Resilience and wealth privilege | 22 | The Privileges of Wealth

ABSTRACT

Given the privileges that accompany wealth, it is clear how a growing, prosperous economy can lead to widening wealth disparities. Economic growth generates higher incomes that foster increased household saving, particularly among the aﬄuent. More importantly, economic prosperity produces rising asset values that beneﬁt the wealthy disproportionately. Aﬄuent parents can oﬀer greater educational and ﬁnancial support to their children as they mature and start their own lives with a comfortable head start. In this way, economic prosperity expands the opportunities and eases the choices faced by aﬄuent households. Expanding wealth disparities is a predictable outcome of a prosperous U.S. economy. Our nation’s success is undermining the remaining semblance of shared, economic opportunity. As we know, bad stuﬀ happens. Violent tornadoes and hurricanes destroy

property and devastate communities. Powerful earthquakes level cities without notice. Less violent but more widespread, economic calamities shutter businesses, eliminate incomes, and shrink asset values. These threats arguably encourage the most basic reason for accumulating wealth: to overcome such disasters with minimal deprivation. Curiously, wealth functions as a double-edged sword in times of disaster. The possession of wealth generates greater exposure to ﬁnancial harm during these periods. Simply stated, the wealthy have more to lose. At the same time, wealth provides increased resilience. It serves as a safety net that can limit the damage and suﬀering during periods of crisis. Further, wealth oﬀers individuals and even communities the means to rebuild damaged properties and recover from whatever mayhem occurs. Financial resilience, or the capacity to endure and even overcome adverse con-

ditions, depends on several factors. These include the ability to mitigate harm as well as the means to recover quickly and fully while avoiding unwanted structural changes (Holling and Meﬀe, 1996). Wealth oﬀers households the power to endure and recover from much greater levels of external disturbance. Not all assets suﬀer

uniformly in periods of calamity. As the wealthy tend to have more diversiﬁed asset portfolios, they beneﬁt from increased protection (Keister, 2005, p. 72). Wealthy households suﬀer fewer bouts of unemployment; even those that do suﬀer job losses have other sources of income to draw upon. Better covered by health and property insurance, aﬄuent households can recover their health and rebuild damaged assets more quickly. Under dire circumstances, the wealthy have two other avenues for help. According to Mullainathan and Shaﬁr (2009), the wealthy experience greater ﬁnancial slack. Given their pattern of consumption, reducing their spending to weather an emergency is easier since these goods are more discretionary than necessary. In addition, the wealthy have greater access to external resources. The aﬄuent can obtain credit more easily and pay lower interest rates. In most cases, their friends and families have greater means to oﬀer ﬁnancial support as needed. Lastly, deeper pockets limit the need to sell assets under duress, thereby giving the wealthy the opportunity to recover as assets recoup lost values. In contrast, less aﬄuent households often must sell homes, other real assets, and stocks to weather the storm. In doing so, they desperately meet immediate needs at the expense of longer-term recovery. Wealth oﬀers protection and revitalization during bad times that complement the privileges enjoyed during good times. These advantages of wealth clearly have racial consequences as well. Showing

real foresight, Melvin Oliver and Thomas Shapiro (2006) highlight the precarious position of the Black middle class. While greater numbers of aspiring Black households have achieved many of the beneﬁts of middle-class status, these accomplishments mask an important vulnerability, their relatively low wealth. Taking up this point, Dalton Conley (1999) oﬀers a vivid image when he argues that the evidence “shows that the white middle stands for the most part on the two good legs of good earnings and substantial assets while the black middle class stands for the most part on the earnings leg alone” (p. 92). In both cases, they warn that the low levels of wealth in the Black community make recent economic gains vulnerable to loss. We can now investigate ﬁnancial resilience as an additional and important source

of wealth privilege. Remember that the SCF normally queries diﬀerent households in each survey, which precludes any examination of how speciﬁc households experience calamities. Recognizing the extraordinary times, the Federal Reserve decided to alter this tradition.1 Aware that the 2007 survey captured household wealth just as the Great Recession was unfolding, the Federal Reserve returned to these households two years later during the depths of the turmoil. Nearly 90 percent of the original households responded again, oﬀering broad and detailed data about how individual families fared during this period. By comparing household outcomes, we can examine the intersection of ﬁnancial resilience and wealth privilege. In particular, we can assess how the Great Recession harmed households across the wealth spectrum. While this two-year period is too short to investigate the full recovery of households, it does enable us to ascertain the harm and initial recuperation experienced by them. Further, it allows us to examine whether households merely suﬀered ﬁnancial losses due to declining asset values or experienced

structural declines that result from the sale of these assets. In other words, are the losses temporary and recoverable or longer lived and enduring? The timing of these surveys aptly captures the shock waves triggered by the

ﬁnancial collapse. The 2007 SCF interviewed households mostly from June to December 2007 while the follow-up interviews occurred during the same months two years later. Over the last half of 2007, the bulk of economic news was still positive. The stock market continued its climb, peaking in October, and declined only modestly through the end of the year. The economy as measured by GDP grew throughout the year. According to the National Bureau of Economic Research (NBER), the U.S. economy peaked in December 2007 while the unemployment rate stayed below 5 percent throughout the year. Only housing prices foreshadowed the impending crisis. After years of strong growth, housing prices peaked in 2006 and declined 10 percent during 2007 (Standard and Poor Dow Jones Indices, 2016). Two years later, the stock market had fallen by one third and housing prices had declined an additional 20 percent. According to the NBER, the economy ended its recession during the summer of 2009, though unemployment peaked at 10 percent in October. As much as one could hope, the 2007 survey queried households just as the Great Recession was unfolding and the 2009 survey questioned them just as the economy was reaching its nadir.