Closing the Gap

7/16/20

There’s little question — at least in my mind — that the Black Lives Matter movement has ignited a long-needed awareness that America’s promise as the land of opportunity has been a chimera for too many of our fellow Americans. I feel, however, that the movement’s focus on policing and criminal justice issues is somewhat of a misdirection. Not to say that attention to those issues isn’t warranted or valid, but I believe that the more pernicious consequence of racism is its role in constraining economic opportunities and restricting the capacity for subjugated families and individuals to build wealth.

Racism may not be the only thing that’s underlying the current state of income and wealth distributions, but it’s unquestionably a part of the calculus. In any case, these three charts illustrate the dramatic and worsening disparities that have been becoming increasingly severe over the last 30 years.

In fairness, these data don’t include the effects of any governmental programs, so it may be somewhat of an incomplete picture, but it’s hard to imagine that the effects of these programs (e.g., the earned income tax credit or food stamps) significantly alter the impression that life at the bottom is pretty tenuous, and life at the top is pretty cushy, and the differences are becoming more extreme.

To further round out the picture, it makes sense to assess the analogous distributions regarding wealth. According to the Federal Reserve System, in the first quarter of 2020, 63 percent of household wealth was owned by the wealthiest 10 percent of all households, while the bottom half of households only held 6 percent of total wealth. By race, 83.4% of household weath is owned by whites. Blacks, Hispanics, and other races accounted for 5.0%, 3.6%, and 8%, respectively. These breakdowns have been fairly consistent for more than the last decade.

It would be nice to think that all wealthy households are self-made, but that’s hardly the case. Thanks in part to the magic of compounding, wealth begets wealth, enabling those who’ve managed to build up savings to bestow what is in effect a birthright to their progeny. You can’t blame families for insulating their children from economic hardships, but the practice clearly offers an advantage to these kids, relative to those coming from families that lack comparable resources. As a society, we’d be a more perfect union by providing financial relief to those at the bottom, thereby taking some steps to level the playing field.

If not now, maybe after the election.