How Much Of The Racial Economic Gap Is A Result Of Racism?

On Thursday, a tweet on race went viral, as these things are apt to do on social media. This tweet simplified the wealth gap between races to its supposed bare essentials:

The tweet went viral because of its baseline assumption that white Americans all have wealthy grandparents and black Americans don’t — an assumption that isn’t remotely true, of course.

But it is true that there is a massive wealth gap between black Americans and white Americans. According to the Center for American Progress, an admitted liberal outlet, as of 2016, the median wealth for nonretired black households above age 25 was $13,460 compared with $142,180. That gap rises near retirement age — black Americans between ages 50 and 65 had “about 10 percent of the wealth of whites in the same age group.”

But using wealth as a metric is a bit of a misnomer. That’s because wealth includes homeownership, rather than merely earnings. Black Americans who lived under Jim Crow had less opportunity to earn and build wealth than white Americans — and that is reflected in generational wealth. Racist policies of the past do have a significantly greater impact on the wealth of grandparents than they do on the income of children born now or on members of the Millennial generation.

But that isn’t a measure of the impact of racism now. A better measure would be income — and there is an income gap between black Americans and white Americans.

But what explains such income gaps? Usually, it’s factors other than racism. Wealth inheritance is a poor proxy for income mobility — which is the statistic we truly care about. Most Americans don’t get rich because grandma was rich; most Americans get rich because they take advantage of individual opportunities. A widely-cited study from researchers at Stanford, Harvard and the Census Bureau, which was supposed to show that inheritance was a key factor in income mobility according to members of the media, showed precisely the opposite: wealth level was not the chief cause of continuing disparity.

Furthermore, the study showed that Asian-Americans earned more than whites raised at the same income levels, and income gaps between whites and Hispanics were converging. Black women were earning more than white women conditional on parent income; the study found “little or no gap in wage rates or hours of work between black and white women.”

Also, income gaps within groups can’t be explained by racism. Household income among Asian-Americans is the highest of any racial group — but Asians in the top 10% earned 10.7 times as much as Asians in the bottom 10%, the largest wealth gap of any racial group by a significant margin. Is that because of societal racism? How about the wealth gap between black Americans? The top 10% of black Americans earned 9.8 times as much as the bottom 10%. Presumably both groups are black.

Disparities do not always imply discrimination. In the case of historic wealth, there is no question that discrimination and wealth disparity are heavily linked. But the suggestion that white people today are earning at a higher level than black people can’t be blamed on how much money you inherited from grandma. As Thomas Sowell writes:

When Forbes magazine’s annual list of the 400 richest people first appeared in 1982, people with inherited wealth were 21 percent of that 400 – which is to say, nearly four-fifths of these rich people earned the money themselves. By 2006, fewer than 2 percent of the 400 wealthiest people on the Fobes magazine list were there because of inherited wealth.

A 2010 study from Edward Wolff and Maury Gittleman of the Obama administration’s Bureau of Labor Statistics found similar trends:

We found that on average over the period from 1989 to 2007, 21 percent of American households at a given point of time received a wealth transfer and these accounted for 23 percent of their net worth. Over the lifetime, about 30 percent of households could expect to receive a wealth transfer and these would account for close to 40 percent of their net worth near time of death. However, there is little evidence of an inheritance “boom.” In fact, from 1989 to 2007, the share of households reporting a wealth transfer fell by 2.5 percentage points. The average value of inheritances received among all households did increase but at a slow pace, by 10 percent, and wealth transfers as a proportion of current net worth fell sharply over this period from 29 to 19 percent or by 10 percentage points. We also found, somewhat surprisingly, that inheritances and other wealth transfers tend to be equalizing in terms of the distribution of household wealth. Indeed, the addition of wealth transfers to other sources of household wealth has had a sizeable effect on reducing the inequality of wealth.

The evidence simply isn’t there that continuing wealth gaps are primarily a result of historic inheritance issues. In fact, the opposite should be true: as wealth transfers decrease, wealth gaps should decrease as well. They aren’t, overall, which suggests that income disparities are the true continuing cause of wealth gaps, and those disparities are far more clearly tied to individual behavior than historic or current discrimination.

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