Income Inequality Begins At Birth

Income inequality begins at birth and these are the stats that prove it Poor children face worse economic odds than low-income kids elsewhere

PBS NewsHour original

Here’s a look at what life is like in Sandtown according to statistics:

Children riding home from school watch as Baltimore residents celebrate at the corner of West North Avenue and Pennsylvania after authorities released a report on the death of Freddie Gray on Friday. In Baltimore, 22 percent of African American adults have no high school diploma, compared to 15 percent of whites. Photo by Win McNamee/Getty Images

Editor’s note: In this essay, Economist John Komlos argues that we must look more deeply at the recent events in cities like Baltimore, New York and Ferguson, Missouri, and consider the socioeconomic plight of young black men in America, especially in neighborhoods where educational attainment is low and poverty is high. Komlos is the author of “What Every Economics Student Needs to Know and Doesn’t Get in the Usual Principles Text.”

Even conservative Republican Alan Greenspan, an ardent advocate of free markets, is beginning to see inequality as a fundamental threat to the system and admits that, “You cannot have the benefits of capitalist market growth without the support of a significant proportion, and indeed, virtually all of the people; and if you have an increasing sense that the rewards of capitalism are being distributed unjustly the system will not stand.”

Well, the system was not standing very sturdily during the days of rage in Baltimore or in Ferguson. So we need to look beyond the ugly surface manifestations of young black men being shot in the back or suffocated and consider the deeper socioeconomic plight of this demographic in this country in 2015. The truth of the matter is that people of color are disadvantaged by the current socio-economic system from the very beginning of their lives.

Problem no. 1: babies born in low-income neighborhoods will go to bad schools. Problem no. 2: bad schools mean low educational attainment. In Baltimore, 22 percent of African Americans have no high school diploma compared to 15 percent of whites. At the national level, the ratio is 2:1 (15 percent to 7.6 percent).

What is the system that keeps people of color at the lower echelons of the socio-economic hierarchy? It begins at birth.

Problem no. 3: low skills mean no jobs. The inconvenient truth is that the unemployment rate among African Americans is 10.4 percent — twice that of whites. But that is not the whole picture. The underemployment rate is more relevant, because it reflects more accurately the real amount of pain in the system. The underemployment rate includes people who are so discouraged that they are not looking for work any more or they no longer have gas money to look for a job. This group — 11 percent of the labor force at the national level — also includes those who would like to work full time but can only find part time jobs. That seems bad enough but the blunt truth is that among African Americans the underemployment rate is a whopping 22 percent. (By the way, it is revealing that I had to calculate this number myself because it is kept secret by the statistical bureaus: you won’t find it on any of their internet sites or published statistics. It is too pessimistic for the official circles, so better keep it quiet.)

Think about this 22 percent for a moment: that means that one out five African American does not have a full-time job and are scraping by with the skin of their teeth. They are the excluded. No more hope left for the American dream. There is more sad news: among African American teenagers, the unemployment rate is 25 percent which means that the underemployment rate is probably in the 40-50 percent range. Plenty of time to throw stones at the system or at their representatives.

Problem no 4: of course, no jobs means no incomes. In Baltimore, 12 percent of African American families have total incomes less than $10,000 compared to just 4 percent of whites. Poverty rates in Baltimore are also much higher among African Americans than among whites: 28 percent versus 15 percent. No wonder that a third of African American households had to rely on food stamps to keep body and soul together in contrast to just 9 percent of white families. In seven St. Louis County neighborhoods, with the median family income a paltry $21,000, half the population is at or below the poverty line. (The federal poverty rate for a family of four in the lower 48, plus D.C., is $24,250.)

In Baltimore’s census tract no. 1504 — near New Shiloh Baptist Church where the funeral of Freddie Gray was held — 30.6 percent of households have incomes less than $15,000.

At the national level 13.9 percent of African American families earn less than $20,000. The comparable share among whites is 5.5 percent. And even more depressingly, the median income has been falling since the year 2000. Among African American families, the decline has been $3,500 — the same as among whites — but in percentage terms the decline is 8.4 percent compared to 5.3 percent among whites. In 2000, the median income among African American families was 63 percent of white incomes whereas by 2009 it declined to 61.4 percent.

In Baltimore’s census tract no. 1504 — near New Shiloh Baptist Church where the funeral of Freddie Gray, the man whose spine was broken while in police custody in April, was held — 30.6 percent of households have incomes less than $15,000. In nearby tract no. 1506, 43 percent of households earn less than $15,000. This race-based poverty gap also shows up in Ferguson. In census tract number 2119 near Ferguson, 30 percent of households had annual income below $15,000. (Tim Cook, CEO of Apple Inc., earns as much every morning before noon, including weekends and holidays.) And six miles south of Ferguson, there are dozens of census tracts where the median family income ranges from $100,000 to $163,000. To the black residents of Ferguson, proximity to this evidence that the American Dream is a reality for whites must be a chronic irritant in the best of times, an unbearable provocation in the worst. Under such socio-economic conditions it is difficult to sustain functional families and vibrant communities.

Problem no 5: no income means no wealth, not surprisingly. African Americans are heavily represented among the have-nots of this country. There are 15 million African American households. The poorest 3 million, or 20 percent, of them have no wealth whatsoever, just debt. The median net worth is -$2,500 and the mean net worth is -$21,000. This is worse than among the Russian serfs: they at least had no debt! Among whites, the situation is not very different among the bottom 20 percent. Now let’s look at the next 20 percent, or next 3 million households. Now we get into positive territory but both the median and mean are less than $700. That’s all. Taken together the mean value of the bottom 40 percent of African American households is negative: -$10,000. So the bottom 6 million households still have nothing but debt on average and all in all fully half of the African American population has absolutely no wealth at all — no skin in the game whatsoever. In contrast, in 2004 there were 2,728,000 people in this country with assets worth in excess of $1.5 million. Their total net worth was an astronomical $10,201,246,000,000, that’s $10 trillion.

What is the system that keeps people of color at the lower echelons of the socio-economic hierarchy? It begins at birth. Most of those who happen to be born on the wrong side of the tracks are trapped. So many of them eventually end up on the wrong side of the law or disappear in gang violence. That is why there are 1.5 million missing black men in this country today. We have to realize that children are not responsible for the schools in the neighborhood in which they happened to be born. They chose neither their skin pigment nor their parents. So they can hardly be held responsible for the poverty of their parents or for their dysfunctional neighborhoods. Although they deserve better, they will not get the proper education for a knowledge economy and once they become adults they join the ranks of the have-nots, because there will not be any jobs for them. The employers are not responsible for not hiring those who are unqualified, unskilled, uneducated and without diplomas. So that is the real existing system of Capitalism with a poverty trap. It is against that system that people were throwing rocks. But how do you throw rocks against a system?

This inhumane system will not change until the American people realize that this system is fundamentally and deeply unfair and elect representatives in Congress with a vision to create a capitalism with a human face. All we have to do is to clean up the slums, provide top notch schools capable of competing with those in Finland, bring some jobs back that have been exported to distant shores, and we should be in good shape. No more food stamps, no more welfare payments, no more Medicaid, no more expenditures on incarceration and lower expenditures on the police force! It will be an America in which the determining factor of the life chances of newborns will not depend on the happenstance of the zip code of their birth.