What's Happening In Your World

Wharton Economist Bernard Anderson Gives a Clear Perspective on Economic Inequality

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by Bernard E. Anderson

We meet in this summit as the economy continues to recover from the worst economic crisis since the Great Depression. But I will not offer an economic outlook. Our focus is mainly on the economic status of the African American community.

The context of my remarks is racial inequality in American economic life.  It is broad; it is deep; and it is pervasive.

African Americans have a relationship with the American economy similar to the caboose on a train. When the train speeds up, the caboose speeds up.  And when the train slows down, so does the caboose.  But in the natural order of things, the caboose never catches up with the engine.

Racial inequality is reflected in every measure of economic activity, but in the interest of time, I will focus on employment, income, and wealth.

The CPS first collected labor force data by race 40 years ago.  Since that time until now, the black UR has remained consistently twice the UR of white workers.  It was 14% in December, 2012, and has fluctuated near that level for the last two years.  The white UR has remained at less than half that level over the same period of time.  The gap in the UR narrows and widens somewhat, depending upon the rate of job creation, but the gap never disappears, or moves toward an equilibrium point of parity.

 

Black youth unemployment also has a long record of racial disparity.  In fact, the black youth UR has been at or above 20% for 27 of the last 29 years, and has hovered near 40% for the last two years.  In contrast, the white youth UR is typically less than half the rate among black youth, and has not exceeded 21% in the last two years.

The median income of black families, now about $35 K, has not been higher than 61 % of white family income since the data were collected by race.  That means black families have never had more than $ 6 dollars for every $ 10 held by white families, a disparity that was much wider before 1960.

Much has been said about the great leap forward for the black middle class.  Well, let’s look at the evidence on the black/ white income distribution.  While 16% of all white families had an annual income of less than $ 25K in 2009, more than twice that ratio, or 32% of black families  were in that income category.

At the other end of the distribution, there were 1.8 million white families with annual income of $ 250 k or more.  In contrast, only 82 K black families , less than 1 % of all black families, had annual income of $ 250K or more in 2009.  Stated differently, while African Americans were 12 % of all American families, they accounted for less than 4 % of families with an annual income of $ 250 K or more.

The disparity in income has a major impact on the accumulation and preservation of wealth.  A widely cited study by the Pew Research Center revealed that between 2007 and 2010, a period that includes the collapse of financial markets and the steep economic downturn,  black net worth declined more than 50% to about $ 5400, while wealth among white families declined much less to $ 116 K.

Since the dawn of freedom with the Emancipation Proclamation 150 years ago, African Americans and their allies have worked long and hard to gain economic security for black people, and to eliminate racial inequality.  But as the evidence shows, their efforts have met with limited success.

It’s important to note that the persistence of racial inequality not only burdens millions of black families, it also imposes a significant cost on the nation’s economy.  In 1962, the President’s Council of Economic Advisors conducted a study of the cost of discrimination. Using a conservative estimating model, the CEA concluded that discrimination cost the economy 3.6% of GNP (that was before the measure was changed to GDP)

In 1995, my professor, mentor, and friend, the late Andrew F. Brimmer   recalculated the cost of discrimination, using a broader measure than CEA, and reported his findings in a report edited by Dr. Margaret Simms, and published by the Joint Center for Political and Economic Studies. Brimmer reported that despite wider opportunities and changed attitudes that emerged after overt discrimination was outlawed by the Civil Rights Act of 1964; the cost of discrimination had declined little, to slightly less than 3.6% of GDP.

We meet today on the first day of the annual celebration of Black history month. I’ll note that when the great historian Dr. Carter G. Woodson, a member of the faculty of this university introduced the celebration, it was Black History Week. Apparently the powers that be thought we had so much to celebrate they changed the week to a month. But wouldn’t you know, they gave us the shortest month of the year.

We just celebrated the annual recognition of Dr. Martin Luther King’s birthday. Because of serendipitous timing, and historic circumstance, the MLK celebration coincided with the second inauguration of the nation’s first African American president. That confluence of events concentrates our mind on a critical question: what should we expect from the African American President regarding racial inequality in American economic life?

Let me take you back to May 1965, when another President of the U.S. delivered the commencement address on this very campus. I was privileged to be in the audience on that day, and I recall him speaking the following words. He said “You can’t keep a man in chains for 200 years, remove the chains, bring him to the starting line, and tell him to run the race, and think you are being fair”. Three months later, President Lyndon B. Johnson   issued executive order 10925, which created OFCCP in the Department of Labor to beef up enforcement of affirmative action by companies doing business with the federal government.

Is it unreasonable to expect President Barak Obama to find his voice, summon his courage, and use some of his political capital to help eliminate racial inequality in economic life?  I ask the question as an early, strong supporter of Barak Obama.

I was part of a group in Philadelphia that organized a major fundraiser for then Sen. Obama three months after he announced his candidacy for the Democratic nomination to run for President.  I ran, and was elected an Obama delegate to the 2008 Democratic National Convention. Moreover, I have supported the President’s economic and foreign policy agenda since he took office.   I do not regret either of those actions.  But I believe now is the time for the President to find his voice, summon his courage, and use some of his political capital to address racial inequality in American economic life.

We know he is not President of Black America, but President of the United States of America, and we are proud of that.  But asserting that a rising tide lifts all boats is not enough.   A rising tide won’t lift all boats; it will do nothing for the shipwrecks stuck on the bottom of the sea.  To return to the original analogy, we need policies that help move the caboose closer to the engine of the train.

I believe the policies we need rest on a three legged stool. One leg is the achievement of full employment- – – not full employment defined as NAIRU, but full employment defined as a job for every person willing and able to work. And we must recognize that full employment won’t be achieved solely by expanding private sector employment.  We must allow for government to act not only as employer of last resort, but also the employer of first resort for socially redeeming purposes that won’t be pursued by the private sector.

The achievement of full employment will require policies that increase the GDP growth rate and job creation; policies that support stable, balanced growth.

The second leg of the stool is policies that prepare and protect the full participation of African Americans in all sectors of the American economy.  That includes not only employment, but also business development, business ownership, and wealth accumulation and preservation.  There is a wide range of policies that will achieve that goal; such policies should be developed and consistently implemented with a view toward eliminating racial disparities in the economy.

Finally, the third leg of the stool is targeting federal investment to people and communities in greatest need. That is the most economically efficient and effective way to deploy limited federal spending.

Let me be clear:  nothing in this statement suggests racial exclusionary policies, quotas, or anything of the like.  I’m suggesting policies that will strengthen the economy, increase GDP, improve income distribution, and contribute to stable, balanced growth.  Policies that benefit all Americans, while eliminating racial disparities in economic life.

We know how to do that; where there’s a will, there’s a way.  There’s an old Talmudic Proverb that says “if you don’t know where you’re going, any road will take you there”.  We know where we need to go; that is to eliminate racial inequality.

We need to make the practice of America equal to the promise of America.    The train is at the station; it’s time to get on board.

Now is the time to get on with the journey.   Thank you.

Dr. Bernard E. Anderson

Philadelphia, PA.

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  5. Professor Anderson, I am in full agreement with your directives. In my humble opinion, we (and I mean including me) are distracted by media, material, and merchandising. Once people hear your or read your message, we must have leaders to help keep us focused on the prize. I have some strong opinions on what the mainstream is doing that is counter-productive to the goal of your definition of full employment and economic equality, but I will hold my tongue for another venue. Thank you for sharing. Thank you for your commitment!

  6. Dr.Anderson, Thank you so much for speaking the truth in a positive manner. Most African Americans are aware of the economic crisis that we are facing with the first African American President. We are known to be a loyal people but we need representation in the White House. I pray that God will help our people and restore finances and jobs lost in the past five years. Thank you for sharing the truth out.

  7. Thank you for such a great article. I certainly agree with
    you, that “NO” President, Obama, is not President of Black American, but he can and should put forth more energy, and input to level the playing field, because we are not a lazy race of people, and want the same for our families as any white person.

  8. Dr. Anderson, thank you for providing such explicit details of the social inequality that has impeded the economic progression of African Americans in the U.S. for decades. The figures provided are alarming to say the least. Conversely, the U. S. Department of Labor, Bureau of Labor Statistics presented a different picture in July 2012. Of the 4.0 million unemployed youth the Bureau reported, the unemployment rate for Blacks was 28.6 percent, which was 48% more than whites; 50% more than Asians, and 35% more than Hispanics. I would hope, too, that the Fair Pay Act includes equal pay based on race as well as gender.

  9. GREAT ARTICLE.

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