Whites 5 Times Richer Than Blacks

After reading a Guardian story is headined “A $95,000 question: why are whites five times richer than blacks in the US?” I still don’t know.

median-wealth-race-income

A typical white family is now five times richer than its African-American counterpart of the same class, according to a report released today by Brandeis University in Massachusetts.

White families typically have assets worth $100,000 (£69,000), up from $22,000 in the mid-1980s. African-American families’ assets stand at just $5,000, up from around $2,000.  A quarter of black families have no assets at all. The study monitored more than 2,000 families since 1984.

“We walk that through essentially a generation and what we see is that the racial wealth gap has galloped, it’s escalated to $95,000,” said Tom Shapiro, one of the authors of the report by the university’s Institute on Assets and Social Policy. “That’s primarily because the whites in the sample were able to accumulate financial assets from their $22,000 all the way to $100,000 and the African-Americans’ wealth essentially flatlined.”

They answer the question with more questions:

Shapiro says the gap remains wide even between blacks and whites of similar classes and with similar jobs and incomes.

“How do we explain the wealth gap among equally-achieving African-American and white families? The same ratio holds up even among low income groups. Finding ways to accumulate financial resources for all low and moderate income families in the United States has been a huge challenge and that challenge keeps getting steeper and steeper. But there are greater opportunities and less challenges for low and moderate income families if they’re white in comparison to if they’re African-American or Hispanic,” he said.

How so?

The report attributes part of the cause to the “powerful role of persistent discrimination in housing, credit and labour markets. African-Americans and Hispanics were at least twice as likely to receive high-cost home mortgages as whites with similar incomes,” the report says.

Although many black families have moved up to better-paying jobs, they begin with fewer assets, such as inheritance, on which to build wealth. They are also more likely to have gone into debt to pay for university loans.

“African-Americans, before the 1960s, first by law and then by custom, were not really allowed to own businesses. They had very little access to credit. There was a very low artificial ceiling on the wealth that could be accumulated. Hence there was very little, if anything, that could be passed along to help their children get to college, to help their children buy their first homes, or as an inheritance when they die,” said Shapiro.

No doubt. The problem with this as the explanation, however, is that the gap has increased as overt discrimination has declined.

Shapiro says one of the most disturbing aspects of the study is that wealth among the highest-income African-Americans has actually fallen in recent years, dropping from a peak of $25,000 to about $18,000, while among white counterparts of similar class and income it has surged to around $240,000.

In 1984, high-income black Americans had more assets than middle-income whites. That is no longer true.

The public policy change?

Since the 1980s, US administrations have also geared the tax system to the advantage of the better off. Taxes on unearned income, such as shares and inheritance, fell sharply and are much lower than taxes on pay.

But that’s only incidentally related to race.  And it doesn’t explain why high status blacks have fewer assets than low status whites, who presumably aren’t inheriting piles of money.

There were also social factors, the study found. “In African-American families there is a much larger extended network of kin as well as other obligations. From other work we’ve done we know that there’s more call on the resources of relatively well-off African-American families; that they lend money that’s not given back; they help cousins go to school. They help brothers and sisters, aunts and uncles, with all kinds of legal and family problems,” said Shapiro.

That’s interesting, of course.  We see it with professional athletes who make millions of dollars and are soon flat broke because they can’t say “No” to an extended network of friends and relatives who expect to share in their new-found prosperity.  But, surely, it doesn’t explain a five-fold gap?

As best I can tell from the IASP site, they simply begin with the presumption that differences in performance are a function of discrimination and public policy choices.    A quick read through the very short policy brief, “The Racial Wealth Gap Increases Fourfold,” [PDF] confirms this. I’m particularly struck by this:

While those who begin the period with roughly similar incomes would be expected to have the same opportunities to build wealth, the differences in accumulation by race remain stark even accounting for income. (p.2)

But “opportunities” don’t translate into “accumulation” unless the proper steps are taken.  I recall being a young second lieutenant and investing a significant portion of my income into savings and retirement accounts and still having a decent amount of liquidity while most of my contemporaries (mostly white!) were living hand to mouth.  The difference wasn’t in opportunity.  And it sure as hell wasn’t because I had a large trust fund.  Rather, I planned for my future and lived within my means whilst most of the others bought expensive cars and otherwise engaged in short term thinking rather than deferring gratification.

The study doesn’t explain why blacks and whites of similar incomes pay higher loan rates.  It makes allusions to “neighborhoods,” though, which makes some sense.   What’s not clear, though, is why middle class blacks aren’t moving to better neighborhoods.  And, indeed, the discussion that does exist in the paper conflates the behavior of low income blacks and average whites, which just doesn’t make sense.

UPDATE: Dave Schuler comments at his own digs:

I found the article and, presumably, the study from which it was derived baffling because it ignores a well-known and undispited fact: at every income level in the United States blacks spend more on visible signs of affluence than do their white counter-parts

[…]

When you look a little deeper into this phenomenon it turns out that blacks living in poor communities and whites living in poor communities tend to have similar spending patterns

So, in addition to the no doubt real legacies of past discrimination, we have two phenomena:  Variation in cultural norms between blacks and whites generally that more-or-less go away when you control for variables other than income.  Which shouldn’t be at all shocking to people who study these things for a living and would therefore be presumed to know more about the subject that Dave and I, who don’t, know off the top of our heads.

Unless, of course, they simply wanted to find what they wanted to find and have an ignoramus press publicize their efforts.  In which case:  SCORE!

FILED UNDER: Economics and Business, Race and Politics, US Politics, , , , , , , , , , , ,
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. john personna says:

    I agree that they didn’t nail it down too well. Perhaps a follow-up survey could get enough families to open their books, to show where the money goes.

    It’s also tricky to compare single year income to wealth accumulation, if that’s what they are doing. It’s harder to poll “previous 10-year total earnings” but those matter more.

  2. I’d like to be happy to note that someone else has finally recognized that wealth is about assets rather than income, except that once again the statistics are being used selectively to support the need for the redistribution of wealth rather than the creation of wealth.

    Ah, why bother.

  3. john personna says:

    Charles, this is not proof of a problem, just suggestion of a problem. To say “selective use” and “why bother” is to say you can’t stand the suggestion, and don’t want to know more.

  4. Sai-Kit Hui says:

    I believe this topic was covered by noted sociologist Chris Rock

  5. arcs says:

    It’s obvious to me that “wealth” in this report does not include the rolling stock on vehicles driven or various other blingy status symbols.

    There are more than quite a few Yukons/Tahoes/Escalades/etc around here with wheels and tires that cost as much as my ’06 4wd pickup cost new.

  6. James Joyner says:

    There are more than quite a few Yukons/Tahoes/Escalades/etc around here with wheels and tires that cost as much as my ’06 4wd pickup cost new.

    I see that one quite a bit. More oddly, I frequently see $1000 wheels on a $700 car.

  7. Franklin says:

    There’s no doubt to me that spending vs. saving habits are a large piece of the puzzle here. What may be surprising to some is how much savings and investment can accumulate.

    This was something taught to me by my father, my middle school math teacher, my mentor at my first job out of college, etc. Apparently the message isn’t being delivered to or received by some. Personally I think personal finances should be taught in public school, multiple times if needed. The graphs above show exactly how important this is.

  8. floyd says:

    With a cacophony of voices constantly accosting our consciousness with chronically redundant and agenda driven messages,a person must develop a filter of sorts in order to remain reasonably informed. By necessity this involves selective attention with an occasional “why bother” response when appropriate.
    One red flag is the constant “suggestion of a problem” from sources who wish to perpetuate stereotypes for political gain.
    As for the premise of the article,it merely proves once again that statistics are often produced to prove a point rather than discover it.

  9. john personna says:

    If this turns out to be “more conspicuous” consumption, I can deal with that, and wouldn’t think the answer is governmental. If that’s it, it needs a cultural response … ah, an example from another blog here.

    And if that turns out to be the case, isn’t knowing it better than being scared away by suggestions, closing your mind with a “why bother?”

  10. No, I meant why bother commenting, knowing that you would tell me what I really think, or need to think.

  11. john personna says:

    Did you think?

  12. TangoMan says:

    Personally I think personal finances should be taught in public school, multiple times if needed. The graphs above show exactly how important this is.

    Doing so might violate the Seattle School District’s proposed standards on racism:

    . . . having a future time orientation, emphasizing individualism as opposed to a more collective ideology

    The report attributes part of the cause to the “powerful role of persistent discrimination in housing, credit and labour markets. African-Americans and Hispanics were at least twice as likely to receive high-cost home mortgages as whites with similar incomes,” the report says.

    James is right when he points to the authors’ invoking axioms to explain findings. I guess their narrative would have been disrupted if they conducted the mortgage analysis by controlling for credit score.

    “In African-American families there is a much larger extended network of kin as well as other obligations.

    This right here is, to me, a very interesting situation. Blacks have been in the US for centuries. The operational presumption is that they’ve been assimilated into common cultural norms and lost any vestigial remnants of their pre-slavery African culture. Yet, when we look at many of the West African cultures, we see this “big man” cultural trait is quite prominent. How can this be after centuries of separation? What does it say about the assimilative power of culture?

    As best I can tell from the IASP site, they simply begin with the presumption that differences in performance are a function of discrimination and public policy choices.

    I hope that this isn’t a surprise to you.

    While those who begin the period with roughly similar incomes would be expected to have the same opportunities to build wealth, the differences in accumulation by race remain stark even accounting for income.

    I’ve read a number of studies which have looked at the issue of financial returns to cognitive ability with race being a control. Blacks are now getting better returns on cognitive ability than Whites and the rate of return increases as cognitive ability increases. This means that there is a premium being paid by employers to employ cognitively talented Blacks, so if these researchers are simply sorting by income, they’re not factoring in the influence of intelligence on wealth accumulation.

    at every income level in the United States blacks spend more on visible signs of affluence than do their white counter-parts

    Dave raises a good point. Steve Sailor used this fact to great effect in his debate with Malcolm Gladwell on Gladwell’s charge of car salesman being discriminators against black customers.

    Unless, of course, they simply wanted to find what they wanted to find and have an ignoramus press publicize their efforts. In which case: SCORE!

    Bingo!

  13. PD Shaw says:

    Tangoman, I think the marriage gap is part of the picture here. Married men make 10-30% more than their non-married counterpart. Marriage rate was comparable between the races until about 1960, when both began to drop, but far more precipitously among African-Americans. And then we can consider the economic inefficiencies of single-parent households on top of that.

  14. TangoMan says:

    I think the marriage gap is part of the picture here.

    I certainly agree with you on this point. I assumed though that this “study” controlled for marriage within household.

  15. Drew says:

    Oh, my God.

    Just look at the graph, and ask yourself about definitions, people.

    This “analysis” is absurd on its face.