The Truth about Redlining

with David E. Kaiser

This excerpt from my conversation with historian David E. Kaiser addresses one of the most controversial practices in American racial history: Redlining. It was a way, so the story goes, of systematically denying black people the ability to acquire wealth by denying them federally backed home loans. In his hugely influential essay “The Case for Reparations,” Ta-Nehisi Coates points to redlining as one of the major causes of the present-day racial wealth gap, and so the issue has become part of woke arguments in favor of paying out reparations to black Americans.

Now, redlining was real. It was a terrible practice and it did indeed deny many black people an opportunity for homeownership. But it denied more white people the same opportunity, since many of the redlined neighborhoods were majority white. The presence of black people was one of the reasons behind redlining, but the effects fell on both whites and blacks.

To hear people like Ta-Nehisi Coates tell it, redlining kept black people in a state of economic stagnation during the post-World War II boom years. But the numbers tell us otherwise. David goes into some of those numbers, and we discuss how looking only at redlining obscures the ways that black Americans at midcentury actually made significant economic gains.

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GLENN LOURY: You know, the line is that there was a big boom in the post-1950 growth of American suburbs and so on, and blacks were excluded, redline, credit not available, and other things of the sort that I've alluded to. Suburbanization abetted by the development of interstate highways that bypass black communities, et cetera, et cetera. What do you have to say about that aspect of the narrative that justifies, in some people's minds, a claim of black injury entitling us to reparation?

DAVID E. KAISER: Well, okay. There's a very detailed study of red lining that was written just a couple of years ago by the Chicago Fed. You can find it online. It's a very difficult read. I mean, I hope you won't be offended, Glenn, but you economists, when when you want to make something hard to read, you're very, very good at that, as a group. I'm not saying anything about you personally.

I'll try not to take that personally.

All right, please don't. But some things did emerge from it. The idea was to identify, it was called Area D and they drew around it in red, areas where it would be dangerous to promote mortgages. Now it is true, and it's very depressing, that some of the evaluations of areas would list a significant black presence as a negative feature.

However, most of the people in those areas were white, not black. And in fact, that article that we've discussed by Samuel Kronen, who has also looked at this very carefully, he actually claims that even today the largest number of people in those redlined areas are white. And there's a large Hispanic population there now, too. And also some blacks. Now they became blacker to some extent, perhaps as a result of redlining. But again, I want to go to the bottom line. And this comes from another webpage that I want to commend everybody to called “What Happened in 1971?” Actually, it's entitled “WTF Happened in 1971?”

“WTF Happened in 1971?”

Right. Because it's a series of economic tables of various economic indicators, most of them having to do with the distribution of income from the '30s until the present. And basically, the point of it is that, up until 1971, a lot of things about income distribution were going in a good way. And at that point, things flipped and things have been going in the opposite direction ever since.

But there are a couple of tables having to do with race. This one is about income. I'll get to the housing one in a minute. I'm sorry. The housing one came from somewhere else, but I'll give you that in a second. This is about income. In 1946, average black income was 50% of white income. In 1972, average black income was 68% of white income. So here we have one of the highest growth periods in American history. Everybody's doing much, much better. Now at the end of that period, the black population is still doing worse, but they've been progressing faster than the white [population].

From 50% to 68% in 20 years.

That's right. And yes, during that period, this is another table, the income in the bottom 90% of the population—the whole population—tripled. Now the other thing is about housing. From 1940 to 1980, which is roughly the area of redlining, the number of owner-occupied white households… Am I saying that right? In other words, the number of white households where they own their home went from 43% to 75%. And in that same period, the figure for black households goes from 21% to 56%. And it's a pretty straight line on the graph.

So again, yeah, the suburbs were segregated, most of them. That's true. It was easier for white people to get mortgages. There was redlining. But nonetheless, in that period, black home ownership and therefore black wealth was making extraordinary gains. And then suddenly around 1980, all these income and housing gains begin to slow. As a matter of fact, since 1980, the black home ownership rate according to a paper by Collins and Margot—that's where this came from—has fallen. And that really, is a staggering bunch of statistics that I cannot pretend to explain as to why.

I know Robert Margot. He used to be my colleague at Boston University. Redlining was a real thing. I remember this photograph that's in Thomas Sugrue's Bancroft Prize-winning book, The Origins of the Urban Crisis. It shows on Eight Mile Avenue in Detroit a wall that's a mile long and six feet high that he says the federal authorities required as an underwriting requirement, that the wall be constructed to bound a district where federally underwritten loans were going to be made to finance housing development, because blacks were on the other side of the wall and we needed the wall to keep the blacks from coming into the community. And that's a very, very powerful kind of metaphor for this exclusion narrative.

You're telling me redlining happened and that some of the redlining was grounded in the fact that blacks were in a neighborhood and people thought it would not make for a good financial bet.

That was a factor they mentioned. I don't think it was the only factor, but yeah.

It wasn't the only thing that was going on, and the neighborhoods were mostly white that were subjected to this. But you're also saying, and this is so very powerful, if we look at what actually was happening for low-income people and for black people in the period between 1940 and 1970, it's damn good news, a whole lot better news than anything we could report for what has happened for them since. And black people rode that wave up just like everybody else. So a historically based argument that says blacks are excluded from the engine of prosperity is just wrong on its face.

And the other side of that is also mentioned by Samuel Kronen in that article in Quillette. He talks about the wealth gap. Today's wealth gap. If you look at the bottom 50% of white people in terms of wealth and the bottom 50% of black people in terms of wealth, there is almost no wealth gap at all. The entire gap is in the top 50%. And the reason, of course, that there's no wealth gap in the bottom 50% is that practically none of those people, white or black, have any significant wealth today. And again, that's a horrifying fact.

Now, Glenn, I know you may be running short on time, but I do want about two minutes at some point, because there's something that I want to share with you and our listeners.

Okay. I'm going to give you two minutes. I promise you your two minutes, but I gotta say this about the wealth gap. It's a little bit of a technical point, but the point you just made is so powerful.

If you look at the bottom 50%, the black and white gap is not that big, everybody, because it's zero for everybody. Now just check this out. They use the median, all of these papers that are coming out of all of these research shops use the median of the wealth distribution. Now the median happens to be the 50th percentile. Everybody's at zero below the 50th percent. They use the median as the measure, and then they take a ratio of the medians. So, the denominator, the white to black or the black to white, if you move a little bit from zero to 10,000 or 20,000, that ratio is going to look huge.

How do you lie with statistics? Well, one of the ways you lie with statistics is to take the ratio of medians and use that as an indicator of the relative status of the two groups. Just had to get that point in. I'm a fellow of the Econometric Society. We don't sleep well at night when people do this kind of banditry with statistics.