The Economics of Race in the United States

Brendan O'Flaherty

• Publisher: Harvard University Press
• Year: 2015
• ISBN:
  9780674286672
• Topic: Social Sciences
• Subtopic: Discrimination & Race Relations
• Index: Social Sciences

Brendan O'Flaherty brings the tools of economic analysis—incentives, equilibrium, optimization, and more—to bear on contentious issues of race in the United States. In areas ranging from quality of health care and education, to employment opportunities and housing, to levels of wealth and crime, he shows how racial differences among blacks, whites, Hispanics, and Asian Americans remain a powerful determinant in the lives of twenty-first-century Americans. More capacious than standard texts, The Economics of Race in the United States discusses important aspects of history and culture and explores race as a social and biological construct to make a compelling argument for why race must play a major role in economic and public policy. People are not color-blind, and so policies cannot be color-blind either.Because his book addresses many topics, not just a single area such as labor or housing, surprising threads of connection emerge in the course of O'Flaherty's analysis. For example, eliminating discrimination in the workplace will not equalize earnings as long as educational achievement varies by race—and educational achievement will vary by race as long as housing and marriage markets vary by race. No single engine of racial equality in one area of social and economic life is strong enough to pull the entire train by itself. Progress in one place is often constrained by diminishing marginal returns in another. Good policies can make a difference, and only careful analysis can figure out which policies those are.

 

1

What Is This Book About?

In the summer of 1832, cholera struck New York City. Cholera starts with an attack of diarrhea and vomiting, progresses to severe abdominal cramps, and then ends with acute shock from the collapse of the circulatory system. In 1832, most victims died within a day. Five Points, the notorious Irish and African American slum, was hit hardest. Some of the city’s wealthier residents were not unduly alarmed: one of them described the epidemic as “almost exclusively confined to the lower classes of intemperate dissolute & filthy people huddled together like swine in their polluted habitations.” In all, 3,515 New Yorkers died in a few weeks—the equivalent of 100,000 deaths in today’s larger city (Wilford 2008).

New Yorkers today don’t worry much about cholera or blame it on the intemperance and dissolution of its victims. But we still have hospitals and research centers, even if they don’t concentrate on cholera, and no one maintains that disease in general is yesterday’s problem. Indeed, we devote more resources than ever before to studying and treating disease, even though we suffer from less disease than ever before. That’s not irrational: investing more in effective practices than in ineffective practices makes a lot of sense. Rehydration does a better job of treating cholera than tobacco enemas (one of the mainstays of 1832), and clean water is a better way to prevent cholera than abstaining from cold water and ardent spirits. That’s why we invest in clean water and rehydration.

The problems of race in the United States today are also different from what they were in 1832 or 1960 or 1990. That doesn’t mean that they’ve gone away or that we should ignore them, any more than we should ignore disease because cholera is now rare in New York. On the contrary, these problems are worth studying harder because we have better tools and better data than social scientists did a generation ago. And in a country where eventually most of the population will come from races that America’s dominant families once despised (and in a world where members of those races are already close to a majority of literate, middle-class, Internet-savvy people), even small reductions in the impediments to cooperation, production, and fulfillment that race now presents can have big payoffs.

So it wasn’t silly or nostalgic to write this book.

I call this book The Economics of Race in the United States. That’s deliberate. I could have called it many other things, but I didn’t. You’ll understand the book better if you understand the title.

First, this is an economics book. I’ll use the tools of economics: equilibrium, rationality, incentives, information. I’ll ask economic questions: Who wins? Who loses? What do people know? Is there a way to do it better? I’ll look at regressions and worry about reverse causality.

Because this is economics, I’ll also look at people in a particular way. Economics doesn’t try to label people as heroes or villains. Everyone responds to the incentives he or she faces, and we try to understand behavior by understanding those incentives. Like trees and mosquitoes, the people that economists think about do what they do, and economists don’t have methods for deciding whether they will go to heaven or not. In the long history of race in America, many evil deeds have been done (and some saintly ones too), but our job is not to assign praise or blame. We want to understand what is happening and why and how improvements can be made.

Looking for incentives and not for heroes is what got economics labeled the “dismal science.” The first use of that term is in Thomas Carlyle’s 1849 essay “Occasional Discourse on the Negro Question.” This essay is an attack on John Stuart Mill for supporting the emancipation of Jamaican slaves. Carlyle thought the emancipated slaves were lazy, but Mill argued that the former slaves would act more responsibly if they found themselves in an environment where responsibility was better rewarded. Carlyle labeled Mill’s view “dismal” because Mill did not understand the innate superiority of white men and how they could gallantly whip Afro-Jamaicans into good behavior.

This book follows Mill, not Carlyle. I don’t mind being “dismal.” That’s why “economics” is in the title.

The next part of the title indicates that this book is about the United States. I’ll pay some limited attention to other countries, but only to help understand the United States. My hands are full just trying just to understand the United States.

“Race” is the third ingredient in the title. In Chapter 3, I’ll explain what race is and get you confused about it. Because race means different things in different countries, I had to say “United States” before I said “race.”

Races in the United States mean African Americans, whites, Hispanics, Asians, Native Americans, Hawaiians, and Pacific Islanders—much more than blacks and whites.* But the literature is mainly about blacks and whites: that’s been a crucial discussion in this part of America for the past four centuries. The future may be different, but we’re not yet in the future.

Finally, this is a book that I wrote, nobody else. I’m an old white guy from New Jersey. Does being an old white guy from New Jersey disqualify me from writing a book about race? I don’t think so, obviously. For one thing, I have a race (in the traditional American conception, races are like noses: everybody has precisely one), and figuring out how whites act and why they act that way (why, for instance, so few white households search for housing in predominantly minority neighborhoods) is crucial for understanding the economics of race in the United States.

I can’t write a book that is not written by an old white guy from New Jersey, so if I was going to write this book, that’s what it had to be. An economist with a different race would probably write a different book. It would emphasize different points, focus on different questions, interpret some results in different ways. It might be a better book too. But a lot of it would be the same, because economists are trained a certain way and think a certain way.

That’s why I called the book The Economics of Race in the United States and called myself the author.

You can also get some idea of what the book is like by considering a few titles that I rejected. If you’re looking for something that would be in a book with one of these titles, you won’t find it here.

The first title I rejected was What’s Wrong with African Americans (or Hispanics or Asians or Native Americans) and What They Should Do about It. I wanted to write an economics book, and that’s not economics. I also rejected What’s Wrong with White People and What They Should Do about It. The reasons are the same. I’m not trying to make you think that no one has ever done anything morally reprehensible, but as I stated, my job is not to assign either blame or praise.

Another title I rejected was How to Become a Good Person in a Diverse Society. Your parents and friends should have taken care of this long before you had the ability to read a sophisticated book like this.

I also rejected as a title The Economics of Discrimination. Discrimination is both too broad and too narrow to be the sole focus of the book.

It’s too narrow because discrimination is not the only concern in race relations or the only explanation for racial disparities. How important discrimination is and what should be done about it are major questions for this book, but not the whole thing. These are questions, not answers, for now.

Discrimination is too broad a topic because many nonracial kinds of discrimination in the United States matter, but we won’t be concerned with them. There is substantial evidence of discrimination on the basis of sexual orientation, age, and gender. But these are different (for instance, practically every man has a mother who is female, but very few whites have mothers who are black) and are the proper subjects of other books.

For the same reason, I didn’t call the book The Economics of Poverty. Again, poverty is an important topic and I’ll discuss it often. But in every race most people are not poor, and lots of the issues in this book affect people who are not poor.

Finally, I didn’t call the book How to Make Students Feel Bad in Class. I want readers to be emotionally comfortable and intellectually uncomfortable.

I wouldn’t have to say something like that if this book were about some other part of economics like macro or econometrics. But race is different: race is personal. There is a long history of race determining who should be treated with respect, who was truly human, whose rights should be protected, who was boring or clever or wily or criminal or dumb or sexually profligate or lazy or untrustworthy or athletic or had rhythm. People often care whether or not these labels attach to them and whether other people are trying to attach these labels to them or their families.

Race is a dangerous topic, and I have to be careful. But not too careful: I don’t want to go so far in making this book emotionally comfortable that it’s intellectually comfortable too. My editors will help me. If I mess up, I apologize.

I’ll also rely on conventions to help me keep things comfortable. Specifically, I’ll use the conventions of the Chicago Manual of Style and the federal government’s Office of Management and Budget for current writing, but I quote older documents exactly even when they go against those conventions. The Chicago style is to capitalize names of ethnic groups and nationalities (but not to use hyphens) and to use lower-case letters for colors. I’ll discuss the Office of Management and Budget conventions in Chapter 3.

The plan of the book is to introduce race in the first several chapters and then to look at a series of different areas, see how race impinges on those areas, and think about what policies might be appropriate for them.

I start by looking backward. Race has long been a contentious issue in America, and over the years many brilliant people have said wise and insightful things about it. (An awful lot of nonsense has been spouted too, of course.) Chapter 2 summarizes several major statements from the past century and a quarter, tries to think about them in modern economic terms, and outlines some of the questions that these statements raise about race in the United States today. They also let us see the challenges and opportunities that writing in the twenty-first century presents: the issues are not always precisely the issues that matter now and the analytic methods are often crude by today’s standards. I come back to these questions again and again in the rest of the book. They put this book in historical context and link the chapters together.

Chapter 3 goes back even further—millions of years further. This chapter tries to explain what race means, so it has to look at how our species, Homo sapiens sapiens, got to be what it is, how members of the species differ from each other, and why. The variation that biology explains, however, is not the entire story of what race means today or what it has meant in American history. So this chapter has to move away from natural science and look toward decision theory, philosophy, and more recent history to understand what people mean when they talk about race today.

After these two introductory chapters come ten chapters on specific areas: health, labor, immigration, education, social interaction and marriage, housing and neighborhoods, homeownership, crime, businesses and entrepreneurship, and wealth. Each of these chapters follows roughly a similar format. I begin by looking at racial disparities, then I consider explanations (benign or not) for the racial disparities, and finally I examine policies that might alleviate the disparities that should be alleviated.

I don’t cover every aspect of race in the United States today. I leave out politics, for instance—not because it’s unimportant or color blind but because many other works cover politics far better than I could. There is a literature on discrimination in consumer markets—cars, for instance—that doesn’t seem to fit in well with anything I cover. The racial implications of an aging white population that is supported in many ways by a minority working-age population are also beyond the scope of this book; I just don’t understand yet what this will mean (though I hope to live long enough to become part of the problem). Despite these omissions, the book discusses most major racial issues in the United States today.

The last substantive chapter (Chapter 14) is about reparations. You can’t claim to have thought seriously about race in the United States unless you’ve wrestled with ideas of reparations.

The conclusion returns to the questions the classic texts raised and tries to answer them. It brings the book full circle.

 

 

*  Technically speaking, Hispanics are an ethnicity, not a race. We will discuss this in Chapter 3.

2

Classic Texts

The main reason why people want to study race in the United States is because they think about it as a problem, not just as a curiosity. I could write a book about left-handedness and it would be fun but nobody would really care.* Nobody would be passionate and there would be no need to be explicit about conventions and rules the way I was in the last chapter.

If you subscribe to the idea that race in the United States is a problem—or disagree with it—you have to be able to articulate what kind of problem race is. What’s wrong? Why should we be upset or ashamed or outraged or worried or even complacent? Why should you devote your valuable time to reading a book on race?

One way to start thinking about these questions is to read what brilliant people over the last century or more have said about the problem of race in the United States. That’s the purpose of this chapter.

We’re not studying race in a vacuum. You aren’t the first smart people to have landed on this planet. But times change and we need to think about how things are the same and how they are different. And we have three great advantages: hindsight, computing power, and lots of data.

This chapter is about six texts written long ago. If you study race in America, everyone will presume that you’ve read them. They give you some rough hist...