Gov't Welfare Widens The Wealth Gap

...Sometimes It's Paved with Taxpayers' Money

Editorial from Investors Business Daily, July 26, 2011

Poverty: The gap in wealth between white Americans and minorities is the widest it's ever been, a new report says. Could it be that the government, while intending to help those in need, in fact ends up hurting them?

New Census data show that the recent economic crash has erased decades of minority gains in wealth. The net worth of whites is now 20 times higher than for blacks and 18 times higher than for Hispanics, both records.

For white households, the median net worth (assets minus liabilities) in 2009 was $113,149. That compares to $6,325 for Hispanics and $5,677 for black Americans.

There are, of course, many reasons for this. While minority families gained from the economic growth of the the 1980s, 1990s and mid-2000s, much of their wealth was tied up in their homes. When the housing market crashed in 2008, so did their net worth.

Meanwhile, whites have been helped by the rebound in stock prices in the last two years. Stock market investments, including IRAs, 401(k)s and other market-based accounts, make up 28% of white Americans' wealth, vs. just 19% for blacks and 15% for Hispanics.

If nothing else, these data point out the failure of federal welfare and anti-poverty policies to do what they intended: eradicate wealth differences in our country.

Starting in 1964, when President Johnson launched the War on Poverty, a well-intentioned crusade to end poverty, the U.S. has spent an estimated $16 trillion trying to help the less well-off.

LBJ and other well-meaning Democratic politicians at the time also hoped that the burgeoning welfare state would make people more self-sufficient, a noble goal. It didn't work.

Today, some 44 million Americans are on food stamps. In 2007, it was 26 million. Treasury Secretary Tim Geithner recently boasted that U.S. issues more than 80 million checks a month. But while the U.S. has more than 70 means-tested welfare programs, the poverty rate today is higher than it was in the late 1960s.

How can that be? "(M)ost anti-poverty/welfare spending erodes work and marriage," wrote Robert Rector, a Heritage Foundation economist, in a recent report. "As a result ... low-income Americans are less capable of self-support than when the War on Poverty began."

The most recent leg down in minority wealth is due almost entirely to America's massive housing market intervention — funded by Fannie Mae and Freddie Mac, overseen by HUD and pushed by influential Democrats. It has only made things worse.

Starting with President Clinton, the federal government coerced banks into making loans to uncreditworthy minority borrowers to boost homeownership.

The implicit subsidy in this arrangement was itself a form of welfare. When the housing market tanked, it was inevitable that those mostly minority households would have higher delinquency and default rates, and lose much of their wealth. That's what happened.

The road to hell, it's said, is paved with good intentions. But sometimes it's paved with taxpayers' money.