Will COVID-19 change the American social safety net? New research looks at history as a guide for how governments react to crises that expose inequality.
If history is any indication, the economic fallout and increased political demands caused by the coronavirus could pressure government leaders into building a new safety net for lower income groups, new research suggests.
“However, the political possibilities that emerge from the current crisis will likely be colored by real world beliefs and prejudices about who is worthy of economic support and who is not,” says John Robinson, assistant professor of sociology at Washington University in St. Louis.
His research in the American Journal of Sociology reveals the contentious politics surrounding the federal initiatives of the 1960s and ’70s to broaden financial access for poor renters in communities of color, which unintentionally sparked the rise of state Housing Finance Agencies (HFAs).
The research focuses primarily on the Chicago metropolitan area from 1960-1975, but provides insight into how the current economic stimulus plan could unintentionally exacerbate racial and economic inequities.
SAFETY NET PROGRESS AND BACKLASH
In the Chicago area and elsewhere, housing emerged as a core civil rights issue in the 1960s. The Housing and Urban Development Act of 1968, passed in the immediate aftermath of riots surrounding the assassination of Martin Luther King Jr., pledged $50 billion in credit to ramp up housing production for racial minorities and the poor.
The HUD Act created programs for racial minority homeowners and established the Section 236 program, which expanded credit for low-income rental housing. Both HFAs and Federally Insuring Offices (FIOs) played a key role in implementing the initiative: the former as direct lenders and the latter by subsidizing and insuring debt provided by private lenders.
Government leaders faced a challenging dilemma. They felt forced to expand housing production for poor, black renters to quell riots in American cities.
“While the policy made an immediate impact in terms of housing production, it also sparked intense outrage and backlash from white homeowners and local officials,” Robinson says.
“Feeding this sense of alarm was the common-sense assumption that rental properties occupied by blacks were financially worthless as collateral for mortgage debt and therefore only wasted public money. FIOs were accused instead of forcing taxpayers to absorb the financial losses of a broken and failing market, thereby transforming the federal government itself into the ‘slumlord of the future.'”
FIOs became the focal point of public scrutiny because they directly and visibly expanded government housing commitments without challenging the presumption that disinvested communities of color were financially worthless. Therefore, FIOs succeeded in broadening financial access for marginalized groups, but their efforts also “simultaneously reinforced beliefs that recipients were unfit for markets and therefore undeserving of economic citizenship in a market society, fueling backlash.”
In contrast to FIOs’ highly visible and direct approach to policy, HFAs expanded credit in a way that relied more on smoke and mirrors: By using speculative financial engineering practices, HFAs encouraged the public to attribute the new housing production efforts to the financial markets rather than the state. These state-charted, private entities relied on the sale of asset-backed revenue bonds, similar to the infamous mortgage-backed securities that fueled the 2008 financial crisis, to fund low-income rental housing.
“Government leaders adopted these smoke-and-mirror tactics, rejecting other, more conventional ones, because they made housing transactions so convoluted and opaque that they became politically uncontroversial,” Robinson says.
“Many would-be opponents assumed these transactions to be economical and free of government interference. And they came to believe that this thriving new market benefited them more than it did poor, racial minorities.”
HFAs won out over the long run, largely avoiding controversy. But in doing so, HFAs missed an opportunity to push mainstream Americans to genuinely embrace racial and economic inclusion, Robinson’s study shows. Instead, these agencies framed policy in narrowly transactional terms that entitled whites to reap the rewards.
“Unlike FIOs, for instance, HFAs encouraged white and affluent bond buyers and suburbanites to see themselves as the policy’s true beneficiaries, which would trickle down to communities of color,” Robinson says.
His study concludes that smoke-and-mirror tactics “strain democratic oversight and public accountability, while disproportionately benefiting the white and affluent.”
“Ultimately, the rise of HFAs signaled a new policy context where government leaders increasingly use the market as a smoke-and-mirror screen for implementing policies that affect marginalized groups,” Robinson says. While his study eschews easy answers on policy solutions, it does shed light on the difficulties of making policies that effectively serve the most vulnerable populations in a society that heavily resents them.
“Compared to the 1960s, government leaders today face a crisis of much greater magnitude and must contemplate more far-reaching solutions: witness the recently enacted $2.2 trillion CARES Act relief package,” he says. “In the 1960s, government leaders decided that effectively managing policy tensions would require ceding power to the financial sector and convincing whites that they would be the new market’s true beneficiaries. Today, a similar race and class logic drives government leaders’ response to crisis via the historic CARES Act.”
Even though poor communities of color are hardest hit by the pandemic, their hospitals are disproportionately shut out of the bill’s health-care provisions, and their neighborhoods redlined by the big commercial retailers that supply testing, Robinson says.
People living in these communities are more prone to be deemed ineligible for a stimulus check because they make too little to file taxes or lack a Social Security number and—even when eligible—to having their checks seized by debt collectors or eaten up by predatory fees. And the big banks that issue credit under the CARES Act have passed over small businesses in these communities, favoring large, publicly traded corporations instead.
Progressive voices have proposed ideas about how to make policies more accountable to the communities that need them most. “Both in past crises and those today, advocates have pushed government leaders to revive existing safety net programs, like public housing, and also expand their use of new safety net tools that reshape private markets to better serve poor communities of color—for example, the National Housing Trust Fund,” Robinson says.
“But while these tactics are impactful and necessary, it is important to remember that they won’t address the baseline reality: Many people whose actions carry heavy political consequences for communities of color and the poor still view these groups as unworthy of American citizenship. And unfortunately, no policy can change that.”