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real
Economics
How
many times have you heard someone say “I’m a social liberal
and a fiscal conservative”? While different people mean different
things by it, it often boils down to “keep the government
out of everything, from marriage to fighting poverty.” (That
is actually more libertarian than conservative, but I digress.)
Setting aside whether I agree with this position itself, as
I watch the country entering financial turmoil, I’ve realized
that there’s something troubling to me about the phrasing
in particular: It implies that social issues and fiscal issues
are separate, that they don’t affect each other.
It’s not surprising that we think that, given the way we talk
about financial issues. Stock prices and company earnings
are presented in the news like the weather, rising and falling
according to their own internal, inexplicable logic. Wanting
very much for their discipline to be a hard science instead
of a social science, economists use more grandiose jargon
and cryptic shorthand than nuclear physicists (and far more
unjustifiable assumptions).
The voices from the edges talking about the connections between
what are considered “social issues” and economics have a very
hard time getting heard. Take, for example, immigration. While
the United States is the supposed champion of a global economy,
we’re clamping down on visas, making it very difficult to
enter the country. We’re doing this to feel more “secure,”
while ignoring its effect on productivity, innovation, and
“the economy.”
So multinational companies, frustrated with the difficulty
of bringing coworkers from different countries together to
work on a project for even a few months, are leaving the United
States altogether. Microsoft, while it hasn’t left, recently
opened a “refugee” office right on the other side of the Canadian
border, in Richmond, B.C., to which it can bring workers who
can’t get U.S. visas, so they’re within the same time zone
and a short drive of the Redmond, Wash., offices. Gates had
tried testifying to the Senate about the problems with all
the visa limitations, but he was ignored.
For another ex ample, take the subprime mortgage crisis. A
fascinating little study put out by the law firm Traiger &
Hinckley LLP found that banks subject to the Community Reinvestment
Act—a law from the 1970s de signed to prevent banks from discriminating
against poor, minority neighborhoods when giving loans—are
suffering significantly lower rates of foreclosure
than other lending institutions, even though they have higher
rates of loans to low-income people.
First, this puts the lie to all the subprime mortgage len
ders who said they needed to use pre-datory tactics like super-high
rates, balloon payments and prepayment penalties to be able
to lend to poor, inner-city homebuyers.
Second, one of the strongest reasons for the difference, apparently,
was that banks covered by the CRA are traditional banks with
walk-in branches. In fact, there was a strong correlation
between having more bank branches in an area and having fewer
foreclosures—banks with more face-to-face contact, more actual
client relationships and knowledge of the lending area. In
case anyone was wondering, yes, local physical presence of
businesses who have some sort of commitment (even if it’s
legislatively mandated) to serve the community they’re in
makes a difference, even on the scale of the national housing
market.
Speaking of which, it was surprising to me not to hear more
mention by people commemorating Martin Luther King, Jr.’s,
birthday about the racial discrimination practiced by the
subprime and predatory lending industries. Subprime lenders
constantly gave bad terms to minority homebuyers who qualified
for better terms, and focused their more unnecessary and predatory
terms on minority communities.
“The
subprime lending debacle has caused the greatest loss of wealth
to people of color in modern US history,” says United for
a Fair Economy in its recent report, Foreclosed: The State
of the Dream 2008. “From subprime loans, Black/African
American borrowers will lose between $71 billion and $92 billion,
while Latino borrowers will lose between $75 billion and $98
billion for the same period. . . . If subprime loans had been
distributed equitably, losses for white people would be 44.5
percent higher and losses for people of color would be about
24 percent lower.”
I sometimes explain the importance of environmental justice
to the larger environmental movement by saying that if there
were no group it was considered OK to poison, then we would
have already figured out how not to pollute in the first place.
The same can apply here: If losses of that magnitude for non-white
homeowners had been considered as much of a crisis as they
would have been for white homeowners, the predatory lending
industry might have been cracked down on early enough to prevent
what is now threatening to head into a full-scale recession.
It’s not like we didn’t know. Housing and community development
and fair lending advocates have been talking about this problem
for a decade.
It’s time we stopped pretending that “the economy” and “social
issues” aren’t related. The future of both our economy and
a decent society may depend on it.
—Miriam
Axel-Lute
www.mjoy.org
www.albanyplanningblog.org
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