ARTICLE BY WILFRED BROWN
Most people could care less about the inner workings of economics. Unless, of course, it begins to impact their jobs, their income and their wealth.
In the same way, many white people in America do not care about racial equity in the criminal justice system, police bias against minorities, or police brutality against black people. Why? Because in their minds, these issues do not affect them.
But they do.
Editor’s note: This is the first of a two-part post on systemic racism’s economic impact on America. Read the second part.
Economics is the study of how a society chooses to allocate its finite resources among the infinite demands of its members. Through the study of economics, production, consumption and the transfer of wealth can be observed and analyzed on both a macro and micro level. Despite the ecstasy economists derive from the study of economics, most people could care less about the inner workings of the subject. Unless, of course, economics begins to affect them in a very personal manner, i.e., their jobs, their income and their wealth.
However, this phenomenon is not limited to just the field of economics. The sentiment of only caring about subjects that affect you is common among most people. Would you care about a war breaking out between Iran and Iraq in the Arabian Peninsula? I would guess most people would not. However, you would certainly care about the $4-a-gallon gas prices you would have to pay because of the same war.
This logic holds for most topics of interest. Therefore, most white people in America do not care about racial equity in the criminal justice system, police bias against minorities, or police brutality against black people. Why? Because in their minds, these issues do not affect them.
The same holds for the racial wealth gap. White logic typically goes, “I worked hard for my money, why can’t they?” Once again, there is no incentive or self-interest involved to force most white people to care. Let’s explore the reality of how racism negatively affects white people.
Just like how our theoretical war in the Middle East negatively affected us by raising gas prices here at home, the racism that black Americans face daily, also negatively affects white people’s economic well-being. Like their Black compatriots, whites suffer from a vicious cycle of the compiling adverse effects of systemic racism. However, the cycle is not inexorable. It is well within the power of white Americans to put an end to this abomination once and for all. Hopefully, by realizing how much it steals from them economically, white people will rationally act to end racism even though they benefit from it socially.
Racism’s negative effect on GDP in America:
GDP, Gross Domestic Product is one of the most common indicators used to track the health of a nation’s economy. GDP is defined- as the monetary value of all the finished goods and services produced within a country’s borders in a specific period and includes anything produced by a country’s citizens and foreigners within its borders.
Hopefully, by realizing how much it steals from them economically, white people will rationally act to end racism even though they benefit from it socially:
GPD affects everyone. It directly impacts personal finance, investments and job growth. When GDP grows at a healthy and consistent rate, new job opportunities are created, and wages, tend to rise with productivity. Unemployed workers tend to be brought back into the job market, which helps to reduce crime rates, addiction and mental health issues related to unemployment.
Healthy GPD growth also signals to international investors that the United States is the place to invest and produce goods and services. Foreign investment means high-paying jobs staying in the U.S. and good jobs not being shipped away to other countries with higher GDP growth. So, what does GDP have to do with racism’s effect on white people? A lot!
McKinsey and Company estimated in a recent report that by closing the racial wealth gap created by systemic racism, the U.S. GDP could be 4–6% higher by 2028. In nominal dollars, consumption and investment will cost the U.S. economy between $1 trillion and $1.5 trillion between 2019 and 2028. That is roughly $2,900–$4,300 in GDP per capita. Effectively, racism is costing white Americans $2,900–$4,300 for every man, woman and child. By missing out on 4–6% growth, white people are “robbing” themselves of a lot of money, job opportunities, promotions and an even higher standard of living than they have today.
Racism’s negative effect on the economic well-being of white Americans:
To quote the late Nobel laureate Milton Friedman, “It is often taken for granted that the person who discriminates against others because of their race, religion, colour, or whatever, incurs no costs by doing so but simply imposes costs on others. This view is on par with the very similar fallacy that a country does not hurt itself by imposing tariffs on the products of other countries. Both are equally wrong. The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard colour of skin or religion as irrelevant can buy things more cheaply as a result.”
Friedman’s message is clear: Racism costs everyone. The cost of racism to U.S. citizens can be physical, mental and spiritual for all parties involved, but there are always economic costs involved. Nowhere are the financial costs more apparent than in the adverse effects seen in the wages of white workers as a result of racism.
In December 2019, the U.S. economy added 145,000 jobs. Unemployment was at a 50-year low of 3.5%. Pre-coronavirus, even the staunchest Donald Trump detractor, could not argue against the outstanding performance of the U.S. economy. However, under the guise of low unemployment, and huge job gain numbers, stood the uncomfortable truth, that the wages of most workers have stayed stagnant despite the seemly extraordinary economy.
Like racism in America, wage stagnation is nothing new. Wage stagnation is a trend that began in the 1970s and has continued to plague most American workers in the present. Wage stagnation is an economic fact and reality that most Americans agree exists.
However, the causes of wage stagnation are highly debated and contentious. John Pavlus of Kellogg Insight writes, “Previous economic research has pointed to two explanations for this stagnation, especially among lower-paying jobs in the manufacturing sector: globalization has flooded the market with cheap goods from China and sapped domestic-manufacturing wages in the process, and technology has steadily ushered in more job-killing automation.”
Yet both trends offer incomplete explanations, explains Efraim Benmelech, a professor of finance at the Kellogg School. “None of these explanations goes back long enough in time,” Benmelech says. Wage growth has been slowing since the early 1970s, but “the competition with China starts somewhere in the 1990s, and the process of automation is a product of the last ten or fifteen years.”
Like racism in America, wage stagnation is nothing new. Wage stagnation is a trend that began in the 1970s and has continued to plague most American workers in the present:
So what does Benmelech and his co-investigators, Nittai Bergman and Hyunseob Kim of the National Bureau of Economic Research, believe to be the cause of wage stagnation? Their research suggests that the hidden culprit is what economists call labour-market concentration, or in other words, too few employers competing for the same workers on a local level.
The economic term for a company’s ability to depress wages due to a lack of competition for workers is known as “monopsony power.” Through their extensive research, Benmelech, Bergman and Kim were able to extrapolate that at least 30% of the fact that wages have not been increasing is due to monopsony power. Pavlov puts this discover in laymen’s terms: “And for economists, that’s a large amount of explanatory power.” The researchers were able to demonstrate a connection between labour-market concentration, monopsony power and decreased wages.
But what does the negative effect of monopsony powers on overall salaries have to do with racism?
Well, racism was and is one of the main reasons U.S. workers lack the power of unions and collective bargaining of most highly developed nations. Without strong unions, monopsony powers can be realized by enterprising firms at the expense of all workers. The adverse effects of corporations wielding monopsony powers hurt white workers most substantially. It is white workers who tend to be at the highest levels of the pay scale in most monopsony sectors, and it is their wages that are the first to be lowered. Joseph McCartin, executive director of the Kalmanovitz Initiative for the Working Poor at Georgetown University, cites two racially charged events as the main reasons behind the weak state of unions in the United States: the passage of the Taft-Hartley Act and the failure of a coordinated campaign to unionize the South.
Dwyer Gunn explains this phenomenon in a 2018 article:
“The passage of the Taft-Hartley Act in 1947 placed significant restrictions on unions, most of which still exist. It prohibited secondary boycotts and ‘sympathy’ boycotts and opened the door to the right-to-work laws — which prohibit employers from hiring only union employees — that now exist in 27 states around the country. The legislation also required that union leaders sign affidavits swearing they weren’t Communist sympathizers; refusal to sign meant they would lose many of the protections guaranteed by the Wagner Act, the landmark 1935 labour law that established the National Labor Relations Board and guaranteed workers the right to organize.
The Taft-Hartley Act came at a particularly inopportune time. Labour unions were in the middle of ‘Operation Dixie,’ a campaign to organize the non-unionized textile industry in the South. Anti-union business leaders in the region used the accusation that the leadership of some of the industrial unions were Communists, or Communist-leaning, to whip up opposition to Operation Dixie. Union foes also relied on another particularly powerful bogeyman — desegregation — to increase opposition to the industrial unions among white workers in the Jim Crow South. In one publication, typical of the time, distributed by the Southern States Industrial Council, one article asked, ‘Shall We Be Ruled by Whites or Blacks?’ and others alluded to the creeping threat of communism to traditional values.”
It seems that the only thing more effective at destroying union momentum than calling someone a communist was to scare White workers into believing Black people would somehow surpass them if unions took hold. Racism became the instrument capital used to crush the bargaining power of the American workers.
Capital interests used racism as a tool to stop unionization throughout the country and keep the segregated South effectively un-unionized. Racism was used to divide White and Black workers, and through the division, the interests of capital were able to consolidate political and economic power. This consolidation of power made it harder for workers to mount successful counter-initiatives when it came down to opposing globalization, bad trade deals or laws that disrupted workers and their rights.
Racism today keeps most Americans deprived of receiving high wages to match their high productivity. This phenomenon can be explained by examining voter’s preferences by race. Today, like in the 1940s, most Americans vote in favour of their racial and cultural interests instead of their economic interests. This degree of division makes it easier for capital to divide workers against themselves and consolidate political power.
Racism became the instrument capital used to crush the bargaining power of the American workers.
In “The Two Majorities,” a comprehensive study of American public opinion, Byron Shafer and William Claggett explain that for most of American history there have been essentially two divisions in American politics: economic policy (virtually: more or less government intervention in the economy) and social/cultural/identity issues. In a post written for Vox’s Polyarchy blog, New America senior fellow Lee Drutman explains how civil rights re-aligned American politics to be more race centric. Drutman writes,
“When the far-right economic conservative Goldwater lost in 1964, however, it became clear Republicans couldn’t win purely on limited government as a defence of liberty. They would have to attach limited government to a winning position on some other issue that would split the Democratic Party.
Like all majorities, the Democratic majority from 1932 to 1964 contained within it the seeds of its own destruction — in particular, an internal conflict between Northern liberals and Southern conservatives over the issue of civil rights. Eventually, Northern liberals became the majority faction within the Democratic Party and exerted pressure, and Democrats passed a series of civil rights bills into law.
And with that, the Democrats effectively lost their winning political hand for the sake of moral principle. The civil rights laws created a backlash among Southern white Democratic conservatives and Northern working-class whites who were most directly affected by urban riots, and housing and school desegregation.
This gave Republicans the cross-cutting issue with a clear majority they needed: race and identity. With Nixon’s strategic guidance, Republicans went full steam ahead in making it the central dividing line in American politics.
They were certainly aided in this effort by Democrats, who struggled to speak to the urban unrest that drove many former Democrats to the Republican Party or to acknowledge some of their own hubris in the power of a government-run by Ivy League intellectuals to solve deep social problems. Democrats also nominated George McGovern to be their standard-bearer in 1972, whose label as the effete candidate of ‘acid, amnesty, and abortion’ stuck, and also stuck with Democrats.
Moreover, as the economy stagnated in the 1970s, and businesses choked on a slew of new regulations and inflation increased, Democrats’ traditional advantages on economic issues also waned.
With Ronald Reagan’s election in 1980, Republicans solidified a winning coalition that successfully strengthened the appeal of ‘limited government’ beyond economic conservatism, where it had traditionally lived. ‘Limited government’ now also meant not meddling in the private lives of citizens to enforce some elitist Ivy League intellectual’s idea of racial justice, and not asking middle-class taxpayers to pay welfare support for poor black people.”
All the information presented is not to make readers feel one party is better than the other. On the contrary, the information is intended to help readers see that as race becomes more of an issue for both parties, economics becomes much less of a problem. What proceeds this racial, political division is always more pain for white Americans. In the second part of this post on the economics of racism, we’ll look at the “white pain” that is being inflicted today based on the shift from economics-based politics to race-based politics.
Wilfred D. Brown is the author of “Breaking the Chains: The Road to Mental Emancipation,” which focuses on race relations in the U.S.
