Friday, November 14, 2008

How the US Government Created Segregated Black Neighborhoods

There is an excellent article by John Steele Gordon in today's Wall Street Journal about the history of banking regulation. The article originally appeared in Commentary. Gordon traces a brief history of banking regulation from the age of Jackson to the present. One of his points is about the origination of redlining, which in turn led to white flight to the suburbs and the segregation of the inner cities. Gordon writes:

"...historically there was also a class, made up mostly of American blacks, for whom home ownership was out of reach. Although simple racial prejudice had long been a factor here, it was, ironically, the New Deal that institutionalized discrimination against blacks seeking mortgages. In 1935 the Federal Housing Administration, established in 1934 to insure home mortgages, asked the Home Owner's Loan Corp.—another New Deal agency, this one created to help prevent foreclosures—to draw up maps of residential areas according to the risk of lending in them. Affluent suburbs were outlined in blue, less desirable areas in yellow, and the least desirable in red.

"The FHA used the maps to decide whether or not to insure a mortgage, which in turn caused banks to avoid the redlined neighborhoods. These tended to be in the inner city and to comprise largely black populations. As most blacks at this time were unable to buy in white neighborhoods, the effect of redlining was largely to exclude even affluent blacks from the mortgage market..."

This federal government-created, racially-linked lending policy was compounded by the urban renewal policies of the 1950s, the archetypal example of which was due to New York's Robert Moses. Under urban renewal, business and factory districts were destroyed or made unworkable by building expressways through the hearts of dozens of working class neighborhoods and direct condemnation of factories and privately owned residences. New York State continues to lead the nation in private use eminent domain and is close to the top in income inequality to this day. It also has the most government intervention and regulation. "Liberals" who claim that regulation will "solve" income inequality would do well to look at New York's "progressive" history.

As much as any other force, federal government mortgage, real estate and urban renewal policy segregated African Americans and deprived them of job opportunities. Coupled with drug illegalization and the institution of union-sponsored regulatory systems that made "blue state" industry uncompetitive, African Americans were frozen out of the primary economy and forced to live in red-lined districts whose economic development was directly attacked or crippled by left-wing and liberal regulation, making economic opportunity unavailable.

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