Monday, February 29, 2016

Everyone is 30% poorer than they were

An interesting example of burying the lead from Black Wealth Barely Exists, In One Terrible Chart by Richard V. Reeves and Edward Rodrigue.

The chart they want to focus on is this.
Race gaps in wealth – already wide – widened further during the Great Recession. The median wealth of white households is now 13 times greater than for black households – the largest gap in a quarter century, according to analysis by the Pew Research Center. Black median wealth almost halved during the recession, falling from $19,200 in 2007 to $11,000 in 2013:

Click to enlarge.

Throughout their article, Reeves and Rodrigue orient around race as the salient point. But it is only salient if there is evidence of discrimination. Since there is no such evidenced advanced, the implication is that race is not salient and that the divergences are attributable to other, more mundane causes such as cultural differences in savings rates, hours worked, risk taking, etc. By failing to identify actual causative factors, Reeves and Rodrigue do the disservice of misdirection.

By focusing on race only, they also seem to completely miss the elephant in the chart. Reeves and Rodrigue focus on the fact that six years earlier whites were ten times wealthier than blacks and now (2013) they are thirteen times wealthier. We know why that happened and it wasn't racism. Government policy deliberately made it easier for minorities to obtain mortgages by waiving earlier requirements in terms of income levels, down payments, etc. When the recession came, minorities were, as a results of these policies, far more exposed to the collapse of the real estate market because 1) a higher percentage of their wealth was tied up in real estate, 2) they had lower financial capacity to deal with market variations, and 3) the real estate they had acquired was of the type and in the locations most vulnerable to devaluation.

Reeves and Rodrigue want to make this wealth disparity about race when it is about personal choices influenced by government policy. Or, more specifically, bad financial decisions made as a result of bad government policy (even if well intended policy).

The big issue revealed in the chart is not an increasing disparity in wealth between race classifications. The unmentioned elephant is that both groups have seen a fall in their wealth of between 26-42%. Basically, everyone is about 30% poorer than they were six years ago. That's the critical thing.

Race obsession has many negative consequences. An inability to see the big picture is one of them.

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