Without a formalized utility, making public policy is guided by topical and anecdotal outliers.
[This is the transcript of my regular KVMR commentary broadcast on 14 October 2015.]
Wealth inequality has been a topic of keen interest and agitation, and concerns about it seem to be increasing, especially with our left-leaning neighbors. Today terms like the ‘one percenters’ are common in any discussion about the economy and the direction our country is taking. Wealth inequality is one of many issues that divide us. People of a conservative bent explain that such an inequality is a natural result of people being different in their work habits, education, intellect, willingness to tolerate risk, and so on. All of these attributes coupled with today’s acceleration of technology create work environments and opportunities where people with such characteristics can make more money than those who lack them.
However, folks on the left are convinced that the unequal distribution of wealth is the result of richer people screwing the poor, and all of that is due to bad public policies which government can mend. As we saw in a recent letter to our local Union, there are many out there who believe that enterprise and entrepreneurship in America fundamentally do not work to benefit society, and have been barely tamed through vigorous application of collectivist remedies under the regulatory umbrella of a caring government.
When economists talk about wealth inequality, they often focus on the gap between the rich and the poor. But to understand what’s really happening in the U.S., they ought to talk more often about the gap between the young and the old, and between different races.
What many people have had a hunch about turns out to be true – the old are richer than the young, and whites and Asians are richer than the blacks and Hispanics. But the big item is that wealth grows with age and maxes out when we are around 65 years old; then people start drawing down their savings in retirement.
But the wealth gap also depends on race. Whites and Asians of middle age with college educations have net assets markedly above blacks and Hispanics, the larger proportion of whom drop out of high school or don’t go on to college. At this stage of life such white and Asian families make up about a quarter of our families, yet they own over two-thirds of America’s wealth. What causes such a difference based on race? That’s a question with many controversial answers, probably the kindest of which today lies in the area of cultural differences. In years past, one could also put up a lot more reasons having to do with racial discrimination. Of course, there are still some today who have seen little or no improvement in America’s race relations since the Civil Rights Act of 1964.
Zumbrun’s report is based on a new paper by Federal Reserve economists Jeffrey Thompson and Gustavo Suarez (download pdf here). In it they provide a detailed look at patterns of wealth in America, and conclude that answering the racial divide question is difficult and that more research is needed.
Josh Zumbrun concludes with -
This data raises tons of uncomfortable questions with no easy answers. One question that Mr. Thompson and Mr. Suarez wanted to answer was why the racial wealth gaps in the U.S. are so large. This might sound straightforward–maybe the wealthy simply earned and inherited more money. But that’s not what the data shows. Even after accounting for different incomes, inheritances, education and other factors, these gaps between families of different races remain, especially among the wealthy. It turns out that documenting the gaps is only the first step.
My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively. However my views are not necessarily shared by KVMR. Thank you for listening.