Study: Ending the racial wealth gap would add a trillion dollars to the economy
America's racial wealth disparity is entrenched, with devastating effects. What if we got rid of it?
- A new study shows that the wealth gap in the United States is still here, huge, and affects every aspect of our economic lives.
- The authors explain that narrowing the gap would increase GDP size substantially.
- The study also reminds us that little will change without major policy changes.
Racial wealth inequality in the United States is severe. According to one report, the median white American family has ten times more wealth than the median black American family and eight times the wealth of the median Latino family. A third of African-American families have either negative or net-zero wealth. A third of Native-American children live in poverty, as opposed to ten percent of white children.
This gap has a long and shameful history. Investigations into why it has proven so persistent go back to the early writings of W.E.B Du Bois, but a new study sheds more light on the subject and explains why the gap has proven so persistent over the last two hundred years.
The color of money
The study, carried out by McKinsey and Company, examines the staying power of the wealth gap and the social forces involved.
They begin by breaking down the factors involved in the wealth gap into four groups that account for a family's ability to build wealth across a generation:
- "Community context. The collection of public and private assets in a given community.
- Family wealth. The net value of a family's pool of financial and nonfinancial assets.
- Family income. The cash flow a family receives from entrepreneurship or its members' participation in the labor market.
- Family savings. The tools and benefits a family can access to turn income into savings and wealth for families and the community."
These four elements closely interact with each other. A community that has lots of wealth can provide opportunities and social capital to members who fall on hard times or ones who need a connection to make their next career move, families with wealth and savings can provide resources to their community. Families with lots of money saved up can start businesses more easily than those who can't, potentially increasing their income down the line.
As you can see in this graphic, the positive effects of an increase in one area can spill over into the others and cause wealth to increase rapidly.
McKinsey & Company
McKinsey & Company
This also means that places with wealth now can bounce back if they took the time to invest in their communities before a disaster. Case in point, when General Sherman ordered his armies to burn down every plantation they could lay their hands on, the previously wealthy white families were able to restore their wealth in twenty years.
But what about when things go the other way?
Just as the building of community and family wealth can be a virtuous cycle of wealth creation and a layer of security against hard times, problems in the system can prevent people from getting ahead. In the United States, with our long history of slavery, Jim Crow laws, and continuing discrimination against non-white communities, this means that the generation of wealth can be exceedingly difficult.
Just think about these statistics.
African Americans tend to live in states with below-average social and economic conditions, limiting the wealth of their neighborhoods and the potential for personal income. The typical black American can expect to make a million fewer dollars than the average white American in their lifetime. Income disparities continue to exist even after accounting for education level. Incarceration, an issue that has affected minority communities more than white ones, can reduce expected income by up to 40% a year, not counting wages lost while in jail.
These facts further limit the amount of money that a family can hope to save or give to their children.
The median black family has one-sixth the savings of the typical white one. While about a third of white Americans can expect some inheritance during their lifetimes, only eight percent of black Americans can. Those inheritances are then only a third as large. The lower level of "starter wealth" impacts savings and investment rates, as people have less money to go around.
When a community is kept in poverty, denied the right to live in neighborhoods with high levels of community wealth, paid less, and charged more for essential services, it makes sense why they might have a hard time building up wealth.
Is there anything we can do about it then? Or is this the end of the story?
A study on the bounce-back of southern slave-owning families spoke to the resiliency of the wealth gap when the authors wrote:
"Results suggest that even destroying the capital stock or temporarily expropriating the land of wealthy households would not have been enough to prevent their sons from experiencing full recovery in a generation."
The ability of family and community wealth to reinforce one another and a historical tendency for people with wealth to be very good at protecting that wealth means that the rich aren't going to spontaneously get poorer anytime soon. This, combined with the statistics mentioned above on the racial wealth gap, makes it unlikely that any progress on reducing the gap can be made without some kind of redistribution of wealth and property.
Some of the presidential candidates in this cycle have advanced policy ideas that would help to reduce this wealth gap. Cory Booker's Baby Bonds proposal would benefit Americans of all colors but would cause the racial wealth gap to narrow over time. Several candidates have expressed support in looking into reparations, while others have explicitly called for cash payments now. You can see for yourself what some of the proposals would do to reduce the wealth gap here.
The idea of reparations for slavery being used to close the wealth gap has a long academic history. The idea was returned to the realm of popular discussion by Ta-Nehisi Coates in a 2014 article in the Atlantic. While they're a political non-starter at the moment, there is little debate over if reparations would be useful at closing the racial wealth gap.
What if we did close it? What would happen?
The economy would grow by at least a trillion dollars.
That was the conclusion of the McKinsey and Company study. They built a forecasting model assumed that white Americans would see their wealth grow by .8 percent a year while African-Americans enjoyed 3.0 percent growth every year. The logic here is simple; the model assumes that increased wealth would lead people to invest, save, and spend more. These behaviors would grow the economy overall.
While their trillion-dollar estimate compares the results of the above scenario with one that assumes that the wealth gap is closed by 2028, it also shows that the economy benefits overall from a reduced wealth gap. The last estimate they did assumed the gap grew larger; they swapped the assumed wealth increases for blacks and whites above. It showed that the economy would then be 1.5 trillion dollars larger if the gap were closed by 2028.
That's also just the dollars and cents version. Poverty is a menace that causes both physical and mental illness, drives people to crime, lowers IQ scores, and eats away at communities. To close the wealth gap even slightly would improve the quality of life for millions of people.
America's history of slavery and racist government policies have allowed a massive wealth gap to accumulate between White Americans and everybody else. As history shows, this gap is unlikely to disappear by itself anytime soon. While it would take a tremendous political will to enact the policies needed to correct for these injustices, the findings of this report show that the economic benefits would be massive.
That, and it might be the right thing to do.
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Scientists discover the inner workings of an effect that will lead to a new generation of devices.
- Researchers discover a method of extracting previously unavailable information from superconductors.
- The study builds on a 19th-century discovery by physicist Edward Hall.
- The research promises to lead to a new generation of semiconductor materials and devices.
Credit: Gunawan/Nature magazine
Students who think the world is just cheat less, but they need to experience justice to feel that way.
- Students in German and Turkish universities who believed the world is just cheated less than their pessimistic peers.
- The tendency to think the world is just is related to the occurence of experiences of justice.
- The findings may prove useful in helping students adjust to college life.
The world is just? That’s news to a lot of people.<p>The study is the most recent addition to a long line of work focusing on the belief in justice, our behavior, and our reactions to evidence that might suggest injustice occasionally occurs. This study focuses on a personal belief in a just world, (PBJW) rather than a general belief in a just world (GBJW). The difference between them must be highlighted.</p><p>GBJW is the stance that justice prevails all over the world and that people tend to get what they deserve. PBJW is more focused on the individual's social environment and their belief that they tend to be treated justly. While several studies show PBJW correlates with a higher sense of well-being and a variety of other positive effects, a high GBJW is associated with less life satisfaction, negative behavior, and callousness towards the suffering of <a href="https://link.springer.com/book/10.1007%2F978-1-4939-3216-0" target="_blank">others</a>. This study controlled for GBJW, and focused on PBJW as much as possible. </p><p>To assure that culture was not a factor, the study included students at universities in both Germany and Turkey. </p><p>The researchers gave students at the four participating universities a series of questionnaires that asked if they ever cheated in class, if they perceived the world to be just, if they though that justice always prevailed everywhere, their tendencies towards socially appropriate behavior, their life satisfaction, and if they felt like they were treated justly by their teachers and fellow students. </p><p>The answers were statistically analyzed for relationships. While some of the connections seem trivially true, others were surprising. <strong></strong></p><p>PBJW turned out to only be an indirect predictor of if a student was likely to cheat. Both a belief in a just world and a lower likelihood of cheating were mediated by the justice experiences of the students, with more of these positive experiences lowering the rate of cheating and improving their belief in justice. This was also associated with higher levels of life satisfaction. </p><p>These effects existed across all demographics in both countries. </p>
What does this mean? Is a belief in justice a self-fulfilling prophecy?<iframe width="730" height="430" src="https://www.youtube.com/embed/6oMv-azHNCA" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe><p>In a way, it seems to be. People who have reason to think the world is just to them tend to interpret events in a way to sustain that belief and behave in a just manner. In a larger sense, the take away from this study is that experiences of justice, both from peers and instructors, is vital to student's wellbeing and understanding that the rules that exist about cheating are part of a larger, legitimate, system. </p><p>The researchers, citing previous studies on the perception of justice, note that "justice experiences (1) signal that university students are esteemed members of their social group, which in turn conveys feelings of belonging and social inclusion and (2) motivate them to accept and observe university rules and norms. These cognitive processes may thus strengthen their well-being and decrease the likelihood that they cheat."</p><p>The authors also suggest that if you want people (not only students) to act justly; consider treating them with "civility, respect, and dignity."</p><p>Sometimes, all it can take to help somebody act virtuously is to treat them well. Likewise, people treated harshly can rarely find reason to play by rules that don't protect them. The findings of this study will certainly add to the literature on how we perceive justice in the world around us, but might also help us remember that there are real consequences to our actions which can be much larger than we imagine. <strong></strong></p>
This could change how researchers approach vaccine development.
- The reason children suffer less from the novel coronavirus has remained mysterious.
- Researchers identified a cytokine, IL-17A, which appears to protect children from the ravages of COVID-19.
- This cytokine response could change how researchers approach vaccine development.
A member of staff wearing personal protective equipment (PPE) takes a child's temperature at the Harris Academy's Shortland's school on June 04, 2020 in London, England.
Photo by Dan Kitwood/Getty Images<p>Experts don't want to place kids at the back of the line, regardless of how strong their immune systems appear. At least one company, Moderna, <a href="https://www.businessinsider.com/coronavirus-vaccine-for-kids-moderna-plans-pediatric-trial-2020-9" target="_blank">hopes to begin testing</a> vaccines in pediatric volunteers by year's end.</p><p>Innate immune response is especially high during childhood (compared to adaptive immunity). This makes evolutionary sense: nature wants an animal to survive until its ready to procreate. Turns out the children in the study possessed high levels of cytokines that boost their immune response. The biggest impact is made by IL-17A, which appears to protect the youngest cohort from the ravages of the coronavirus. </p><p>While both age groups produced antibodies to fight off the infamous spike protein, adults that produce neutralizing antibodies actually suffer a <em>worse</em> fate. Herold says this "over-vigorous adaptive immune response" might promote inflammation, triggering acute respiratory distress syndrome (ARDS). </p><p>This matters for vaccine development. As Herold says, </p><p style="margin-left: 20px;">"Our adult COVID-19 patients who fared poorly had high levels of neutralizing antibodies, suggesting that convalescent plasma—which is rich in neutralizing antibodies—may not help adults who have already developed signs of ARDS. By contrast, therapies that boost innate immune responses early in the course of the disease may be especially beneficial."</p><p>Herold says current vaccine trials are focused on boosting neutralizing-antibody levels. With this new information, researchers may want to work on vaccines that boost the innate immune response instead. </p><p>With <a href="https://www.nytimes.com/interactive/2020/science/coronavirus-vaccine-tracker.html" target="_blank">at least 55 vaccine trials</a> underway, every piece of data matters. </p><p>--</p><p><em>Stay in touch with Derek on <a href="http://www.twitter.com/derekberes" target="_blank">Twitter</a>, <a href="https://www.facebook.com/DerekBeresdotcom" target="_blank">Facebook</a> and <a href="https://derekberes.substack.com/" target="_blank" rel="noopener noreferrer">Substack</a>. His next book is</em> "<em>Hero's Dose: The Case For Psychedelics in Ritual and Therapy."</em></p>
Researchers from the University of Toronto published a new map of cancer cells' genetic defenses against treatment.