Ideas & Insights / All Perspectives / Ideas & Insights

The New Deal Made America’s Racial Inequality Worse. We Can’t Make the Same Mistake With Covid-19 Economic Crisis.

Otis Rolley — Former Senior Vice President, Economic Equity Initiative, The Rockefeller Foundation

The Covid-19 pandemic has already caused a level of economic devastation in America that can only be compared to the Great Depression.

So it’s not surprising that many policymakers, academics, and others are now pointing to the New Deal — the landmark legislation enacted by President Franklin Roosevelt in response to the Great Depression — as a model for how the federal government should respond to today’s crisis.

There are important lessons to learn from the New Deal — but not what many assume. The flaws in that historic legislation created deeply-entrenched racial and financial inequities that persist to the present day — something I’ve witnessed first hand over more than two decades working in planning, urban resilience, economic and community development in multiple major US cities.

This is not just about a history lesson: It’s critical that the federal government learn from the mistakes of the past in order to understand how to promote an equitable recovery for the communities hardest hit by the Covid-19 pandemic.

The legacy of the New Deal echoes in the Covid-19 crisis

It’s true that millions of Americans got a foothold into the middle class through the New Deal. But many forget the crucial fact that black and brown workers across the country were systematically excluded from key programs like Social Security as well as protections afforded under the National Labor Relations Act. Also, the Home Owners Loan Corporation and the Federal Housing Administration promoted racial covenants and other instruments of segregation by refusing home loans for black and brown families.

This move was not an accident: Roosevelt intentionally cut out occupations dominated by people of color, including domestic and agriculture workers, from New Deal initiatives as part of a strategy to win the support of Southern Democrats in Congress.

The Covid-19 crisis has shined a light on many of the stark racial and economic inequities in communities across the country today, many of which trace their root causes back to the exclusions in federal legislation designed to help America recover from the Great Depression.

Loan discrimination and historic mistrust of financial institutions due to exclusionary and predatory lending practices have exacerbated the lack of access to capital for the smallest and typically minority-owned enterprises.

Redlining, eviction policies, and employment discrimination have all contributed to income insecurity for the most marginalized populations in America. Before Covid-19, 63% of Hispanic workers and 54% of black workers reported earning low wages and have encountered barriers to accessing employment opportunities. The racial wealth gap also remains persistent, with White families having nearly 10 times the wealth of black families.

These unsettling stats will only worsen in the face of this pandemic unless there is a federal-level response that tackles this issue head-on. America needs a plan that centers on economic stability and mobility for vulnerable communities. To do so, the government response should prioritize three key areas:

  • Access to financial relief for low-wage workers and small businesses
  • Anti-displacement policies to ensure current residents and main street businesses are not upended and forced out of their communities
  • Protection and expansion of income-supportive budget and tax policies, including the earned income tax credit (EITC) and child tax credit (CTC).

How to make the recovery equitable

Coming out of the crisis, financially-fragile households will need access to credit —[examples of what we’re talking about: whether that’s credit cards, mortgages, or student loans — that is accessible, fair, and transparent. The federal response must ensure this financing is “democratized,” challenging discriminatory practices and focusing on closing the racial income and wealth gaps.

We also need policies and programs in place that ensure financially impacted residents can exercise the choice to stay in their homes during this unprecedented time, and beyond.  Nearly 50% of renters in the US are cost-burdened, and for renter households of color, this figure rises to 54%. Having stable housing is essential for economic stability, but cannot be accomplished alongside threats of displacement due to renters unable to make rent.

Refundable tax credits, EITC and CTC, have lifted millions out of poverty, but eligibility is limited. The federal EITC, for example, is extremely limited for younger workers and those who are not raising children in their home. In response to Covid-19, it’s crucial these tax credits are protected and permanently expanded. With unemployment claims topping 30 million and low-wage workers threatened with financial burdens, accessible income support policies are essential in keeping people afloat in an economic downturn.

We’ve seen the decades-long outcomes of failed federal action, but there’s an opportunity to learn from these mistakes and position the hardest-hit communities for a strong recovery. The federal-level response must put these already vulnerable communities first, promoting economic growth and addressing America’s long-standing racial and economic disparities. While The New Deal is the wrong model for an equitable recovery, it may be the inspiration we need to get this right.

This piece first appeared on the Business Insider on May 25, 2020, and reposted with permission.