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Race & Economics: How Much Can Be Blamed on Discrimination?

Race & Economics: How Much Can Be Blamed on Discrimination?

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by Walter E. Williams

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Walter E. Williams applies an economic analysis to the problems black Americans have faced in the past and still face in the present to show that that free-market resource allocation, as opposed to political allocation, is in the best interests of minorities. He debunks many common labor market myths and reveals how excessive government regulation and the minimum-wage


Walter E. Williams applies an economic analysis to the problems black Americans have faced in the past and still face in the present to show that that free-market resource allocation, as opposed to political allocation, is in the best interests of minorities. He debunks many common labor market myths and reveals how excessive government regulation and the minimum-wage law have imposed incalculable harm on the most disadvantaged members of our society.

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Race and Economics

How Much Can Be Blamed on Discrimination?

By Walter E. Williams

Hoover Institution Press

Copyright © 2011 Walter E. Williams
All rights reserved.
ISBN: 978-0-8179-1246-8


Blacks Today and Yesterday

BLACK AMERICANS, COMPARED WITH any other racial group, have come the greatest distance, over some of the highest hurdles, in a shorter period of time. This unprecedented progress can be verified through several measures. If one were to total black earnings and consider black Americans a separate nation, he would find that, in 2008, they earned $726 billion. That would make them the world's sixteenth-richest nation, just behind Turkey but ahead of Poland, Belgium, and Switzerland. (See Table 1.1 on the next page.)

Individual feats, in terms of "power," are equally impressive. Black Americans are, and have been, chief executives of some of the world's largest and richest cities, such as New York, Chicago, Los Angeles, Philadelphia, and Washington, D.C. It was a black American, General Colin Powell, appointed head of the Joint Chiefs of Staff in October 1989, who directed the world's mightiest military and later became U.S. secretary of state. And he was succeeded by Condoleezza Rice, of the same race and national origin. As a group, black Americans include many of the world's richest and most famous personalities.

On the eve of the Civil War, it is doubtful whether a slave or a slave owner would have believed these gains possible in less than a century and a half, if ever. That progress speaks well not only for the sacrifices and intestinal fortitude of a people but also of a nation in which the gains were possible. One cannot imagine any other nation in which these gains could have been achieved. However, if one listens to spokesmen for civil rights organizations, self-anointed black leaders, and various politicians, one would get a different impression about black progress.

It is indeed true that for many black Americans, such gains have proved elusive. The U.S. Census Bureau classifies those people, who represent perhaps 30 percent of the black population, as poor. Poverty among them today differs significantly from their poverty of yesteryear. There is a difference between material poverty and what may be called behavioral or spiritual poverty. The former is a money measure that the census bureau in 2006 defined as $20,444 for an urban family of four. The latter, on the other hand, refers to conduct and values that prevent the development of healthy families, a work ethic, and self-sufficiency. The absence of those values virtually guarantees pathological lifestyles that include drug and alcohol addiction, crime, violence, incarceration, illegitimacy, single-parent households, dependency, and erosion of the work ethic.

For the most part, material poverty is no longer the problem it once was. Generally, people whom the census bureau defines as poor have almost the same level of consumption of protein, vitamins and other nutrients as upper middle-income people. In 1971, only about 32 percent of all Americans enjoyed air conditioning in their homes; by 2001, 76 percent of poor people enjoyed that comforting amenity. In 1971, 43 percent of all American households owned a color television set. By 2001, 97 percent of poor households had a color television set and over half of those, two or more sets. Forty-six percent of poor households now own their homes, and only about 6 percent of them are overcrowded. Indeed, the average poor American has more living space than the average non poor individual living in Paris, London, Vienna, Athens, and other European cities.

Money measures of poverty seriously understate income, because they omit in-kind transfers, such as food stamps and medical and housing assistance. And even money measures are suspect. As early as 1990, it was estimated that the poor were spending an average of $1.94 for every dollar in welfare income received. That additional income might have come from unreported employment, or illegal activities.

While material poverty in its historical or global form is nonexistent in the U.S., what I call behavioral poverty has skyrocketed. Female-headed households increased from 18 percent of the black population in 1950 to well over 68 percent by 2000. As of 2002, 53 percent of black children lived in single-parent households, compared to 20 percent for whites. As of 2006, roughly 45 percent of blacks fifteen or older had never been married, in addition to 17 percent who had been divorced or widowed; that contrasts with only 27 percent of whites fifteen and older never married and 16 percent divorced or widowed.

Some argue that today's weak black-family structure is a "legacy" of slavery. Such an explanation loses credibility when one examines evidence from the past. Even during slavery, where marriage was forbidden, most black children lived in biological two-parent families. One study of nineteenth-century slave families found that in as many as three-fourths of them, all the children had the same mother and father. In New York City, in 1925, 85 percent of kin-related black households were two-parent households. In fact, "Five in six children under the age of six lived with both parents."

A study of 1880 family structure in Philadelphia shows that three-quarters of all black families were nuclear (composed of two parents and children). What is significant, given today's arguments that slavery and discrimination decimated the black family, is the fact that years ago there were only slight differences in family structure between racial groups. The percentages of nuclear families were: black (75.2 percent), Irish (82.2), German (84.5), and native white American (73.1). Only one-quarter of black families were headed by females. Female-headed families among Irish, German, and native white Americans averaged 11 percent.

Also significant was the fact that, in 1847, just one of ten Philadelphia blacks had been born in slavery. However, those ex-slave families were more likely than free-born blacks to be two-parent families. Theodore Hershberg found that 90 percent of households in which the head purchased his freedom included two parents. He found that those households existed 80 percent of the time among ex-slaves in general and 77 percent of the time among free-born blacks. Historian Herbert Gutman found, in analyzing data on families in Harlem between 1905 and 1925, that only 3 percent of all families "were headed by a woman under thirty."

Thomas Sowell reported that, "Going back a hundred years, when blacks were just one generation out of slavery, we find that census data of that era showed that a slightly higher percentage of black adults had married than white adults. This fact remained true in every census from 1890 to 1940."

Coupled the with dramatic breakdown in the black-family structure has been an astonishing growth in the rate of illegitimacy. The black rate was only 19 percent in 1940, but skyrocketed in the late 1960s, reaching 49 percent in 1975. As of 2000, black illegitimacy stood at 68 percent and in some cities over 80 percent. High illegitimacy rates not only spell poverty and dependency but also contribute to the social pathology seen in many black communities: high incidences of adolescent violence and predatory sex, and as sociologist Charles Murray has noted, a community not unlike that portrayed in Lord of the Flies.

Several studies point to welfare programs as a major contributor to several aspects of behavioral poverty. One of these early studies was the Seattle/Denver Income Maintenance Experiment, also known as the "SIME/DIME" study. Among its findings: for each dollar increase in welfare payment, low-income persons reduced labor earning by eighty cents. Using 1979 National Longitudinal Survey of Youth data, Ann Hill and June O'Neill found that a 50 percent increase in the monthly value of welfare benefits led to a 43 percent increase in the number of out-of-wedlock births.

We can see some of the effects of welfare on the work experience of poor families. In 1959, 31.5 percent of heads of poor families worked full-time year-round; by 1989, the percentage had fallen to 16.2. In 1959, 30.5 percent did not work at all (either full-time or part-time); by 1989, that figure had risen to 50.8 percent. Some argue that such high unemployment stems from lack of job opportunities in inner cities. That observation is questionable. During 1979–1980, the National Bureau of Economic Research conducted a survey in the ghettos of Boston, Philadelphia, and Chicago. Only a minority of the respondents were employed, yet almost as many said it was easy or fairly easy to get a job as a laborer as said it was difficult or impossible; and 71 percent said it was fairly easy to get a minimum-wage job.

Despite frequent assertions to the contrary, many of the seemingly intractable problems encountered by a significant number of black Americans do not result from racial discrimination. This is not to say discrimination does not exist. Nor is it to say discrimination has no adverse effects. For policy purposes, however, the issue is not whether or not racial discrimination exists but the extent to which it explains what we see today. For example, it is clear that low academic achievement by black youngsters poses serious handicaps. If we assume that the problem is one of racial discrimination, where blacks are being denied educational opportunities, then civil rights strategies might produce a solution. However, if poor educational achievement is a result of other factors, resources spent pursuing a civil rights strategy will yield disappointing results.

The thrust of the argument in the chapters that follow is that the most difficult problems black Americans face, particularly those who are poor, cannot adequately be explained by current racial discrimination. Instead, most problems are self-inflicted or, as will be the major focus of this book, a result of policies, regulations, and restrictions emanating from federal, state, and local governments. I will argue that free markets and the profit motive have not reduced opportunities. The drivers have instead been the power of vested interest groups to use, as a means to greater wealth, the coercive powers of government to stifle market competition.

Free markets and the profit motive, far from being enemies to blacks, have been friends. The reason is quite simple. Customers prefer lower prices to higher prices, and businessmen prefer higher profits to lower profits. The most effective tools for a seller to gain a customer are to offer a lower price and better services than his competitor. Similarly, the most effective tool for a worker to get an employer to hire him is to offer to accept a lower wage (with wages being a form of pricing). Many employers will find higher profits a more attractive alternative to indulging personal preferences or maintaining racial loyalty.

The ability to prevent a less-preferred worker from accepting a lower wage is one of the most effective tools in the arsenal of racists everywhere. Racial antipathy is not a necessary, nor even the primary, incentive for using government power to prevent others from offering a lower price. People simply want to earn higher income and profits. The use of government restrictions, violence, or intimidation to prevent others from competing and offering prices below the "desired" price is consistent with that end. The fact that some blacks were able to earn a comfortable living and indeed become prosperous — in both the antebellum South, in the face of slavery and grossly discriminatory laws, and the North, where there was at best only weak enforcement of civil rights — gives strong testament to the power of the market as a friend to blacks.

Further evidence of the free market as a friend is suggested by all the legislation and extra-legal measures taken to prevent free, peaceable, voluntary exchange between blacks and whites. After all, why would laws and extra-legal measures be necessary to restrict whites from hiring blacks or blacks from selling to whites, or whites serving blacks in restaurants, if whites did not want to make these transactions in the first place? Whenever one sees laws written, or extra-legal measures taken, to prevent an activity, he should immediately suspect that not everyone would voluntarily behave according to those legal requirements.

In short, market restrictions are a far more important limitation on black socioeconomic progress than racial discrimination, a theme that will be developed in succeeding chapters.


Is Discrimination a Complete Barrier to Economic Mobility?

TO OBSERVE RACIAL DISCRIMINATION is one thing. Quite another is to ask whether it is an insurmountable barrier to socioeconomic advancement. If a given level of discrimination is not insurmountable, then spending resources to eliminate every vestige of it would be wasted, because those resources might be more productively used elsewhere to promote the same kind of advancement.

Racial as well as religious conflict has existed in varying degrees since the founding of the United States, and throughout the world for centuries. In addition to black Americans, the Irish, Italians, Jews, Puerto Ricans, Poles, Chinese, Japanese, Swedish, and most other ethnic groups have shared the experience of being discriminated against by one means or another. The extent of discrimination they have faced has differed in degree and kind. Similarly, the response of these groups to discrimination has varied between and even within them.

As highly publicized as racial conflict is in the United States, what seems to be less appreciated is that such conflict is a phenomenon unique neither to this country nor to the twentieth century. Racial and ethnic preference, grouping, and conflict have been a permanent global feature of man's history.

In England, there has been widespread discrimination against West Indians, Pakistanis, and Indians. South Africa has a history of societal bifurcation and mutual hostility between Britons, Afrikaners, Asians, Coloreds, and black Africans, much of which continues today despite the end of apartheid.

Contrary to what is often thought, no racial or ethnic group has a monopoly on racial oppression and discrimination. Colored peoples racially discriminate against whites as well as other colored peoples. In Africa, black Africans often do so against Arabs, Syrians, Lebanese, Indians, and Chinese. Recent history has seen the expulsion en masse of some 50,000 Asians from Uganda. There have also been mass expulsions of Asians from Kenya. Although not nearly as extreme as in those two nations, Asians have encountered racial discrimination and hostility in the other countries of East Africa and Southern Africa, such as Tanzania, Zambia, and Malawi.

In addition, there is discrimination and conflict between people of identical racial stock but of different ethnic and religious groups. Widely known examples, which have resulted in large-scale murder, include Irish Catholics versus Irish Protestants; Igbos versus Hausa in Nigeria; Tutsis versus Hutus in Burundi; and Kikuyus and Luos in Kenya. The Tutsi massacre in 1972 saw an estimated 80,000 to 150,000 Hutus slaughtered; the atrocities included dismemberment and decapitation. According to a United Nations report, about 800,000 people were killed in the Rwandan genocide in 1994.

Other examples of ethnic conflict, some of it violent, can be found in Lebanon, with the Muslims versus Christians; Belgium, with the Flemings versus the Walloons; Sri Lanka, with the Singhalese versus the Tamils; Israel, with Palestinians versus Jews; and Canada, with English-speaking versus French-speaking populations.

Chinese in Southeast Asia

In some countries of Southeast Asia, the minority Chinese population suffers the status of most-despised minority. In that region, the Chinese have always constituted a small presence — no more than 10 percent of the entire Southeast Asian population — and numbering less than 3 percent in countries such as Indonesia and the Philippines. The hostility of the indigenous populations has historically been manifested by massacre or deportation of segments of the Chinese population.

No less remarkable than the hostile racial climate the Chinese face in Southeast Asia is their considerable economic strength; through their roles as middlemen, merchants, and money handlers, they produce 30 to 40 percent of Indonesia's national product — at least ten times as much as their share of the population. A similarly disproportionate economic predominance can be seen in most other countries of Southeast Asia — for example, the Philippines, Malaysia, and Thailand. In Malaysia, where the Chinese constitute a much larger proportion of the population (37 percent), they own four-fifths of all retail establishments and three-fifths of all non-foreign-owned, corporate-equity capital invested in the country.

Numerous measures have been undertaken to reduce the economic predominance of the Chinese in Southeast Asia. These measures have ranged from affirmative action and outright expropriation of property to job-reservation laws and harsh business-licensing requirements. Despite measures to restrict the enterprise of the Chinese, their population clearly enjoyed a higher standard of living. Malays, for example, have never earned more than 57 percent of Chinese median income.


Excerpted from Race and Economics by Walter E. Williams. Copyright © 2011 Walter E. Williams. Excerpted by permission of Hoover Institution Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Meet the Author

Walter E. Williams is the John M. Olin Distinguished Professor of Economics at George Mason University and a nationally syndicated columnist. He is the author of several books and more than sixty articles that have appeared in such scholarly journals such as Economic Inquiry, American Economic Review, and Social Science Quarterly and popular publications such as Reader's Digest, Regulation, Policy Review, and Newsweek.

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Race and Economics 4 out of 5 based on 0 ratings. 1 reviews.
Anonymous More than 1 year ago
Provides good insight into race and basic economic theory.