The Racial Wealth Gap

There is a new article by Matt Bruenig over at the People's Policy Project, The Racial Wealth Gap Is About the Upper Classes. 3P, as they call it, looks to be a considerably left-of-center economics think tank, far enough left that it expends energy explaining how the Democrats have things wrong on particular policy issues. Its goal is "an economic system that serves the many, not the few." Bruenig comes to very different conclusions than I would about possible remedies, but the data is quite interesting. I will note that in some of his other articles he makes choices that might mislead people - he uses "disposable income" of the poor, rather than including Medicaid, housing subsidies, food stamps, and other benefits in his calculations of whether the EITC is valuable, for example.  That is a valid choice, and perhaps his readers are immediately aware that there are other choices, but I suspect it is (frequently) chosen to give the impression that the poor are worse off than they are.

Still his basic point is an excellent one.  The numbers traditionally quoted for the racial gap in wealth obscure important realities. For the bottom 50% each of white and black incomes, there is a racial wealth (no income) gap, but it is fairly small, about $23,000. (If that seems not small, remember that wealth includes things like home equity and value of a business.) His point is that the top decile of blacks own an enormous percentage of black wealth, and the top decile of whites own an even greater percentage of wealth than both other whites and the top 10% of blacks. Therefore, using the money from the few white ultrarich and distributing it to the bottom 90% multiracially is the solution. (He thinks the top decile of blacks don't need it.)

There's a lot wrong with that solution.  Just for openers, it relies on the Scrooge McDuck view of wealth, regarding it as essentially non-contextual and quickly made liquid. As an example of why that is wrong, consider that sports franchises just lost an enormous amount of value over the last few months.  They still have their stadiums, their merchandise, their players and infrastructure, but without games they do not generate revenue, and even worse, their projected revenue is reduced because no one knows how many games can be played going forward.  We just know that it will be less than it was.  That lost wealth didn't go anywhere. It just vanished.  It no longer exists.  Wealth is made in much the same way.  If those ultra-wealthy people did not make that money, much (not all) of it would not exist. I find that many conservatives, especially off the populist sort, don't get this either. It's not just liberals.

If you had asked me before reading the article where the wealth gap comes from, I don't think I would have broken it into deciles.  Most people would immediately attribute it to incomes, and thus ability to save. That must be part of it, but I would have guessed that the value of real estate factors into it, because people are less likely to want to live in black neighborhoods. That is also true of African-Americans, because of the crime rates.  From a Boston perspective, an identical house and lot in Randolph is not going to be worth as much as one in Canton. I would also wonder aloud whether there was more entrepreneurial reluctance among African-Americans.  I might actually be backwards on that.  I would have wished to have seen the numbers for Asians and Hispanics as well.

In any case, now you know.  When you read the numbers on the wealth gap, that is what is hidden behind them. It is real at all levels, but much more moderate than advertised, because what is occurring among the richest of both groups completely dominates the median.  Another example where the median is not the best choice in looking for the average.