Racial Wealth Gap
April 29, 2013 at 8:23 am
The front of the business section of today's New York Times carries an article headlined "Wealth Gap Among Races Widened Since Recession." It reports on an Urban Institute study about racial disparities in wealth accumulation. The headline news is that "the average white family had about $632,000 in wealth, versus $98,000 for black families and $110,000 for Hispanic families."
Here are two ways that both the Urban Institute study and the Times article are flawed:
- There's no accounting for either age or education levels. It may be that, for example, Hispanic families have less wealth because they are younger, and wealth grows with age, or that whites have more college or post-college degrees, which may net out positively in the long run in terms of wealth.
- They both rely on a Federal Reserve survey that includes 6,500 voluntary participants. As the Fed explains, "to maintain the scientific validity of the study, interviewers are not allowed to substitute respondents for families that do not participate. Thus, if a family declines to participate, it means that families like theirs may not be represented clearly in national discussions." If you're an illegal immigrant, or if you have wealth that derives from illicit activities, you might be less willing to participate in this survey. The sample is small enough that if the survey had happened to include one more black television personality, investment banker, or athletic star, the average wealth statistics might have turned out significantly differently.
Here are three ways that the Times article is flawed:
- It totally ignores the conservative policy recommendation — welfare reform — that is part of the Urban Institute study. The study says "many safety net programs even discourage saving: families can become ineligible if they have a few thousand dollars in savings." The Times article makes no mention of this angle, that the perverse incentives of welfare programs contribute to the wealth gap.
- It emphasizes averages rather than medians. The Urban Institute study includes a footnote that reports the median wealth of white families was $124,000, of black families, $16,000, and of Hispanic families, $15,000. The Times article acknowledges, " Median wealth figures — where half of households have more wealth and half less — produces lower numbers, but the trends are the same, the Urban Institute researchers said." But the Times, unlike the Urban Institute, does not include the actual median figures.
- The Times article reports that "Discriminatory lending practices were also a factor." But the Urban Institute study says nothing at all about discriminatory lending practices. In fact, rather than faulting banks for lending to minority borrowers, as the Times article does, the Urban Institute is positive about borrowing for a home: "Most families save by paying off mortgages through homeownership...Recession led many low-income individuals to fear homeownership even when it became much cheaper on net than renting."
Related Topics: Education, Income inequality, Race
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