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Saturday, August 20, 2016
Current Affairs ... Economics/Business ... Politics ...

America today seems to have a race relations problem; that’s not saying anything new. A lot of people today perceive a worsening in such relations over the past decade.

Perhaps a key factor is the information revolution that has been caused by the widespread availability of video recording to the public, which stems from the rise of smart phones. These phones have been increasingly used over the past 4 or 5 years to video police interactions with the public, especially when there is police misconduct. These recordings have uncovered a great deal of disrespect or improper acts by the police when dealing with African-Americans in a wide variety of contexts, from simple traffic stops to pursuing criminal suspects. Too often, these potentially improper police acts turn out to be fatal. In some of the more “viral” examples of these recent video cases, the police actions eventually turn out to be justified; there was a clear and present danger to the police and public. These videos often do not tell the whole story. But too often, it becomes apparent that the police were in the wrong, and that underlying racial attitudes on the part of police officers and officials may have been involved.

And thus the rise over the past few years of the Black Lives Matter movement. BLM appears to have been spawned by these highly publicized incidents. However, BLM is increasingly trying to transcend the troublesome matter of black interactions with law enforcement, so as to address what it perceives to be a wide variety of systemic racism inherent to almost all non-blacks in almost all the social and economic components of our society.

Which brings us back to my original point — that race relations today are suffering as a whole. One reason why such relations are suffering is because the black population is suffering. And although that suffering clearly involves the ongoing troubles stemming from frequent interactions between blacks and law enforcement, another less discussed aspect regards economics, especially income and wealth. Although relations between the police and African Americans are a very complex matter, not many people would deny that there is at least some quotient of institutional racism involved in the law enforcement institution. Even former GOP House Speaker and conservative firebrand Newt Gingrich appears to agree with this.

As to the economy, the situation is not so clear (or is even muddier, which is perhaps a better way of putting it). Since 2008, African Americans clearly have lost ground economically, both objectively and in relation to the white population (Hispanics arguably have also suffered economically). The gap in family income and wealth between blacks and whites was relatively large in 2008, just before the “housing bubble” financial crisis hit and the Great Recession started. However, until 2008, that gap was generally trending downward. Since 2008, that trend reversed, the gap is now growing. What could explain this?

Many people of a progressive bent might declare this fact to be a clear sign of institutional racism. I.e., some group of people, however large or small, are intentionally working to direct income and wealth gains towards whites and away from blacks and Hispanics, to a degree that did not occur before 2008. I myself would not claim that this is a totally untrue and completely unsupportable statement.

However, I believe that the stronger explanation is rooted in the fact that on-going technical and institutional changes in the economy are increasingly directing the net gains of economic growth towards the already-rich and away from the still-poor. And even the middle group isn’t doing as well as it once did in this regard. Because of historical factors (which clearly do involve racism and injustice), African Americans are over-represented amidst the “still poor” and the almost poor, and under-represented in the “already-rich” or near-rich. Thus, they are no longer making progress in improving their economic lot, which clearly did happened [however slowly] over the 40 years following the civil rights movement of the 1960’s. African Americans are generally in the wrong place to be, given the changes taking place in how the economy works.

Regarding those overall changes happening in our economy, the recent work of Professor Robert Gordon shows and explains what has and is happening. Gordon has a new book out called “The Rise and Fall of American Growth”, where he goes into depth on how and why the American economy has been growing over the past 200 years, and on who has been reaping the benefits. The NY Review of Books has a good review of Gordon, and that review has a chart that sums things up in a nutshell. I’m going to summarize the facts from that chart here:

AVERAGE GROWTH IN REAL PERSONAL DISPOSABLE INCOME PER YEAR:

1947 to 1970 — 2.7% average for everyone; bottom fifth of earners, 3.0%; middle fifth, 2.8%; and top one percent of earners, 1.4%

1970 to 2000 — 2.2% average for everyone; bottom fifth of earners, 1.4%; middle fifth, 1.7%; and top one percent of earners, 4.5%

2000 to 2014 — 1.3% average for everyone; bottom fifth of earners, 0.1%; middle fifth, 1.1%; and top one percent of earners, 2.1%

So, the overall trend is as follows: the economic growth that we have benefited so much from since World War 2 seems to be slowing down. Hopefully it won’t stop, but instead will level off between 1 and 2 percent per year. However, the glory years of the 1950’s and 1960’s (and also the “pretty good” 80’s and 90’s) were exceptions, and will probably not happen again. This is one of Gordon’s core arguments, i.e. that the post WW2 economic boom was a one-off event. We are now getting back to what is more-or-less normal for the world in terms of long-term economic growth. During the exceptional growth-shot of the 50’s and 60’s, those who were below average in income and wealth got the greatest proportionate share of growth, although the people at the top and in the middle clearly were also doing better. But since 2000, we are going back to the rich getting most of the benefit, and the poor getting hardly anything, if not moving backward.

Please notice that the reviewer of the Gordon book (economist William Nordhaus) used “fifths” in his chart. This is also called “quintile” analysis. It sounds complex, but the concept is pretty simple. Imagine 100 people, all of whom have annual income. Ask all of these people what their income per year is, and then rank them by those amounts. So now you know who makes the most, second most, third most, all the way down to the person at the bottom who makes the least.

Next, ask them to get in line by their income rank. Then, separate that line into 5 groups of twenty people each. Everyone is still lined up by income, remember. Each of these five groups is a “quintile”. The first group is the “top quintile” in terms of income. Then comes the second-top group. Then the third, which is also the middle group. Then the fourth group, and finally the fifth, which is the bottom quintile in terms of annual income, i.e. the poorest 20. If we can break a group of 100 into quintiles, we can also do it for a group of 100 million, or any other large number. The rules remain the same.

OK, so now we have “fifths” or quintiles in terms of annual income. How does this relate to race? Well, assuming that the people in this line reflect the overall characteristics of the American population (roughly, anyway), we then want to ask — are the “quintiles” roughly even in terms of race? Or do we see a lot of one race bunched disproportionately into one or two quintiles? You might guess that blacks and Hispanics make up a large portion of the fifth (bottom) and fourth quintiles, and that whites are disproportionately found in the first (top) and second quintile. IF blacks and Hispanics were benefitting from economic growth, you would expect that over time, the quintiles would become more evenly mixed; i.e., more and more blacks and Hispanics would get into the middle and top 2 quintiles. But, if everyone in the lower quintiles are increasingly being shut out from the benefits of growth, then the quintiles aren’t going to change much; blacks and Hispanics won’t move up economically relative to whites. And tensions between the races will remain and even get worse, especially if blacks and Hispanics were previously making progress, but that progress comes to a halt.

To take a look at what is going in within the quintiles over time, relative to race, I gathered some numbers on my own, using data from the US Census Bureau (with a bit of massaging, especially for the 1972 data; I had to do my own regressions to derive these estimates, so admittedly the data is “plus or minus a few points”). I decided to take a look at how the “horizontal percentages” for whites, blacks and Hispanics changed relative to the overall income quintiles, using figures from 1972, 2000, and 2014. These numbers roughly correspond to the three “eras” shown in the Gordon book review chart by Nordhaus. What I want to do here is to ask the following: what percentage of the total income earners from each race is within the income limits for the overall quintiles (i.e., the quintiles for everyone of all races, collectively). What we would LIKE to see is that each race has 20% of its population in each quintile. Once we see any significant deviation from 20% for any race, it means that another race has to make up for that deviation in the opposite direction.

Another way of looking at what I’m going to do here: there are three groups, whites, blacks and Hispanics. As time goes by, we want to know — who gets more and who gets less of the overall pie? Remember that the overall pie is getting bigger over time, so even if you get a smaller and smaller proportion, you might still be getting a little more pie overall than you got years ago. You may be a little bit better off. However, people in the other group may be getting a WHOLE LOT MORE than you got. And you might not think that’s fair.

So what do we see? Here are the numbers:

WHITE NON-HISPANICS
YEAR: 1972 2000 2014
Lowest Quint 18.2% 17.6% 17.1%
Fourth Quint 19.3% 19.2% 18.6%
Middle Quint 19.3% 19.6% 20.0%
Second Quint 22.1% 21.1% 21.4%
Highest Quint 21.1% 22.5% 22.9%

BLACK NON-HISPANICS
YEAR: 1972 2000 2014
Lowest Quint 32.0% 31.1% 32.5%
Fourth Quint 33.5% 22.3% 24.1%
Middle Quint 14.1% 21.3% 19.6%
Second Quint 9.0% 15.0% 14.1%
Highest Quint 11.5% 10.1% 9.8%

HISPANICS
YEAR: 1972 2000 2014
Lowest Quint 22.9% 24.6% 24.0%
Fourth Quint 30.5% 25.1% 25.0%
Middle Quint 23.9% 22.7% 22.1%
Second Quint 10.4% 17.6% 18.0%
Highest Quint 12.2% 10.0% 10.9%

What does all this mean? Well, for whites, we see that the numbers aren’t all that far from the 20% goal; however, it’s still clear that whites are over-represented in the highest and second highest quintile groups, and are under-represented in the lowest groups. And the trend for whites is that things stay pretty constant, or even get better over time. In the highest income group, whites go from 21.1% in 1972 to 22.9% in 2014. And the opposite happens at the bottom — in the lowest quintile, whites go from 18.2% to 17.1%. The middle group doesn’t change much at all for whites — 19.3% in 1972 to 20.0% in 2014.

Now, as to African Americans. We see that they start out over-represented in the lowest quintile in 1972, at 32.0%. Things get slightly better, they go down to 31.3% in 2000. But the trend starts getting worse again, and blacks are up to 32.5% in the lowest overall quintile by 2014. At the opposite end, in the highest (richest) quintile, we see blacks going from 11.5% in 1972 to 9.8% in 2014. This doesn’t mean that formerly rich black people are falling into poverty. But overall, it appears that wealthy blacks aren’t keeping up with the evolution of a super-rich white sub-group after 2000, which is statistically pushing blacks out of the overall top fifth.

We do see a lot of black economic progress though between 1972 and 2000. The portion of blacks in the second lowest group goes from 33.5% in 1972 to 22.3% in 2000. That was a very significant decline. Even if blacks weren’t doing as well as whites in the top fifth, the portion of blacks in the middle and second best quintiles went up from 14.1% and 9.0% in 1972 to 21.3% and 15.0% respectively in 2000. That was real progress; blacks were getting a lot closer to the 20% goal per quintile in the second, third and fourth quintiles by 2000. This is what Gordon’s “one-shot” growth spurt of 1947-1960 allowed (along with the civil rights legislation and Great Society programs of the 60’s and 70’s). Unfortunately, that progress did not continue into 2014. In the fourth highest / second lowest group, blacks increased to 24.1%; in the middle, blacks slipped a bit, back to 19.6%. And in the second highest quintile, blacks also lost some ground, at 14.1%.

Again, this does not mean that black families in these income groups were earning less overall in 2014 versus 2000. But it clearly means that the progress toward economic equality has stopped, and blacks are now getting a slightly lower share of the overall pie, while whites are getting a bigger overall cut. Obviously, very few black families read statistics like this. However, most people are quite observant, and over time, it does become clear when one racial group isn’t quite keeping up economically with what is happening to the other group.

As to Hispanics — we still see the general pattern that Hispanics are over-represented in the lower quintiles and under-represented in the upper quintiles, versus whites. However, the numbers aren’t as dramatic as for blacks, as the degree of disparity is less. And actually, Hispanics did not really lose any ground (or “relative ground”, to be more accurate) between 2000 and 2014. Their shares in the lowest and second lowest quintiles went down slightly in that time, and their proportions in the highest and second highest groups were up slightly. Hispanics still have a long way to go to achieving economic equality with whites, but not as far as blacks. And even if they didn’t significantly progress towards 20% equality after 2000, they didn’t really lose ground either.

So, an economist would not be all that surprised that we now have a “Black Lives Matter”, but not a “Brown Lives Matter” . . . yet. The nature of the economy and its engines of growth have changed since 2000, and even more so since 2008. And the nature of that change is making for increased racial economic disparity. In some measure this is because of on-going racism in human decision-making, but more significantly it reflects historical trends interacting with emerging technologies and market forces. Those technologies and forces may be color-blind per se, but because they no longer help to undo the effects of the past, they are certainly having large effects on the gaps between the races in America.

I wish that I had a clear and apparent answer to the questions of social justice raised by what is now happening to the economy. Unfortunately, right now I don’t. One might be tempted to try to seize the capitalist goose that is laying the golden eggs, and then give out those eggs out more fairly. But despite the good intentions of someone like Bernie Sanders, this has been tried in the past, and what usually happens is that the goose loses the golden touch. Revolution is probably not the answer. But as Gordon shows, even if left alone the goose isn’t what it used to be (and probably ain’t gonna ever be again). Thus, more Hillary Clinton-style regulation and redistribution might not ultimately help. As to what the answer is . . . sorry, right now I don’t know. For now, it’s all I can to do to just try to wrap my head around this problem, huge and complex as it is.

◊   posted by Jim G @ 9:12 pm      
 
 


  1. Jim, I have to admit when I first saw this post I was thinking: What am I going to do with all those numbers? (You know me and numbers.) But as I read your post, I find it perfectly reasonable, understandable, and a good evaluation of what is going on. (Once again, I pretend to only random tho’ts about this topic and not any carefully reasoned and thought out plan or topic regarding this subject.)

    If I may say this: I’ve been thinking of these times a lot lately and in that thinking have been reminded of the late 1960s and early 1970s when I was in my 30s and thus had an adult’s view of the situation then. (Not that you didn’t, but I am only able to speak of myself in this case.)

    I’ve been comparing those times with these times and find them somewhat similar in some ways: Specifically, that African American people rightfully want something that they are being denied; they are also willing to take a stand for it as something they are due.

    What has changed seems to me to be what it is African Americans seek. And I think in reading your post, you described what I was thinking. African Americans want the same increase in living standards as everyone else has, and they deserve it. Immigrants likely want similar things as Black do.

    I’ve read that Trump appeals to the “forgotten” and “left behind” poor white people. (Well, that’s the opinion of at least one or two writers. And, once again, I do not have references here. [Too much like writing a thesis or dissertation for me.]) So it’s entirely possible that the White people may also be thinking that they deserve something that they should be getting, much the same as the African Americans.

    Another thing I notice is, and here I will go off on a tangent re the police: Black people now arrested and/or even stopped by police do not turn into the once “totally silent, “don’t say a word, lest you anger the White man” people they used to be and were taught by parents to be. Nowadays, I think they tend to say what they think.

    (One Black man recently stopped and I guess “arrested” as he has a court case pending told me that when stopped by a policeman who asked him what he was doing “here”, said, “I’m going home” in a tone that was not disrespectful but was not submissive either, which did not go over well with the cop. The man said to me: Well, I WAS going home!

    I have to confess here that I know this person and was called to pick him up from the police station. I did not know who I was more upset with: The police who were so wrong in simply picking up a man who WAS on his way home; or the man himself who had to “open his mouth”. But I must admit that when I heard what he said, I also tho’t: Well, that wasn’t THAT bad; he wasn’t disrespectful. But he was not in a place where the police preferred him to be.

    The Police do not seem to take kindly to Black people who do not instantly become submissive. I’ve noticed this type of thing in other cases too. It seems to me that the late 1960s and early 1970s were about Blacks getting their civil rights; now it seems Blacks simply want the same ordinary, everyday rights others (here one may read White people) have.

    As to the economics of the situation that you so carefully and clearly explain, it seems to me that our economy has changed from Capitalism to Consumerism. Everything (as in all profits) has to “grow”; if it doesn’t “grow”, it’s no good. Everything must be “big”. Small business while the “ideal” is not really respected any more and is driven out of business by “box stores” that “consumer” everything around them. I’ve often tho’t that before this economy settles down and becomes whatever it’s going to be, the whole and entire economy will be owned by perhaps just a few companies. (I find myself thinking 1 to 5 companies will own everything there is to own.)

    Something’s very wrong with the picture of the economy “growing” as it’s currently portrayed. (Furthermore and as a side issue that possibly does not belong here: The word “grow” up until recently has always been an intransitive verb; now it’s become a transitive verb and/or an adjective. And here I say “adjective” as most adverbs in our language are becoming obsolete among the last couple of generations. And I digress.)

    Something is wrong with the concept of continual “growth” in the economy; it almost an impossible thing as eventually there has to be some point at which “growth” stops. Growth stops in every other case/situation where growing takes place. There’s growth from a seed, into young age, to maturity, to old age, to death. Nothing seems to escape that pattern of growth.

    Why would the economy escape? It would seem to me that this whole “growth” business in regard to our economy must be rethought. In the re-thinking there may be a re-distribution of how the economy is spread out among the various groups.

    Perhaps what is going on in the Black Lives Matter movement is the first step in a restructuring of the economy (and thus a better sharing of “the pie” that is necessary.

    Again, perhaps on a tangent: Chaos theory may be at work here, not having yet reached the point where “new growth” begins to form from the chaos. (Again, I digress, I’m sure.)

    Some of the Central and South American (and even Eastern) countries have suffered from the 1% having 99% of the economy and the 99% sharing only 1%; this has been a disaster for these countries. Hopefully, with any sense and with any luck, the U.S. can learn from these countries and not make the same mistakes they have made.

    Your explanation/evaluation of the whole economy among the various groups is an excellent first step in figuring out what is wrong with the economy and race relations. Good job, Jim. MCS

    Comment by Mary S. — August 22, 2016 @ 2:59 pm

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