's supposed to work, or they don't want the competition. I'm curious whether this resolution against women's teams calls to mind any examples from history, other economic competition that was

attempted to be shut down by some existing guild? Well, to me as an economist, this sounds like an antitrust case. So antitrust is a set of laws which specifically intended to prohibit businesses from stopping other businesses from competing against them. And these laws were enforced fairly rigorously. If they'd had an antitrust suit back in the 1920s and won it, then they could have stopped this dead in the tracks and history would have been different. But what people will say now is, well, you know, who are we going to prosecute? How are we going to hold someone responsible? And that's obviously problematic. But on the other hand, if you have a clearly identified wrong, which has clear consequences,

I think something should be done about it. And what do you think should be done about it? Well, I believe that the right answer here is reparations. I think women's soccer can grow now, even with the handicap it had for half a century, into being a fully competitive, self-sustaining enterprise. But it needs a lot of support to make up for that 50 years of ban. And I think the soccer authorities that grew rich with men's soccer should be diverting significant amount of their resources into women's soccer. Reparations have historically been paid by the losers of a war. Napoleonic France, after its defeat at Waterloo, paid reparations to Austria, Russia, Britain, and Prussia. Germany was forced to pay reparations after its defeat in World War I and again after World War II, including to Jewish survivors of the Holocaust and to the State of Israel to help fund

its establishment. The definition of reparations has expanded since then. Today, there are calls for retroactive reparations for human rights violations, lost opportunity, and lost wages, as in the calls for reparations surrounding slavery and racial discrimination in the United States. I think the concept of reparations is something that we need to explore. We've reached a stage of acknowledging significant injustices in our society, long-term injustices that have been perpetrated. And the question is now, what do we do about that? In the US, there have been calls for years for reparations to address the moral and financial injustices of slavery. Those calls have recently been amplified by at least three things. The

protests following the police killing of George Floyd, a black man in Minneapolis, the COVID-19 pandemic, which has claimed a disproportionate number of black lives, and the economic fallout of the pandemic, which has disproportionately affected black Americans, especially low-income black Americans. One new study has found that employment for people in the bottom quintile of the wage distribution has fallen by 30% compared with just a 5% drop among those in the top quintile. The rich may not be, for the time being, getting richer, but the poor are definitely getting poorer. And the racial divisions of wealth in America are incredibly stark.

The racial wealth gap is such that the typical black family has about 10 cents on the dollar as a typical white family. That's Derek Hamilton, an economist at Ohio State University. The magnitude of the racial wealth gap at the median is about $150,000. If we look at the mean difference, it becomes even more dramatic. The actual disparity is around $800,000. In essence, about 85% of the black population would be below the median wealth in America, below the median. Coming up after the break, we'll hear about the causes and consequences of this massive wealth gap, what Hamilton thinks should be done about it, and why not everyone agrees with him.

Also, if you haven't subscribed yet to our new spinoff podcast, No Stupid Questions, I hope you'll do that right now. You are listening to Freakonomics Radio. I'm Stephen Dubner. We'll be right back. Derek Hamilton runs the Kirwan Institute for the Study of Race and Ethnicity at Ohio State University. And it's spelled D-A-R-R-I-C-K and then Hamilton, H-A-M-I-L-T-O-N. Hamilton has consulted for the presidential campaigns of Bernie Sanders, Elizabeth Warren, and Kamala Harris. He says that even before COVID, even before George Floyd, 2020 was already looking like the year that the racial

wealth gap would get a lot of attention. Race has been treated as a periphery issue. A lot of economics, whether it's Marxian economics, whether it's mainstream economics, reverts to some class-based understanding of inequality or some human capital-based understanding as if we are simply atomistic individual agents without a real good understanding of structural context. Hamilton studies what has come to be called stratification economics. Stratification economics is in response to mainstream economics not doing a good job of explaining persisting group-based inequality. In my work, along with many others, we find that race, gender, immigrant status, group identity in general is not something on the periphery, but is a pillar, is a pivot to how we understand political

economy. So we take it head on. We try to understand the ways in which hierarchies are created and maintained. Hamilton is Black and has firsthand experience with the disparities that exist between groups. It would be melodramatic to say a tale of two cities, but I did grow up in Bedford-Skyverson. That's a neighborhood in Brooklyn not known, especially back then, for its prosperity. And I went to a fairly elite private school, Brooklyn Friends School. I lost both of my parents when I was in high school, one during my junior year and the other during my senior year. They had both worked for the city of New York, and they held other jobs on the side.

So technically, I was a ward of the court at that point. But I was going to an elite private school, like I mentioned, and lived with my sister. So I was never institutionalized. I would be remiss not to say that that has had influence on my desire to promote justice because I believe that the loss of my parents was largely due to social conditions that they faced in life, stress, and trying to ensure that their children had a better life. Hamilton originally studied economics to build a better life for himself. I thought economics would be a good feeder major to law school or business school. But the reality was that I was not motivated to go to business or law school and that I became very fond of the academy. And also, I began to fall in love with the approach that economists have to try and study subject matter, the idea of trying to maximize some objective function subject to constraints. So it was a very structured approach to problem solving.

One big problem that Hamilton is intent on solving, or at least addressing, is the gap in wealth between white and black Americans. Now, the black-white income gap is already substantial. Even when controlling for factors like age and gender, black workers on average earn 15% less than whites. That gap has been growing lately and is set to grow even more with automation disproportionately affecting black workers. But Hamilton says this income gap is only the first layer of the problem.

Think about income in comparison to wealth. Income is a flow. Income allows us in one period of time be able to pay our bills, be able to have subsistence in our life. But wealth, wealth as a concept, wealth as an indicator, allows you to take risk. It funds and seeds any ingenuity you might have. And it also allows you to finance big purchase items like an expensive education. It allows you to, if you're confronted with a criminal justice system, be able to hire the best counsel possible. It allows you, if you're confronted with a medical issue and your insurance is not up to par, it allows you to be able to deal with that health issue without the risk of going bankrupt.

Effort matters. Ingenuity matters. But effort and ingenuity is limited and, frankly, plays a minuscule role if you have no capital to begin with. The main determinant of wealth is wealth itself. The old adage that wealth begets more wealth, I think that's accurate. The origins of the black-white wealth gap plainly date back to slavery. But that history of racial disparity as it relates to wealth building certainly didn't end with slavery. There was the Homestead Act. There was the GI Bill. There was a system of sharecropping. There's a system of Jim Crow. There is a system of redlining. It was government

facilitated. Government was so heavily involved in the creation of segregation that it's what lawyers called de jure segregation, unconstitutional segregation created by government in violation of the Fifth and Fourteenth Amendments to the Constitution. That is the historian Richard Rothstein. He's the author of The Color of Law, a forgotten history of how our government segregated America. Rothstein sets de jure segregation against de facto segregation, which is the result of private actions and personal choices.

American policies of de jure segregation, he says. The policies were so numerous, so interwoven, so mutually reinforcing that I concluded that the notion of de facto segregation was unreal. It was not accurate. Government-sponsored segregation in housing, what came to be called redlining, goes back to the Great Depression and the New Deal.

The federal government was not involved in housing prior to the New Deal. The first federal involvement in the civilian housing market was one of the first New Deal agencies, the Public Works Administration, that built the first public housing in this country for civilians. This was public housing for middle-class workers, not for poor people. We had enormous unemployment in the Depression. 25% of the workforce was unemployed. The public housing was for the 75% who had good jobs, could afford housing, but for whom no housing was available because there was no construction going on.

There was an enormous housing shortage. Public housing was often segregated by local government housing agencies. And then another agency was established, the Federal Housing Administration, that was designed to issue long-term amortized mortgages to new homeowners, first-time homeowners. The FHA also guaranteed construction loans and subsidized the development of suburbs outside of cities like San Francisco and Chicago and New York. Well, Levittown is a good example. That's on Long Island, New York. Levittown was 17,000 affordable homes, primarily for World War II veterans and

their families. Think of your quintessential mid-century tract housing. The kind satirized even back then by the folk singer Malvina Reynolds. The builder of Levittown, William Levitt, was a bigot. If left to his own devices, he would not have sold to African Americans in Levittown. But this was not de facto segregation. In other words, Levittown was built almost exclusively for whites, but Levitt's bigotry wasn't the cause. William Levitt could not get any bank to lend him the money to buy the land or construct that development.

The only way that Levitt could build Levittown was by going to the Federal Housing Administration, submitting his plans for Levittown. If the Federal Housing Administration had said to Levitt, well, we'll guarantee your bank loan, but you have to sell those homes on a non-discriminatory basis, Levitt might not have liked it, but Levittown would have been an integrated development.

And they all have pretty children And the children go to school might not have liked it, but Levittown would have been an integrated development. But that's not how it happened. As Rothstein says, Levitt had to submit his plans to the FHA. The plans included the architectural design, the layout of the streets, the materials he was going to use, and a commitment he made to the Federal Housing Administration never to sell a home to an African-American. Yes, you heard that right. A commitment he made to the Federal Housing Administration never to sell a home to an African-American. And that wasn't the worst of it. The Federal Housing Administration even required Levitt and these builders all over the country

to place a clause in the deed of every home, prohibiting resale to African Americans or rental to African Americans. And they're all made out of tiki-taki and they all look just the same. And that, Rothstein says, is what de jure segregation looks like. The fact that this happened under the Democratic administration of Franklin Roosevelt may surprise some modern Democrats, but it shouldn't. The Democratic Party nationally, not just Southern Democrats, was a party of segregation. There were political considerations in the Roosevelt administration when it implemented policies of segregation. There was a was afraid of opposition from Northern Democrats,

not Southern Democrats, when it segregated programs in the Northern states. You have to remember that the Democratic Party, up until 1936, had very little African-American support. In 1932, African-Americans voted for Hoover, not for Roosevelt. The Republican Party was the party of Lincoln, the emancipated slaves. The Democratic Party was a party of segregation.

White families fled cities en masse for these new suburban communities like Levittown. The homes were very inexpensive. They sold when they were built for about $8,000, $9,000. That's roughly $100,000 in today's money. Any working class family, black or white, could have afforded to buy a home like that at that price. Returning war veterans were not even required to make a down payment. But of course, black families weren't allowed in a suburb like Levittown. And what are those homes worth today? Those homes now sell for $300,000, $400,000, $500,000, in some cases more. The white families gained wealth from the equity appreciation and the value of their homes. The day's redlining continued even after President John F. Kennedy issued an executive order in 1962 prohibiting federal agencies from subsidizing racial segregation. In 1968, Congress passed the Fair Housing Act, which gave the executive order some teeth, but the economic damage to Black families had already been done. The suburbs that were created in the mid-1950s, for example, are now, in theory, open to African Americans.

Those suburbs are now unaffordable to whites or blacks who are working class, lower middle class. So simply saying, as the Fair Housing Act says, that the prohibitions that the federal government imposed on African-Americans living in these communities are no longer in effect. It doesn't do much to undo them. Economists have long pointed to home ownership as a major avenue for building family wealth. For white Americans, 32% of their net worth is in their home equity. For Blacks, it's even higher, 37%. But the percentage of net worth doesn't tell the whole story. The average housing wealth for Whites

is $215,000. For Blacks, just $94,000. To Rothstein, this disparity goes back to redlining policy. The White families created wealth, gained wealth through home ownership because they lived in communities with appreciating housing values. And so they gained equity in homes without further investing in those homes. African-American homeowners typically have not gained such wealth because their communities have not appreciated it in the same way. Then there was a series of legislation in the 90s, both the Clinton and Bush administration, where they actively sought to improve homeownership for blacks. That, again, is the Ohio State economist Derek Hamilton. And this legislation created some of the exotic financial products that led to some subprime mortgages. Subprime refinancing was far more common in black neighborhoods.

And those products in and of themselves might not necessarily be a bad thing. What was problematic was the misuse of them, was when the private sector was able to manipulate and use these types of tools so as to enrich themselves and expose others to risk that they otherwise might not have needed to take on. This subprime manipulation contributed mightily to what became the global financial crisis. Before the crisis, Black home ownership had risen significantly. Afterward, it fell. Blacks are now a majority renter population. While 73% of whites in the U.S. own their primary residence,

that number is only 45% for Blacks. And as you travel down the income spectrum, well-intended housing policies often have the side effect of maintaining segregation. The lowest-income African Americans who are living in urban areas have the benefit of a program called the Low-Income Housing Tax Credit, which is a subsidy to developers to build housing for low-income families, the federal treasury department that runs this program, places a priority on putting low-income housing tax credit developments for low-income families in already low-income segregated neighborhoods on the theory that that's going to revitalize those neighborhoods. It reinforces segregation. It never works to revitalize those neighborhoods, but it's a policy that endures. If we were to dissect whether it's contemporary versus historical factors in driving the racial wealth gap or driving wealth inequality today, I think we'd have to say that it's not one historical act.

It is a compounding of historical acts. These historical acts, each with a different pedigree, perhaps, or a different set of motivations, have resulted in a collection of disparities that go well beyond housing. Black Americans have disproportionately worse outcomes in the labor markets, in education, in access to health care. We can no longer talk about race in a euphemized way. We had to take it head on. And so, in this moment, Derek Hamilton thinks the solution is obvious. And as a result of taking it head on, we are now in a position where an idea like reparations, which is certainly not new,

and there have been countless people who have advocated and worked hard to develop this policy grounded in justice. But it now has mainstream saliency as well. and develop reparation proposals. It has recently gained considerable momentum. To Hamilton, a successful reparation program would need two major components. One is acknowledgement, clear-throated, full acknowledgement of the atrocities that have taken place in the past and the fact that these were atrocities that were committed with the will of the government, the complicity of the government, and sometimes actions of the government. And component number two? Now, that apology alone would be empty if not accompanied with some form of redress. So the material redress would, in a retrospective way, bring about justice by affecting

the racial wealth gap that we see today. And as I pointed out, the racial wealth gap is iterative. So it would redress the past and also provide some resources to have greater equity going forward. This is where it starts to get tricky. Support for financial reparations is far from universal. In fact, not even all Black economists are in favor of it. What would it be? That's Glenn Lowry of Brown University. We got 35 million or so African-Americans. And if each African-American were to receive, let's say, a payment in the mid five figures? You know, we're into the trillions. We're social security magnitude social intervention if we were to go down that road. Do we in America in the 21st century really want to construct a social security magnitude social intervention based on race? I don't think so. I worry about the consequences

for my country of the reification of racial categorization as the basis for state action. Our exploration of reparations and other ideas to address the racial wealth gap will continue next time on Freakonomics Radio. Until then, take care of yourself and, if you can, someone else too. Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Zach Lipinski. Our staff also includes Allison Craiglow, Greg Rippin, Matt Hickey, Daphne Chen, Mary Deduc, and Corinne Wallace.

Our intern is Emma Terrell, and we had help this week from James Foster. Our theme song is Mr. Fortune by the Hitchhikers. All the other music was composed by Luis Guerra. You can get Freakonomics Radio on any podcast app. If you want the entire back catalog, use the Stitcher app or go to Freakonomics.com, where we also publish transcripts and show notes. We are on social media, and you can write to us at radio at Freakonomics.com. As always, thanks for listening.