By Darrick Hamilton (originally posted here)
An Economic Policy Institute (EPI) brief entitled “ The Productivity-Pay Gap” vividly displays a disturbing trend that, for the last 45 years, essentially all of the economic gains from America’s increasing productivity has gone to the elite and upper-middle class, while workers’ real wages have remained roughly flat. In their report, 1973 serves as a demarcation line: Prior to that date, worker gains in terms of real wages increased with an almost lockstep 1:1 relationship with productivity. After 1973, however, despite the continued trend of increased productivity, the promised “trickle-down” to all workers from neoliberal supply-side economics hasn’t happened.
Nonetheless, this neoliberal political ideology has dominated, maintaining and reinforcing economic concentration. But to fully understand why the status-quo of growing inequality persisted, we need to examine the third pillar of this relationship: race—or, more broadly, the existence of an underclass marked by a socially stigmatized identity, which rose in the 1970s, coincident to the productivity-pay gap.
Neoliberal economics made an implicit, or sometimes explicit, promise to black Americans and to the underclass: that the rising tide would “lift all boats,” and that the new paradigm would free them from the state’s deadening hand that forced them into lives of dependency. But the promise of economic prosperity and relative racial progress of neoliberal economics for black Americans has not materialized. In fact, some progress has been reversed. Evidence from the U.S. Decennial Census reveals tremendous relative racial economic progress for blacks from 1940, when the typical black man earned only 45 percent of typical white male earnings, to the 1980 census, when that gap was reduced to about 70 percent of average white male wages. But this relative progress ceased. Prevailing neoliberal explanations for this reversal have focused on education, individual attitudes, and public sector programs that supposedly generate perverse incentives away from personal responsibility. The presumption is that if black people were more responsible, made better financial decisions, and focused on education, they could get a good job and achieve economic security.
But studying and working hard hasn’t been enough for black Americans. Since the United States started tracking unemployment by race, the unemployment rate for blacks has remained roughly twice as high as the white rate regardless of education. Moreover, even for highly educated blacks, a college degree has not been a guarantee of job security. Janelle Jones and John Schmitt (2014) estimate that the unemployment rate for recent black college graduates exceeds 12 percent. Wealth disparities persist with high levels of education, too. A 2015 report that I co-authored reveals the stunning fact that black households in which the head graduated from college have less wealth than white households in which the head dropped out of high school.
We often think of wealth as an outcome, but much of its value is in what it can do for you. It offers financial agency and economic security to take risks and shield against loss, and it is a necessary collateral to attain additional finance, or at least additional finance on reasonable terms. Having wealth better positions families to bankroll an expensive education, start a business, pay for an expensive medical procedure, live in a high-amenity neighborhood, sand so on. In essence, wealth begets more wealth—when it comes to economic security, it is both the beginning and the end.
Yet wealth today is just about as concentrated as it was at the beginning of the Great Depression. And with respect to race, evidence from the 2016 Survey of Consumer Finances indicates that the absolute racial wealth gap exceeds $100,000 per family, and the typical black family owns only about $0.10 per dollar owned by the typical white family. Overall, race is an even stronger predictor of wealth than class itself. Black households have median wealth of about $17,600 (inclusive of home equity), and $20,700 for Latino households, which contrasts with $171,000 in median wealth for white households. This stark racial wealth gap is an inheritance that goes as far back as chattel slavery, when blacks were quite literally capital assets for a white landowning plantation class, and not the products of differences in education, financial literacy, or any race-based behaviors or attitudes.
We’d be remiss to discuss racial disparity without mention of mass incarceration. Since 1970, we have witnessed a seven-fold increase in the number of inmates, from about 200,000 to more than 1.5 million in state and federal prisons, which is not counting the more than 700,000 in county and local jails at any given point. A disproportionate share of this incarcerated population is composed of black males. Black males make up about 6 percent of the U.S. population, but roughly 50 percent of the incarcerated population; and there is about a one-in-three chance that a black man will end up serving time at some point in his life. It is noteworthy that the so-called “war on drugs” was also initiated in the 1970s alongside the rise of neoliberal economics and the mantra of personal responsibility.
In addition to wages, wealth disparity, and mass incarceration, black Americans face other obstacles to economic inclusion such as vulnerability to predatory finance, municipal fees, shortage of affordable housing (and the instability associated with evictions), food insecurity, environmental injustice, and climate gentrification. These vulnerabilities disproportionately fall on women, blacks, and other nonwhites. Their education, employment, and earnings are more precarious and they tend to have more caregiving and financial responsibilities. Yale political scientist Jacob Hacker summed this economic vulnerability as The Great Risk Shift, in which our society shifted our social insurance that evolved out of the New Deal from the government and corporations onto families and individuals.
Since the ascendance of neoliberal economics in the 1970s, the political sentiment regarding social mobility in the United States has radically shifted away from government mandates of economic security to an approach in which the “market” is presumed to be the judge of our worth, and the solution for all our problems. economic or otherwise. As a result, the onus for social mobility also radically shifted onto the individual.
This emergent political consensus was based on the view that marketized solutions were what was best for our economy. Markets, whether they were product markets, labor markets, or financial markets, were presumed to be a self-regulating, fair, and color-blind arbiter that rewarded hard work and sanctioned those who did not put forth effort. Thus did the “undeserving poor” receive their “just rewards?”
What is glaringly missing from the neoliberal perspective is the role of power and capital, and how that power and capital can be used to alter the rules and structure of transactions and markets) in the first place. Words like choice and freedom were presented as attributes of the market, but choice is an illusion for someone who lacks basic needs like shelter, food, and health care. It is literally wealth that gives us choice and freedom. The private sector, and market alone, has never been adequate to deal with reinforcing inequalities, worker vulnerabilities, and obstacles to social mobility. There have been recent important correctives to this. The French economist Thomas Piketty, in his book Capital in the Twenty-First Century, brought considerable attention to the growing problem of capital and wealth consolidation by a wealthy capitalist class for whom advantage is locked in at birth as a result of laws, policies, institutions, and economic arrangements. A plutocratic relationship as explanatory for growing inequality was also emphasized by Richard Reeves in his book Dream Hoarders. Yet largely absent from even their analyses is the role that race plays in both economic stratification and the political structuring of rules to iterate economic gains.
At the same time that it underplays the importance of capital and wealth, the neoliberal frame overstates the functional role of education and personal responsibility. We know, for example, that the racial wealth gap grows rather than dissipates with education. For instance, the 2014 Survey of Income and Program Participation data reveals that the white-black difference in median wealth for a family where the head did not complete high school is about $80,000; about $110,000 for families where the head has a high school diploma; nearly $200,000 where the head has a college degree; and more than $300,000 for families where the head has a masters, doctorate, or professional degree. Also, black expectant mothers with a college degree have a greater likelihood of an infant mortality than white expectant mothers who dropped out of high school. Both black men and women between the ages of 25 and 64 have about a 50 percent higher mortality rate than their white counterparts. But what’s even more disheartening is that these disparities increase with education—black men and women with a college degree have nearly a 70 percent higher mortality rate than similarly educated whites. The adage that enjoins blacks to “work twice as hard to get by” to overcome social obstacles, should also consider that there may be physical and psychological costs of exerting above normal effort in discriminatory and racially stigmatized environments, particularly for high achievers as measured by education that pose a competitive threat in attainment of the high status, preferred economic positions of the socially dominant group.
Education is associated with better economic and health outcomes within racial groups, but high-achieving black Americans, as measured by education, still exhibit large economic and health disparities relative to their white peers. In essence, education is not the magic antidote for the enormous inherited disparities that result from laws, policies, and economic arrangements that facilitate the concentration of economic and political power described above. None of this is intended to diminish the value of education—regardless of its vocational role, there is clear intrinsic value to education, especially as it relates to having a well-informed and civically engaged populaces.
The extent of our dramatic inequality, especially with regards to race, is at least as much a problem of politics and rhetoric as it is a problem of economics. It is time to move beyond the false narrative that attributes inequality to personal deficits, while largely ignoring the inherited advantages (and disadvantages) of capital and the reinforcing political power that comes along with it. Instead, we need structural solutions that establish a more decent economy and facilitate assets, economic security, and social mobility for all its citizens, regardless of the race and family position in which individuals are born.
Rather than the government constructing policies or engaging in austerity based on a neoliberal frame that uses the market to sanction or discipline poor people, the government should provide public options that crowd-out or discipline firms engaging in exploitative practices. There are a set of enabling goods and services that are so critical for life, liberty, and self-determination that their production and distribution should not be vulnerable to the rationing and pricing that come about from firms trying to maximize profits for their shareholders. I support an economic bill of rights that is consciously legislated and implemented in a racially inclusive way (i.e. a race-conscious economic bill of rights).
In 2017, at my National Economic Association Presidential Address, and at a National Economic Rights and Social Contract Initiatives convening on “A New Social Contract: Guaranteeing Dignity in a Precarious Economy,” I shared a 10-point agenda that could form the basis of this new social contract, or a race-conscious economic bill of rights. The list is not exhaustive but prioritizes a Federal Job Guarantee and Baby Bonds, or more accurately, Baby Trusts, as economic rights that promote inclusion, equity, and fairness, and provide a robust “public option” for jobs, income, and wealth creation for all Americans.
The list begins with the only race-specific program on the entire list, reparations, which is an ultimate necessity to achieving racial justice: reparations for slavery, sharecropping, “whitecapping” (unpunished white vigilante violence to steal black property), Jim Crow laws, and the state-facilitated exclusion of people of color from several of the New Deal and postwar polices that built the white middle class. An honest and sobering confession of our historical sins would counter the neoliberal frame that characterizes black, brown, and poor people as “underserving” and in need of market discipline, and, instead, pave the way for narratives that accurately frame inequality and poverty as grounded in resource deprivation.
However, acknowledgement and apology alone will be hollow if not accompanied by some form of material redress. The remainder of the list includes items like federalizing credit scores. A metric so determinant of individual life chances should not be left to the for-profit sector. Government should be responsible and accountable to how these scores are determined through a transparent and understandable process. Also, I advocate for postal banking to provide banking services and short and long-term loans particularly to unprivileged individuals who financially rely on predatory check cashing institutions and payday lenders, and basically put a floor on financial product availability. The Equal Employment Opportunity Commission should conduct employment audits to detect racial discrimination and prosecute discriminating firms. Other priorities include: increase federal subsidies to Historically Black College and Universities to the proportional tune of the present value of support reached for other colleges and universities from the 1944 G.I. Bill (which was on the scale of the financing of the Marshall Plan); eliminate tracking in grade school and offer universal talented and gifted educational programs to all; single-payer health insurance; and the end of mass incarceration of non-violent offenders, while holding police criminally and civilly responsible for abusive practices.
The good news is that such change may be on the horizon, or even happening now. After the 2018 election, we now see a record number of women in Congress, and a general diversity that is greater than ever. Younger generations and social movements may be expanding our priorities and notions of economic good away from the self-interested neoliberal frame to one that incorporates morality, sustainability, and humanity. Hopefully, it will lead to a politics that is not narrowly constrained by the status quo of what does and does not seem feasible at a given moment based on our immediate past. Hopefully, it will lead to a transformative race- and-gender conscious economic bill of rights. One that will ensure universally accessible quality jobs, health care, housing, schooling, financial services, capital, and one that ensures free mobility without the psychological (and physical) threat of detention or bodily harm. Rights that this country has long offered to some but continues to deny so many.