The Economic Crisis in Black and White

Today, the U.S. economy is facing one of its greatest challenges in decades. The recent seven-year economic expansion netted a record for producing the fewest jobs since Herbert Hoover was president. The median income for American households has not kept up with inflation. So as the economy slows, households are in a weaker position than they were when the expansion began in 2001. Further, prompted by a housing bubble that inflated home prices to unsustainable levels, Americans facing declining incomes took on record debts secured by those now-shaky home values. From January through August, the economy has been shedding jobs, throwing more workers into the labor market. Polls show that Americans understand the economy is going in the wrong direction. Rightly, they score President Bush, who has overseen the economy skid off course, with the lowest marks on record for a president. But Americans are not expressing much empathy for those who are suffering the most. People have been upset at bailouts for Wall Street companies like Bear Stearns, but they have not been vocal enough in demanding help for Americans who have lost their jobs, incomes, and homes.

This Prospect special report focuses on one of the great cleavages in America that prevents the empathy needed for American workers to bond together to demand a better course -- race. It may seem odd to dedicate an issue to a call for solidarity in understanding how growing inequality affects Americans while the nation celebrates its breakthrough in having an African American nominee of the Democratic Party -- the major political party associated with working Americans.

As Barack Obama's nomination suggests, America has come a long way, from largely symbolic breakthroughs in sports and entertainment to greater political maturity on race. But what have not caught up are either necessary policy changes or the necessary coalition politics to bring them about.

As long ago as the 1936 Olympics in Berlin, the triumphant black sprinter Jesse Owens, who won four gold medals, was America's answer to Hitler's "Master Race" of Aryans. At the time, America itself was still segregated. Forty-eight years ago, at the 1960 Olympics in Rome, America did its best to respond to Soviet taunts about its treatment of African Americans by highlighting Rafer Johnson, the decathlete, as captain of the U.S. Olympic team and flag bearer as the team entered the stadium in Rome. Television broadcasted home the images of Wilma Rudolph and a young Cassius Clay, later Mohammed Ali, winning medals for America. Since then, Americans have grown more comfortable with such black "exceptionalism" -- whether it is Oprah Winfrey, Bill Cosby, Tiger Woods, or Michael Jordan. With our black media stars, we congratulate ourselves that America has fulfilled Dr. Martin Luther King's speech delivered 45 years ago in August, calling for an American dream where people would be judged by the content of their characters and not the color of their skins.

Yet, while the economy has failed American workers -- generating more inequality than growth, more debt than income -- discussing solutions to America's economic woes rekindles America's racial cleavage. White voters are asked to weigh issues such as trade and its effects on wages and jobs, or the complications of providing health care and its effects on take-home pay and retirement benefits, or the rising costs of college tuitions on their children's futures. But black voters are too often given a lecture on presumed black pathologies -- a lack of interest in education and the skills needed to compete, a weak sense of family, and high criminal proclivities. One could easily assume that white America was doing fine, and if black America would only get its act together, black Americans would be doing just as well. You might almost believe that the hundreds of thousands of jobs America has lost in manufacturing in the last seven years were only lost by lazy, poorly educated African Americans too busy having babies to get the skills to keep their jobs. You might almost believe that gas and food prices were rising only for black Americans, preventing only their wages from keeping up with the rising costs of living.

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This bifurcation in the discussion of America's economic woes blocks identification of the true similarities and differences among workers of different races. The usual frame leads African Americans to experience white views as insensitive to their plight -- while for whites it dangerously masks the broader rise in economic inequality. Whites too easily see the black economic condition as the result of failing lifestyles, not a failing economy. Blacks too easily put the blame on either their own shortcomings or on discrimination.

Properly understood, what has befallen the black community should be viewed as water coming into the steerage section of an ocean liner -- special problems for those getting wet but a clear sign the entire ship is in trouble. The current debate on black pathologies is delaying a call for getting out the lifeboats and ensuring a fair distribution of those lifeboats -- and building a more sea-worthy ship for the next voyage. So far, the result has been, as with the Titanic, lifeboats for the rich in first class.

At the same time, we need to be candid with the depth of persistent racial disparities in the economy. Life remains bleak in the steerage section.

The U.S. set about a grand journey in the post?World War II era to ensure that economic depression was defeated and that renewed economic growth would be widely shared. The broad set of government policies that were pursued through the GI Bill to expand access to higher education and homeownership to a broad swath of America helped create a path to shared prosperity. Until the 1960s, many of those benefits were strictly segregated. Even so, the postwar boom produced unprecedented prosperity, and decent distribution required deliberate policies.

Today's rising inequality is widely blamed on globalization. But the current global forces have not stopped America's growth, and in the 1990s we briefly saw growth and productivity return to its postwar trend after stalling in the 1970s and 1980s. However, with weaker distributive policies, growth has benefited a smaller set of Americans. In fact, since 1980, the incomes of those at the top have doubled, while those in the middle and at the bottom have remained flat.

White men, especially those without college degrees, are not doing very well in today's economy. But they continue to do better than similarly situated blacks. What's needed is a careful disentangling of three factors: lingering racial discrimination; the true role of education in determining income; and the labor-market factors that have depressed earnings for blacks and whites alike -- and their true common interests in an economy of greater opportunity and broader prosperity.

The median earnings for white men with only a high school education were $36,539 in 2006, according to the latest U.S. Census Bureau data, and that figure has declined over time. But the median earnings for blacks (men and women) with only a high school education were $24,669, almost $12,000 a year less or about one-third less than the earnings of white men. To fully understand the depth of that difference, consider that about 70 percent of white men with a high school education made more than the median for blacks (and conversely, only about 25 percent of blacks earn more than the median of whites)! In July, the unemployment rate for black high school graduates was 9.4 percent, while for white male high school graduates the rate was 5.4 percent. Similar disparities exist for those with college educations.

So it would appear natural for whites to believe that blacks must not value education or simply are not willing to work, since absent information on these gaps, the lower earnings and higher unemployment experience of blacks are consistent with those of less-educated whites. But the reality for white men and blacks is that both are being denied the fruits of their production. However, given the superficiality of the usual discussion of differences and similarities, it is often hard for moderate-income whites to see blacks as being part of their same working class.

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The article in this special report by William Rodgers draws attention to this reality. Because the median income for blacks places them in the bottom third of the white income distribution, blacks and the bottom third of the white income distribution have similar experiences in the economy. As the bottom third of the income distribution -- black and white -- loses earning shares, working-class white men should recognize that they and blacks are both below the waterline, rather than think of blacks as being on a different boat.

By the same token, if many whites are overly inclined to blame the black condition on poor education, skills, and work habits, many blacks are too inclined to pin all their problems on racial discrimination or lack of education. With a $12,000 gap in income between white and black high school?educated male workers, it would take a 50 percent increase for black earnings to reach comparable white earnings. So it would appear to blacks that racial inequality alone is the big problem. And because more-highly educated blacks have higher earnings, and because whites have a higher rate of college graduation than blacks, it is easy to see why, for many in the black community, the same story of black pathologies about education are an easy sell. From a policy perspective it is easier to discuss closing gaps in education than to have the more difficult discussion on the persistence of gaps in earnings and unemployment among comparably educated black Americans. And by focusing on education and discrimination, blacks and whites politely excuse blacks from the conversation about the bigger topics of trade deficits, oil speculation, and financial-market misbehavior as not relevant to the larger shortcomings of the economy.

The cold hard facts are that education (and even the use of standardized test scores) fails to explain the racial gap in unemployment. In 2000 when black family income reached a record high, blacks had reached the high school completion rate reached by whites in 1991, and the college completion rate reached by whites in 1977, but only the income of white families from 1963! Only about one-third of the over 20 percent gap in wages between black and white men can be explained by differences in education; region (blacks are more likely to live in the South where incomes are lower); months of work experience (lower for blacks because of higher unemployment rates); firm size (slightly higher for blacks because they tend to be hired more by large firms that use formal hiring practices than by small firms that tend to use word-of-mouth practices and job referrals from friends and relatives, and large firms pay higher wages than smaller firms do); unionization (blacks are more likely than whites to belong to unions, and unionized workers get paid higher wages); job training (blacks tend to get less on-the-job training, and training helps boost earnings); and marital status (black men are less likely than whites to be married, and married men are paid more than single men).

So, for all the fuss about black pathologies, a large residual of racial inequality remains. Politely, one would consider that the discussions of the shortcomings of the black community are a discussion about the obvious and therefore the easy-to-address policy solutions. A more cynical view would be that the discussions are based on racial stereotypes and that creating distance between black and white workers on that basis avoids deeper discussions about how inequalities are generated and tolerated -- along both racial and class lines.

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This special report addresses many of the distinct ways in which the growth in inequality plays out differently in the black community, so that a dialogue can be started about how to create paths to equality that will not exacerbate the racial gap by ignoring those differences. For instance, the piece by Cecilia Conrad and its companion piece by Marlene Kim look at the interplay of race and gender inequality, and the fact that the black work force is more female than male, a unique characteristic among racial and ethnic groups in the U.S. If gender inequality is ignored, it is not possible to address the gap in earnings faced by black America.

These several issues overlap with the problems of how immigration reform is debated and with the barriers to an open and fair listing of jobs in the low-wage labor market, as discussed in the pieces by Maria Echaveste and Carmen Martino and David Bensman. And while blacks are more likely to be members of unions than whites are, so the drop in unionization rates takes on a more ominous meaning for blacks, as the piece by Steven Pitts highlights.

Though most of the report looks at problems of income and labor-market disparities, the long-run legacy of failing to address disparities in income has resulted in the gaps in wealth (the accumulated store of savings and income), which are even more extreme than the gap in income for blacks and whites. This means that white families have a deeper cushion of savings to fall back on than black families have, as well as a legacy to help their children with a head start. As the recent gains in homeownership for blacks are ravaged by the sub-prime catastrophe, the almost 25 percentage-point gap in homeownership returns to a permanent fixture of the racial landscape in America, as Melvin Oliver and Thomas Shapiro discuss in their piece.

Racial redlining relegated middle-class black homeowners to the tender mercies of unregulated and predatory mortgage lenders to seek the refinancing that American homeowners used to weather the storm of poor job growth and flat earnings of the Bush years. This discrimination in turn led directly to the current debacle of the sub-prime market collapse. Here is truly a case where tolerating racial disparities produced a disastrous outcome for everyone.

Finally, while this issue primarily addresses the African American work force, there are parallel issues facing Hispanic and Asian American workers. We need a more honest and searching discussion of the rights of immigrants to the American dream. However, it is the African American community that bears the brunt of a distorted view of inequality -- one rooted in stereotypes of black inferiority, a past that Dr. King dreamed of transcending. And in the general dialogue about inequality, Hispanic and Asian families are not singled out for failing to encourage education and lacking a sense of family.

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If we are to live up to Dr. King' speech of 45 years ago, then we must judge communities the same way. In 1969, a year after Dr. King's murder, the birth rate to unmarried black women stood at 90.6 children to every 1,000 unmarried black woman, and today it has fallen to 67.8 children. Today, 82 percent of black men over 25 are high school graduates, compared to 31.9 percent in 1969. Dr. King could only be disappointed that the nation would still rather discuss issues of character and race than economic justice. We need a discussion about inequality that will ensure that our political leaders will build the life boats they failed to deliver to New Orleans, as nothing changed when the levees broke in Iowa this year. We must understand that while flood waters destroy all homes, some folks lack the resources to flee on their own, some folks live on lower-lying land than others, some folks live in houses with more stories than others, but we had better understand that a flood endangers all of us. Anything that will take away our ability to empathize will eventually leave us all in the water with no help.

America faces an economic challenge today that is greater than any it has faced since the Great Depression. At that time, Franklin Roosevelt corrected the faults in the economy and created the Social Security Act to build lifeboats for Americans drowned by the failure of the marketplace. He had to create that out of whole cloth. Today, Americans have endured a withering 30-year-old campaign against the nation's safety net, convinced that we could all go it alone. That attack was, in part, predicated on the manipulation of racial stereotypes with the use of "welfare queens."

Yet, more broadly, as the piece by john powell highlights, states with higher shares of African Americans and Hispanics have devised safety nets that are wholly inadequate -- ranging from state minimum-wage laws, access to health insurance, and unemployment benefits to the right to join unions. The result is that blacks are more likely than whites to live in states where the safety net is already weakened, as we saw in New Orleans, causing poverty to be an American phenomenon disproportionately in the South and Southwest. The economic downturn of 2001 showed how porous the safety net was, as poverty began to rise throughout this "economic recovery."

However, there has never been a more urgent need as there is now for all Americans to see themselves in the same boat. Now is not the time for those who did not make the decisions that put the U.S. economy in this position to blame one another. Rather, now is the time for those who have entrusted the economy to others to speak as one and to right the ship.

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