Posted on July 19, 2018

Black American Culture and the Racial Wealth Gap

Coleman Hughes, Quillette, July 19, 2018

There is arguably no racial disparity more striking than the wealth gap. {snip}

But statistics don’t interpret themselves, and the wealth gap is no exception. A recent wave of scholarship—including Mehrsa Baradaran’s The Color of Money, Richard Rothstein’s The Color of Law, and Ta-Nehisi Coates’s “The Case for Reparations”—has converged on the interpretation that the wealth gap is caused by two factors: slavery and racist New Deal policies.

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But slavery is hardly the root cause of America’s prosperity. If it were, then we would expect American states that practiced slavery to be richer than those that did not. Yet we see precisely the opposite. The South, where slavery thrived, was “the poorest and most backward region of the country,” according to the economist Thomas Sowell.1 This remains true today. {snip}

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The second factor offered as an explanation for the wealth gap is the exclusion of blacks from a set of New Deal policies designed to promote homeownership, income growth, and wealth accrual. After World War II, whites received the vast majority of government-backed mortgage loans.4 By the time the civil rights gains of the 1960s made these loans available to blacks, it was too late—the crucial economic boom of the previous two decades, during which housing values rapidly appreciated, had already passed, and blacks, reeling from the effects of redlining and income suppression, couldn’t enter the housing market at its new prices.5 Wealth—in the form of property and inheritances transferred from parent to child—became a birthright for whites. Meanwhile, deprived of such wealth transfers, poverty became a permanent trap for blacks.6

But this story, though based in truth, has been massaged to give the false impression that benevolence from the state is a prerequisite for wealth accrual. {snip}

The prevailing progressive narrative also gives short shrift to the history of immigrant groups succeeding in the face of racist hostility and without help from the government. {snip}

But history tells a different story. Starting with the California Alien Land Law of 1913, fourteen states passed laws preventing Japanese-American peasant farmers from owning land and property. These laws existed until 1952, when the Supreme Court ruled them unconstitutional. Add to this the internment of 120,000 Japanese-Americans during World War II, and it’s fair to say that the Japanese were given no bootstraps in America. Nevertheless, by 1970 census data showed Japanese-Americans out-earning Anglo-Americans, Irish-Americans, German-Americans, Italian-Americans, and Polish-Americans.14 For Asian-Americans on the whole, an analysis of wealth data from 1989 to 2013 predicted that their “median wealth soon will surpass the white median level.” If wealth differences were largely explained by America’s history of favoring certain groups over others, then it would be hard to explain why Asian-Americans, who were never favored, are on track to become wealthier than whites.

Nor can historical racism explain wealth disparities between groups of the same race. A 2015 survey of wealth in Boston found that the median black household had only 8 dollars of wealthNewsweek reported this fact under the heading “Racism in Boston.” But the 8 dollar figure only pertained to black Bostonians of American ancestry; black Bostonians of Caribbean ancestry had 12,000 dollars of wealth, despite having identical rates of college graduation, only slightly higher incomes, and being equally black in the same city.

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It’s not looking good for the progressive narrative about the racial wealth gap. Still, there is a kernel of truth to it. Researchers at Brandeis followed a nationally representative set of 1,700 families from 1984 to 2009 and measured their wealth gains over that period. They concluded that inherited wealth and length of homeownership accounted for 5 percent and 27 percent, respectively, of the racial disparity in wealth gains. But even if that combined 32 percent could be automatically ascribed to historical racism (which it cannot), that would still leave 68 percent of the gap to be explained by other factors. In short, many commentators have zoomed in on the fraction of the story that can be told without discomfort but have ignored the rest.

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Conspicuous by its absence in the progressive account of the racial wealth gap is any active role for blacks themselves. Reading Baradaran, Rothstein, and Coates, one gets the impression that there is nothing blacks could do to improve their lot—outside of asking the government for radical policy solutions. But there are things that blacks can do. Indeed, there are certain elements of black American culture that, if changed, would allow blacks to amass wealth to a degree that no government policy would be likely to match.

No element of culture harms black wealth accrual more directly than spending patterns. Nielsen, one of the world’s leading market research firms, keeps extensive data on American consumer behavior, broken down demographically. A 2017 Nielsen report found that, compared to white women, black women were 14 percent more likely to own a luxury vehicle, 16 percent more likely to purchase costume jewelry, and 9 percent more likely to purchase fine jewelry. A similar Nielsen report from 2013 found that, while only 62 percent of all Americans owned a smartphone, 71 percent of blacks owned one. Moreover, all of these spending differences were unconditional on wealth and income.

To what extent do poor spending habits explain the persistence of the wealth gap? Economists at the University of Chicago and the University of Pennsylvania asked this question after analyzing 16 years of nationally representative data from the Consumer Expenditure Survey. Consistent with the Nielsen data, they found that blacks with comparable incomes to whites spent 17 percent less on education, and 32 percent more (an extra $2300 per year in 2005 dollars) on ‘visible goods’—defined as cars, jewelry, and clothes. What’s more, “after controlling for visible spending,” they concluded that the “wealth gap between Blacks and Whites, conditional on permanent income, declines by 50 percent.” To be clear, that 50 percent figure doesn’t pertain to the total wealth gap, but to the proportion of the gap that remains after income is taken into account—which was 40 percent. The upshot: the fact that blacks spent more on cars, jewelry, and clothes explained fully 20 percent of the total racial wealth gap.

To make matters worse, spending patterns are just one part of a larger set of financial skills on which blacks lag behind. Researchers at the Federal Reserve Bank of St. Louis followed over 40,000 families from 1989 to 2013, tracking their wealth accumulation and financial decisions. They developed a financial health scale, ranging from 0 to 5, that measured the degree to which families made “routine financial health choices that contribute to wealth accumulation”—e.g., saving any amount of money, paying credit card bills on time, having a low debt-to-income ratio, etc. At 3.12, Asian families scored the highest, followed by whites at 3.11, Hispanics at 2.71, and blacks at 2.63.

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{snip} Talking honestly about harmful behavioral patterns is the only way to reliably correct them. {snip}

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{snip} It is no longer primarily racism that holds blacks back, but a set of cultural elements—some acquired from white southerners,18 some a consequence of historical racism,19 others a consequence of the political upheavals of the 1960s,20 and some which are mysterious in origin—that are ill-suited for success in a modern information economy. Thus, unfair as it may seem, blacks can now do more for themselves than either whites or the government can do for them.

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The salient question should never have been who to blame for blacks’ predicament, but who is able to fix it. If the problem were simply a lack of cash, then the government would be the ideal candidate. But if we learned anything from the explosion of violent crime and single motherhood following welfare expansion in the late 1960s, it was that cash transfers cannot solve a problem that the absence of cash didn’t cause. Herein lies one of the many issues with reparations: it would not address the root causes of black underachievement. {snip}

Those who agree that top-down cultural reform is naïve might still object that bottom-up reform is equally quixotic. How, exactly, does one go about changing something as complex and distributed as culture? On this point, the history of formerly lagging ethnic groups is instructive. Whether measured by rates of alcoholism, high school graduation, or income, Irish-Americans used to lag far behind other American ethnic groups.23 As one point of reference, the incarceration rate for Irish-Americans was five times higher than for German-Americans in 1904. The response? While some Irish leaders blamed society, others, notably those in the Catholic Church, launched an inward-looking campaign to change behavioral patterns within the Irish community.24 Similar efforts were made by acculturated German-American Jews, whose stern programs of assimilation for their less-cultured Eastern European co-religionists included giving them “pointed lessons on the use of soap and water,” according to Sowell.25

That’s not to say that the details of these particular self-help campaigns are either replicable or wise. It’s only to say that historical examples of successful self-help campaigns exist. By contrast, I do not know of a single instance in which an underachieving ethnic minority rose to economic prominence by asking the government for cash transfers, preferential policies in education and employment, or apologies for past injustices. {snip}

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Coleman Hughes is an undergraduate philosophy major at Columbia University. His writing has been featured on Heterodox Academy’s blog as well as in the Columbia Spectator. You can follow him on Twitter @coldxman

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