7 Takeaways From Dr William Darity’s Discussion With Dr Glenn Loury On Wealth Inequality In Ethnic Groups
The way people think about racial inequality in the U.S. is fundamentally flawed, says William A. “Sandy” Darity.
Much of that reasoning requires buying into a view that Black people are somehow dysfunctional. The evidence does not support that narrative.
Much more accurate is the narrative about the structure of U.S. society and the systemic ways in which it has restricted, constrained, and, in some case, destroyed the lives of Black people, says Darity.
That’s why it’s important to study disparities within — and across — ethnic groups.
“What’s missing in much of the discourse is attention being paid to the disparities that exist among racial and ethnic groups. Intergroup inequality is what we must understand to have a full understanding of the way in which inequality has unfolded in the last century.” — William A. “Sandy” Darity
Considered one of the leading economists in the U.S. and an expert in wealth inequality, Darity is a professor of public policy, African and African American studies and economics at Duke University, where he directs the Samuel Dubois Cook Center on social equity.
Darity’s research found that unequal wealth distribution is a racial issue. We are revisiting a 2016 video interview where Darity discussed the importance of inherited wealth, the success of certain disadvantaged groups, and his proposed wealth-gap solution — Baby Bonds.
The interview was conducted by economist Glenn Loury on “The Glenn Show” on Bloggingheads.tv at Brown University and published on YouTube in February 2016. Loury is the Merton P. Stoltz professor of the social sciences and professor of economics at Brown University. He and Darity go way back, Loury said. They attended MIT together in the ’70s.
Darity and a team of scholars have produced a series of reports on wealth disparity and the implications for U.S. economic health, equity and social justice. He was faculty sponsor for a project funded by the Ford Foundation called the National Assets Scorecard for Communities of Color.
Darity was honored in 2017 for his research related to racial inequality and the racial wealth gap (along with Darrick Hamilton, associate director of the Cook Center) at the Future of Wealth Summit: Technology, Inclusion and Social Change in Washington, D.C., Duke Today reported.
“(Darity and Hamilton) have been instrumental in shaping the entire movement around the racial wealth gap in this country,” said Maya Rockeymoore, president and CEO of the Center for Global Policy Solutions. “We consider them leaders in the field.”
Here are 7 reasons why it’s important to study disparities in ethnic groups.
1. Most people who have wealth received an inheritance of some kind
Even in the most conservative estimates of transfers across generations, about 15-to-20 percent of wealth accumulation is attributed to gifts and inheritances, Darity said, and timing is everything.
“Where parents who have the resources provide their kids with subsidies at the critical moment, that has great long-term implications that go beyond the measured amounts, for example, a young couple getting married and parents help them with the down payment on a home. Most young people don’t think about that if their parent is helping them with a college education. That’s actually a (wealth) transfer. Most young people are thinking well, they’re my parents, they love me, that’s what they’re supposed to do.
“Not all parents can do that and it makes a very significant difference in the forks-in-the-road points in people’s lives. Or a child might have a learning disability and it might be interpreted as the child being mentally retarded but if the parents have sufficient resources to assist the kid with methods for coping with that disability, it may turn out the kid is absolutely brilliant. No one would have known. It’s not just the amount of the transfer but it’s also the timing.”
2. At every level of income, Blacks and whites have similar saving rates
“I’m in favor of the cookie jar and learning how to engage in savings over the course of a lifetime,” Darity said. However, he cites the Wolff and Gittleman study, which indicated that at every level of income, Blacks and whites have very similar saving rates and that in some income groupings, Blacks have a higher savings rate. “That would suggest to me that we can’t explain racial differences in wealth accumulation on the basis of different behaviors around savings,” Darity said.
3. Rates of return on investment portfolios are roughly equivalent between Blacks and whites
Darity questioned “a similar strong finding” in the Wolff and Gittleman study — “and this is one that we really want to reassess because I’m not positive that this one is true,” he said, “but their study found that rates of return on portfolios are roughly equivalent between Blacks and whites after you control for the income of the household.”
If that’s the case, then financial literacy is not an issue, and neither is there an issue with people being unfamiliar with investment vehicles and how to get the highest return on their savings, Loury added.
“We’d have to argue that everyone’s financially illiterate,” Darity said. “The people that Bernie Madoff defrauded are people we’d think of as being financially literate. In some sense, we’re all ignorant about how the financial markets work.”
“They thought they were cleverer than the next guy because they had the opportunity to invest in this amazing fund that generated 15-and-20 percent a year. They were standing in line to put their money in (a Ponzi scheme).” — Glenn Loury
4. Some immigrant groups created massive wealth through entrepreneurship, not inheritance
Jewish Americans who came to the U.S. as poor immigrants from Eastern Europe in the 19th and 20th century became among the wealthiest of the ethnically identifiable populations in the country, Loury said. They couldn’t have got that way from their fathers and grandfathers handing money over to them. So where did their wealth come from? “It’s wealth creation, not just wealth holding — engaging in the activities that end up creating a successful business or whatever it might be that allows wealth to come into existence in the first place.”
Darity replied: “I think there are different phases of opportunity that existed in the U.S. economy — a period when social mobility was much greater than it is now and I would argue that that coincides heavily with the immigration of Eastern and Southern Europeans.
5. The Jewish immigrant experience is different and bears examination
Thomas Sowell argued that culture is a determinant of economic success.
“I’m steering clear of that,” Darity said, “but if you wanted to use the simple language of human capital, I would agree that there was a community of immigrants that came from Eastern Europe that actually had relatively high levels of human capital even though they had low levels of income.”
Darity differentiates between the migration of Eastern European (Ashkenazi) Jews who arrived impoverished in the U.S. and an earlier migration of Southern European (Sephardic) Jews who come into the U.S. with relatively high degrees of wealth. The Sephardic Jews initially went to the Caribbean and then migrated north to the U.S.
In the Caribbean, Jews were engaged like other white immigrants in the maintenance of the slave plantation system. “That was a source of a significant amount of wealth for them,” Darity said. “When the Ashkenazi immigrated to the U.S. in the late 19th and early 20th century there was already a Jewish presence in the U.S. of individuals who were really wealthy. In fact, the label that was applied to them was the ‘grandees,'” Darity said. “Even though there was tension between the (two Jewish) groups, the Sephardic community did provide support for the new immigrants. I think that made a difference for their longer-term outcomes. The other thing that made a difference is that they were highly literate in their languages of origin unlike the Southern European immigrants, they were trained as artisans that had been driven out of those positions because of anti-Semitism in Russia. They were different from the other immigrant communities.”
6. There’s a public policy proposal that could address racial wealth disparity. It’s called Baby Bonds
Darity advocates a universal proposal — The Baby Bonds Proposal. It’s not really a bond. It’s a trust fund or endowment endowed to every newborn infant. The endowment would be graduated on the basis of the wealth of the child’s family.
“If we were to give an endowment to a newborn child of Oprah Winfrey or Bill Gates we would give the child $50. But for kids born in the lower end of the wealth distribution, we’d give them an endowment of $50,000-to-$60,000 and we’d guarantee them a 1 percent real rate of interest on the account. The kids could access it when they turn 18.”
Beneficiaries will know it’s coming, and they’ll have a stake in the system. It will be a downpayment on an apartment or it will subsidize their college fund or start up a business. It will also create a financial basis for giving them financial literacy courses because they would be sure that they would have something to manage.
The idea that every American at birth is entitled to some wealth is a revolutionary proposal, Loury said. “Everybody’s gonna have some. I want to know how we’re gonna pay for this. I imagine we’re gonna tax somebody. I’m OK with that.”
Here’s how Darity proposes paying for Baby Bonds: “If we estimate that there’s about 4 million new infants born in a given year and each child gets $20,000, that’s $80 billion per year. Since there’s a gestation period of 20 years before you have to make the first payouts, you could set up a trust fund to fund the trust. The annual expense is $80B – not much of an expense in terms of the U.S. budget.”
7. Redistribution without confiscation is possible
Darity has in the past been a big advocate of reparations for African Americans for slavery and Jim Crow discrimination. He still holds that position, he said.
“I’m kind of intrigued by proposals that undertake redistribution without confiscation,” Darity said. “I’m less concerned about people having a whole lot than people not having enough. I think the Baby Bonds proposal could go a long way to addressing wealth inequality by race defacto because of the relative position of Blacks. If we have a plan where we give more to those that have the least in the way of wealth, Blacks are disproportionately concentrated in that set of the population. So it’s a universal program that would have a particular benefit for Blacks. You wouldn’t necessarily need to have a race-specific program like reparations to address racial wealth inequality. I think that reparations are something that ought to take place but I think its primarily to address the historic injustices that have taken place in this country.”
If the Baby Bonds program was enacted, would that take pressure off of concerns about reparations, Loury asked.
“Yes,” Darity said. “I think it would take some of the pressure off.”