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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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