The Black community has suffered from economic inequality for centuries and has yet to come up with a solution. The Federal Reserve, the central banking system of the U.S., has all the tools necessary to close the racial wealth gap and should finance reparations, according to Dr. William A. “Sandy” Darity Jr., a Duke University economist and reparations activist.
Those economic disparities are “a constant and Blacks are not perpetually in protest over those conditions. But violent anti-Black police action invariably leads to Black protest,” said Darity, one of the most prominent U.S. advocates for economic policies to close the wealth gap between whites and African Americans.
“Reparations designed to eliminate the racial wealth gap are unlikely to eliminate police malfeasance,” Darity told Business Insider. “White supremacists in the police force will not discriminate between Black folk on the basis of their wealth levels. While higher levels of wealth may facilitate negotiating the criminal justice system more effectively, higher levels of wealth among Blacks will not erase the high degree of racist bias in policing,”
Business Insider writer Matthew Zeitlin argues that the Federal Reserve policy has failed Black Americans for way too long.
“As American institutions address what they can do to combat racial inequality, the Federal Reserve has an opportunity to address the economic inequality that Black and brown Americans face,” he wrote in an opinion piece.
The Fed has what’s called a “dual mandate,” meaning that by law, it has to pursue two aims: to both keep inflation in check and maintain “full employment, NPR reported.
Black unemployment has always been higher than white unemployment. Before the covid-19 pandemic, the Black unemployment rate hit its lowest recorded level ever — 5.4 percent — but this was still higher than the overall unemployment rate of 3.7 percent. Now, the Black unemployment rate is 15.4 percent, compared to just over 11 percent overall, according to Business Insider.
Throughout the years and various administrations, the Fed has missed opportunities to create economic equality.
There is a Federal Reserve’s mandate to pursue maximum employment along with stable prices, created partially thanks to the efforts of Martin Luther King, Jr.’s widow, Coretta Scott King. Her efforts to establish a right to a job or income culminated in the Full Employment and Balanced Growth Act, most commonly known as Humphrey-Hawkins.
Still, not much has been done by the Fed to pursue this mandate.
“Congress was closer to implementing a job guarantee and a legally enforceable right to a job,” said Nathan Tankus, research director of the Modern Money Network. “A combination of (then President Jimmy) Carter and economists saying it was unworkable got that kind of thing stripped out of Humphrey-Hawkins, made it arrive as a dead letter.”
Federal Reserve Chairman Paul Volcker increased interest rates in an effort to curb inflation and in the process generated unemployment over 10 percent, with the unemployment rate for Black Americans pushed up to more than 20 percent.
“The economic devastation wrought by Volcker and the deep recession of ’79 through ’82 that layered atop 10 years of economic misery especially in Black and Latinx communities,” David Stein, a historian at the University of California, Los Angeles told Business Insider.
In the mid-1990s Fed Board Chairman Alan Greenspan opted to let the economic expansion run its course, assuming that inflation would stay tame “because of technology-induced gains in productivity that had not yet shown up in official statistics. Not coincidentally, Black unemployment hit its then-lowest level ever in April 2000,” wrote Zeitlin.
In the last few years, the Fed has begun to discuss how different racial groups experience the economy.
And most recently, progressive economic policy thinker Jared Bernstein, an advisor to Joe Biden when he was vice president, and Janelle Jones of Groundwork Collaborative have proposed that the Fed explicitly target Black unemployment when it makes interest rate decisions.
“I would tell them to hire 1,000 historians and sociologists,” Tankus said. “Their operational budget is unlimited, they can certainly do full employment for Black history-centric social scientists. The gains for them are much higher than hiring another macro-economist.”
Tankus also suggested that the Fed could provide unlimited credit lines for state and local governments at zero interest rates and purchase IOUs issued by the states.
Biden says he wants the Fed to help close racial economic gaps. Under Biden’s recently unveiled plan for racial economic equity, a 26-page rundown of policies takes a look at what the Fed can do, ranging from a plan to boost small businesses to a first-time homebuyer tax credit.
Biden said he wants the Federal Reserve to take race into account when it sets policy.
“Within its existing mandate of promoting maximum employment and stable prices, the Fed should aggressively enhance its surveillance and targeting of persistent racial gaps in jobs, wages, and wealth,” the Biden plan says.
In his plan, Biden proposes that the Fed pay attention to racial gaps in making monetary policy and also regularly talk about those gaps.
Since its main tool is manipulating interest rates, the Fed could decide to hold interest rates lower for longer in the hope that more of the (disproportionately Black and Hispanic) people remaining unemployed are hired, without inflation also increasing.
Biden also wants the Fed to report on “data and trends in racial economic gaps” and the steps it is taking to close them, a move that would require an amendment to the Federal Reserve Act, Mother Jones reported.
“Specifically, he would want to amend the Federal Reserve Act so that when the Fed chair goes to Capitol Hill to report on the economy (as the chair is required by law to do), they would also report on racial gaps,” NPR reported.
Some experts are giving Biden’s plan the thumbs up when it comes to cloning the wealth gap.
“I think that you could go a long way simply by saying to the Fed, ‘Look, we want you to report on a regular basis about the gap between Black unemployment and white unemployment, and how are your policy choices likely to influence that gap?'” said Narayana Kocherlakota, former president of the Minneapolis Fed and professor of economics at the University of Rochester. “I think anything the Fed has to pay attention to in its reports to Congress or the public immediately flow into decision-making.”
Not everyone, however, agrees that the Fed should focus on racial gaps, especially Darity.
“I don’t see any way that aggregate interest rate policy will reduce the gap,” Darity wrote in an email to NPR. “Since the unemployment rate gap is an index of the degree of discrimination in employment in the economy, and interest policy has no impact on discrimination, I have no idea why anyone would believe conventional Fed monetary policy could have an effect on the Black-white ratio of unemployment rates.”
Listen to GHOGH with Jamarlin Martin | Episode 73: Jamarlin Martin Jamarlin makes the case for why this is a multi-factor rebellion vs. just protests about George Floyd. He discusses the Democratic Party’s sneaky relationship with the police in cities and states under Dem control, and why Joe Biden is a cop and the Steve Jobs of mass incarceration.
Darity said that he would prefer the Fed to instead “play a direct role in financing reparations for Black American descendants of U.S. slavery.”
Other Democrats have pushed baby bonds as a way to help address the racial wealth gap. But unlike Senators Cory Booker, Bernie Sanders, and Elizabeth Warren, Biden has yet to embrace baby bonds.
The baby bonds concept stemmed from a proposal by Darity and economist Darrick Hamilton that would give most Americans government-backed savings accounts at birth. A senior Biden aide said they “haven’t taken it off the table.”
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