The Economics of Race: When Making It to the Middle Is Not Enough

I. IntroductionAmerica depends on a strong middle class. Our economy prospers because middle class men and women get up every morning, put in a full day's work, and buy the goods and services that others have to offer. Our society defines itself by the values middle class families pass from generation to generation as they raise their children. Our democracy is rooted in the middle class's unwavering support for the rule of law and its willingness to abide by election outcomes. And the central solution to America's long-standing race problems has been the hope that as more racial minorities make it into the middle class, they will become a vital, engaged, committed part of a more diverse America.The assumption that participation in the middle class will solve other economic and social problems facing racial minorities is strong. Most academic and popular discussions of economics and race focus exclusively on difficulties facing the chronically poor. The unspoken assumption of much of this work is that those who make it into the middle class economically and socially have made it-and there is no need to worry more about them. But some scholars are questioning that comfortable assumption, as a growing body of work examines how black families are having much greater difficulty accumulating wealth1 and how tax codes or other seemingly neutral statutes systematically disadvantage black families.2Data from the bankruptcy courts provide another lens into understanding the economic security-or insecurity-of Hispanic and black families.3 The bankruptcy courts are a place where middle class families in extraordinary financial distress seek relief. By analyzing data about the circumstances of bankrupt people of different racial groups, it is possible to develop another perspective in understanding the economic vulnerability of different racial groups in America.The bankruptcy data reveal a disturbing story of Hispanic and black middle classes that are at greater risk for economic collapse than their white counterparts. Bankruptcy is a middle class phenomenon, a place of escape for those who have good jobs, established credit, accumulated assets, and suffered sharp reversals. Hispanic and black families are no exception; those in bankruptcy are disproportionately middle class when measured by education, occupation, and homeownership. Even so, Hispanic families are nearly twice as likely to file for bankruptcy as their white neighbors, and black families are three times more likely to file.The bankruptcy data expose even greater racial disparities among homeowners-those who have achieved the most tangible sign of participation in the middle class. Hispanic and black homeowners face sharply increased risks of filing for bankruptcy as compared to their white counterparts. The immediate reasons that trigger a bankruptcy filing-job loss, medical problems, and family breakup-are remarkably similar among all three racial groups, which suggests that their financial problems are not isolated to a single, identifiable event but that a more widespread vulnerability of families of color is at work. These data may suggest more pervasive job difficulties and more trouble financing medical care. Perhaps more critically, the data presented here are consistent with other reports that suggest racial minorities are singled out for predatory loans and other subprime credit that drain billions of dollars out of the pockets of these families and push them into financial collapse.II. Background-Bankruptcy and the Middle ClassWhen my coauthors and I began our first study of the families in bankruptcy back in the early 1980s,4 we accepted the conventional wisdom that we would encounter lower class America-marginally employed or chronically unemployed people with little education and poor economic prospects.5 After all, who else would go bankrupt? To be sure, the incomes of the families filing for bankruptcy were low. …