The Unintended Consequences of Roosevelt’s Reforms: Retirement Savings, Peacetime Inflation, and the Persistence of Racial Wealth Inequality in the U.S.

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Vellore Arthi, University of California, Irvine

Life insurance was historically an important vehicle for retirement savings and for wealth accumulation within and across generations.  For complex historical reasons including systemic racial barriers to financial access, Black households were especially likely relative to their white counterparts to hold these low-risk but also low-return savings/investment vehicles.  The incentives to hold these policies changed dramatically for the worse – and disproportionately so for Black households in particular – upon the advent of two broad New Deal-era policies: the advent of Social Security and the reformulation of key tenets of macroeconomic policy by the Federal Reserve.  What were the consequences for racial disparities?
In this study, I ask: what are the distributional impacts of macroeconomic policy in the presence of racially segregated financial markets?  More specifically, did facially neutral New Deal-era policies relating to retirement savings and inflation contribute to persistent racial wealth gaps through their interaction with long-standing racialized patterns in insurance demand – itself a historically popular mechanism for retirement savings?