Generational Wealth

In the midst of the Milwaukee unrest this week, a young man on the scene was interviewed (Orlandis Jackson, interviewed by local NBC affiliate). He said something along the lines of how “the rich people have all the money and won’t give us none.”

This immediately went viral on the Tweeters as unsympathetic voices howled over his seeming entitlement. 

This bothers me.

This young man may not understand the full scope of wealth disparity. He may not realize the causes. And/or he may not have the rhetorical skills to express his understanding fully. 

But he was right. 

In a deeply fundamental way. The “rich” of this country got that way, and stay that way, by stealing from the poor. The problem of inner city unrest is not that we (and for today the “rich” are the moderately well off, that includes most of my audience. Yes, you.) won’t “give” other people money. It is that we build our wealth at their expense.

I twittered a link to a study showing black communities paid more per dollar of insurance coverage, despite lower company loss rates, compared with nearly identical white communities. 

The aftermath of Ferguson MO unrest illustrated very clearly how  municipalities have shifted to nuisance summons as a way to make up for the powers that be refusing to tax themselves. Guess who gets the tickets?

And even in a general sense, tax schemes have become increasingly regressive. Taxes and fees on consumption replace progressive income / wealth taxes. Wages for labor are  taxed more highly than is investment income. Etc. All designed to shift the burden of society away from the rich. 

Our DonorsChoose drives show how we (the rich) refuse to pay to educate all and have shrunk school funding in poor communities. Education isn’t everything but it does help some people to escape the poverty they were born into. 

Which brings us to redlining (still a thing) and neighborhood unspoken compacts and other things that prevent black people from buying homes in slightly better neighborhoods. Interesting comment here:

Sharkey’s research shows that black families making $100,000 typically live in the kinds of neighborhoods inhabited by white families making $30,000.

Real estate ownership is a huge wealth tool. Huge. Increasing property value becomes a financial cushion if nothing else. Reduces housing costs overall, with good use of the mortgage income tax deduction. Permits one to obtain loans (or at more favorable rates) for other wealth enhancing purposes. Such as higher education. Launching sonny-boy’s hi tech startup company. 

And from there we can drill right back down to Costco shopping. It’s cheaper to be rich. We buy in bulk and store the stuff in our big houses. Toilet paper, extra milk in our second fridge, tampons and toothpaste. All cheaper when you are wealthy. 

So stop sneering at the young man in Milwaukee. He may have phrased it inelegantly. But he was speaking a fundamental truth. 

[interlude]

Getting back around to the generational part of this post. Redlining was the policy of the Federal Housing Administration from 1934-1968. Federal policy. From the administrative entity that was supposed to help Americans afford to buy homes. Some Americans, apparently, but not other Americans. See Josh Begley maps here for a few key cities in our largest State. This discrimination is just for the availability of mortgages.

There is also the kind of discrimination that prevented minorities from purchasing houses in certain neighborhoods even if they had all of it in immediate cash money.

As far as I am aware, minorities did not enjoy special tax exemptions to account for their treatment at the hands of the FHA. Meaning, correspondingly, the FHA discriminatory redlining activity was transferring wealth from minority citizens to white citizens. The lack of fair opportunity to build wealth, particularly when that opportunity is buttressed by taxes, is stealing from Peter to pay Paul (the families that were able to use such opportunities).

Note that if you are unable to buy a house, the odds are that you are paying rent to the person who owns the property. Who is enjoying the leverage of you paying down the loan while their property values (wealth) inflate over time. This is yet another way in which wealth is transferred from the less well off to the more well off. Home ownership rates in Milwaukee are lower than in the state of Wisconsin as a whole. Home ownership rates for black Americans lag those of white Americans.

The wealth of property ownership in particular locations can be transferred generationally in many ways. First, it may confer indirect benefits in school quality, peer associations and vocational connections. Second, there is direct inheritance of the wealth later in life. There are a few people in my neighborhood who inherited houses. Given the amount we pay for our mortgage, well, that’s a substantial jump ahead for the standard model American Dream family, let me tell you.

In between we have the transfer of the ability to purchase a first house. When my wife and I were looking to buy our first house we ran across a stat that some 30% of first time buyers had some sort of family assistance. (I can’t find anything on that right now so if you have links, drop them in the comments.) Loans for downpayments and co-signing (with later relinquishment of ownership rights) for the loan are common. Helping to fix the new purchasers’ credit. Etc.

A subtle effect is timing. Real estate markets cycle, as you know. And mortgage rates can vary tremendously, which affects affordability. As it happens, my now-spouse and I were looking to co-habitate during a fortuitous set of real estate conditions. Despite one of us being a postdoc and one a graduate student in a fairly pricey real-estate market, the conditions were ripe. We’d be paying about the same for a mortgage that we were facing for rent. The only issues were the usual. Credit? decent. Debt to income, decent. Income to price….hmmmm, not great but those were the bubble days so…maybe. This left the downpayment. We didn’t have it. And wouldn’t have been able to save it for years (which, as it happened, would have been well into the peak of the housing bubble. And we’d still be short of the now-increased amount.). Generational wealth to the rescue.

It isn’t only the cash, it’s also about when that cash is available to you. Whether that be for housing, for emergency loans for something now that will save you money longer term, paying for education…the scenarios go on and on.

Our generational wealth stretches back several generations in our family. Home ownership, decent jobs and relatives who moved up in economic class relative to their upbringing, in many cases through education. All of my kids’ four grandparents ended up as educators, three of them for career length. Three have advanced degrees. They started when education careers meant a decent stable job with benefits and pensions. Some of their parents were educated, some not, but all were eventually middle class. Two of them were raised by single mothers (who were born over 100 y ago so think of that generation!), one of which had a sibling have to go to work to support the family instead of furthering education. So right there within family, generational privilege available more to one than the other. And I don’t mean to imply it was ever easy. But they were all able to take advantage of an environment in which there was not systematic discrimination against them. (Possible ethnic discrimination of three generations upstream due to an immigrant wave but that had subsided certainly by my parents’ generation.)

This post isn’t designed to recommend Harrison Bergeron solutions or to criticize those of you with immense generational privilege and wealth. It isn’t to beat my breast about how lucky I had it.

This post is about thinking a little deeper about why a young man in Milwaukee might complain that the rich never give the poor any money. And what that really means beneath the words.

And, y’know, maybe for those of you who habitually think that you never had any special privileges so why should anyone else…maybe you could think about your generational advantages?