Wealth inequality--causes and consequences

 According to Wikipedia, five states and at least four cities have taken steps to consider reparations for black Americans on the grounds that their relatively lower levels of wealth are due to slavery, segregation, and discriminatory economic policies.  Measured in the aggregate--which is how nearly everything having to do with race is measured nowadays--the wealth gap is indeed very large.  The Brookings Institution reports that median black wealth was $44,890 in 2022, compared to $62,000 for "non-white Hispanic" households, $285,000 for white households, and $536,000 for Asian households.  Many would argue, presumably, that black Americans have a greater claim to reparations than Hispanics--who certainly have suffered from discrimination--because most of them descend from slaves and their families have been in the United States for so much longer.  Using different statistics, I would like to suggest that the use of median values (or for that matter of mean values, which I have not seen) presents a very  misleading picture of the distribution of poverty and the problem of inequality in the United States.  Those problems are very real, but evidence suggests that they do not have a primarily racial cause and cannot have a primarily racial solution.

According to this table which I found online, the poorest ten percent of households in 2020 had negative or nearly zero net worth.  the poorest 40 percent had $100,000 or less of net worth, and the poorer half of our households had $200,000 or less in net worth.  I now want to refer you to Figure 3 on this page maintained by the Federal Reserve, which shows the racial share of these portions of our nation's households.  The graph I am using is the lower left one of the four graphs in that figure.  It is relatively small and I have to estimate values to some extent, but nothing I say will be wildly off.  Bear with me. After working with this graph for about an hour, I realize that it doesn't tell me exactly what I would like to know: the racial distribution of households in the lowest 10 percent of the population, the lowest 20 percent, etc.  Instead it shows the distribution in discrete percentiles, from the first to the 100th, of the income distribution.  I wish I could find the data I really was looking for, but I can't.  Still, the discrete points on this one will tell us a lot.

Let's begin with the 10 percent of households that are either in debt or have no or almost no net worth.  In the tenth percentile, about 45 percent of those households are white--the portion shown in blue on the graph.  About 33 percent of them are black,  about 18 percent of them are Hispanic, and about 4 percent ar Asian.  The bottom 10 percent households totaled about 12.9 million households or 33 million people.  If we assumed that the figures for the tenth percentile were valid for the whole poorest one-tenth of households in the country,  we would put the number of white Americans living in those net worth-less households was 14.9 million, compared to 11 million black people, 5.9 million Hispanics, and about 520,000 Asians.  Looking at the graph, however, it is clear that the percentage and thus the number of white households in the lowest five percentiles was significantly higher than in the 10th. (The poorest several percentiles owe many thousands of dollars each.) Thus, it seems clear that of the bottom 10 percent of the wealth distribution, more than half of them are white.

Let's do the same exercise for the 64 million households in the bottom half of the wealth distribution, 80 percent of whom own $100,000 or less and another 10 percent between $100,000 and $200,000.  Looking at the graph, you can see that the white share of households reaches 50 percent around the 17th or 18th percentile and grows to over 70 percent by the 50th.  I can't do a real calculation of the exact number of white, black and Hispanic households in the lower half of the population, but it looks as if about 60 percent of them are white, with perhaps 21 percent black and 16 percent Hispanic.   Interestingly enough, at the 50th percentile the shares of black and Hispanic households approximate 15 percent, which according to the graph to the right is also quite close to their total share of households. That means that the lower half of the income distribution includes 38.6 million white households, 13.5 million black households, and 10.3 million Hispanic households.  That translates to about 98 .5 million white people, 34.5 million black people, and 26 million Hispanics.

Now it seems to me there are at least two ways of looking at the inequality problem in our society.  Going back to the beginning of this post, we find that the median net worth of black, white and Hispanic households in the United States are $285,000, $44,890, and $62,000.  That sounds like being white is an enormous disadvantage and being black is a crippling disability.  The principle reason for those disparities, however, is the overwhelming dominance of white households in the upper reaches of the income distribution.  If we focus on the people who really need help--the lowest decile with negative or zero net worth, and the next 40 deciles with very little--we find that more than half of them turn out to be white.  That raises some very important historical questions.

It is now a liberal commonplace that slavery, segregation, and discriminatory policies have caused income inequality between the races in the United States.  That would imply that those factors are the reason that about 11 million black Americans live  in households with no assets and 34.5 million black Americans have less than $200,000 in assets (and 80 percent of them have less than $100,000). That interpretation, however, leads us to another question:  why then do 14.9 million white Americans find themselves with negative or 0 net worth, and another 83.6 million have less than $200,000?  Slavery and discrimination cannot be the cause of that.  I can imagine two possible explanations for this.

The first is essentially a riff on the common conservative explanation for minority poverty--that it is a matter of culture.  One could argue that while slavery, segregation, and public policies are what have made black and Hispanic people poor, poor white people must suffer from serious cultural deficiencies.  Actually there is good evidence that poor people of all races now suffer from the same social pathologies. Charles Murray has been attacked for some of his writings about black people, and at times, I think, with good reason--but I was very impressed by his book Coming Apart, which is about poor white people, not poor black people, around metropolitan areas.  He found that in the last decades of the last century their attitudes, values, and ways of living had become increasingly dysfunctional, including breakdowns of family life, drug use, and aversion to work among many young males.  The illegitimacy rate among white people is now higher than the rate among black people when Moynihan wrote his famous report in 1965, and there are more white single parents now than black.  It doesn't make any sense, in my opinion, to racialize these problems.  Millions of blacks and Hispanics are not suffering from them, while millions of white people are.

My preferred explanation for the presence of 50 percent of the population with no or very little net worth, however, is simply the evolution of the American capitalist economy since the 1970s.  This is laid out very clearly in a series of charts at this remarkable web site, showing what has happened to income and wealth distribution in the last 53 years, since 1971.  I am going to reproduce one of its most interesting charts, one which deals specifically with race.

The chart shows, remarkably, that average black income as a percentage of average white income rose from 50 percent in 1948 to about 68 percent in 1971--even though for most of that period at least half of black Americans were living  under legal segregation.  From then until 2018, however, that progress slowed.  So did the progress of the whole lower half of the US population, as other carts in the web site show.  Thanks in particular to very high top-bracket tax rates, the strength of labor unions, and a massive housing boom--which helped everyone by increasing the stock of housing so much--GDP gains went in large measure to the lower deciles of the population.   In the last half century they have gone mostly to the very top.  That--not slavery from 1619 to 1865 or segregation from then until the 1960s--is the reason for the tremendous economic inequality that we all face today.

The insistence that began, I think, with Lyndon Johnson, that poverty is mainly a minority problem and that therefore solutions to it must focus on helping minorities, has not only failed to address our real economic problems, but has also had disastrous political consequences.  The whole lower half of our population is very unhappy, and rightly so, with the state of our economy, the life it offers them, and the shrinking chances of improving their position.  Most minority voters blame discrimination for their lot, apparently, and vote Democratic.  But the white voters in the lower 50 percent can't blame discrimination, and they understand how public policies having nothing to do with race--such as free trade agreements and rollbacks of union rights--have hurt their position.  They apparently blame Democrats more than Republicans for this, perhaps because Democrats still claim to be the party of the working class, without doing very much about its plight.  The whites in the lower half of our wealth distribution now vote heavily Republican--and there are far more of them than there are blacks and Hispanics, as we have seen.  In addition, recent elections and polling show blacks and Hispanics trending Republican.

The diversity movement in all our major institutions has, I am sure, increased minority representation within those institutions significantly--but it has done little or nothing for the lower half of the population because it is not attacking the real causes of its problems.  In fact, we all stand or fall together, economically, politically, and the world at large.  We desperately need leaders who can return to that simple creed.