Middle-Class Blacks and Whites Have Vastly Different Fortunes

With the passing of the 50th anniversary of the March on Washington, commentators have been assessing the status of blacks in society. Matt Yglesias has a post about the black-white income gap, and how it has not budged in 40 years. Brad Plumer has a post at Wonkblog that features ten charts showing the persistence of the black-white economic gap, including rates of unemployment, poverty, and so on.

The statistics provided in these posts—and indeed most statistics provided on this question—compare all blacks against all whites. This kind of comparison is worth making for certain purposes, but it also has its limitations. By itself, such group-level comparisons lend themselves to the hasty conclusion that the difference between the economic situations of blacks and whites is mainly that blacks are more concentrated on the low end of the economic ladder.

When you've concluded that the black-white disparity is primarily an issue of black over-representation on the bottom and white over-representation on the top, it becomes easy to say that this disparity is ultimately just about class. This was essentially the take of Heather Long two days ago in the Guardian. In her article, Long writes at one point:

But when you look at the data, the most pernicious problem in society today is the haves and have nots. Race plays a factor, but middle class blacks live fairly similar lives to middle class whites. Middle class blacks and whites work together. Their children have playdates and go to same prep schools and colleges. What you are far less likely to see is a lower income children of any race mixing with a middle or upper income child.

I don't mean to attack Long here. Her article is actually quite good overall, but she is mistaken on the point she is getting at in the above quote. Middle class blacks and whites are not in similar economic situations. In fact, up and down the entire income ladder, blacks are in far worse shape than their white peers. The black-white gap is not just about differential racial concentration among economic classes; rather, it manifests itself within every single economic class.

The best way to see this is to look at wealth broken down by race and income. And for that, we turn to our trusty friend, the 2010 Survey of Consumer Finances microdata:

As you can see, black families have much less wealth than white families, even when you compare blacks and whites within the same income groups. The above graph can be hard to make out on the bottom end, so here is another representing the data in a different way:

In this graph, we see black and hispanic wealth represented as a percentage of the white wealth in a given income group. So for instance, the bar farthest to the left says that black families in the poorest 20 percent of families have a median wealth that is just 19.7 percent of the median wealth of white families in the poorest 20 percent. Black families in the 60th to 79th percentile of income come the closest to their white peers, but even they have median wealth holdings that are just 53.9 percent of whites in that group. If you average all the income groups together, you find that, when you control for family income, black median wealth is less than 1/3rd of white median wealth.

Why is this the case? There are many factors, but one in particular looms large. It turns out that three centuries of enslavement followed by another bonus century of explicit racial apartheid was hell on black wealth accumulation. Wealth accumulation opportunities haven't exactly been evenly distributed in the last half century either. Because wealth is the sort of thing you transmit across generations and down family lines (e.g. through inheritance, gifts, and so on), racial wealth disparities remain quite massive.

This wealth disparity means that a middle class black family is not in basically the same position as a middle class white family. Relative to a white middle class family, a middle class black family has a reduced ability to endure negative economic shocks, has much less retirement security, and cannot spend as much boosting their kids' economic futures (e.g. by paying for their college or a down payment on their first house).

The upshot here is that attending merely to class issues wont solve our still very pervasive racial disparities, though it could make strides in that direction. A steep, progressive inheritance tax would help to close the black-white wealth gap. If the proceeds of such a tax were funneled into a full-fledged sovereign wealth fund that pays out social dividends, we may even end up killing two birds with one stone.

Comments

I'm really having a hard time believing what I just read. So let's see, whites have more wealth than blacks by income group. That's a fact. But the author simply asserts that this is a legacy of slavery and discrimination...with zero evidence. Brandeis University actually looked into this issue, and found that inheritance only accounts for about 5% of the wealth gap.

The author's solution is even more bizarre. So what we're going to do is to tax people who have never owned a slave, to pay people who have never been slaves? I don't think this would sit very well with people who grew up poor, grew their own wealth, and then have to fork it over to pay for crimes committed by someone who may or may not have been their ancestor 200 years ago. And what the hell is a "social dividend"?

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