False arguments from the fake news?

It is always hard to distinguish between what is deliberate misreporting, what is simply ignorant reporting, and what is incapacity to think critically/logically.

This morning's example is from NPR's Chris Farrell.  Black-owned businesses still face uphill financial battle during the pandemic.  It was a masterpiece of political advocacy masquerading as straight reporting.  Or so it seemed.  Possibly ignorance and critical thinking incapacity come into play.  Who can say?

Basically Farrell was reporting that small businesses in general and black-owned business in particular have suffered in disproportionate fashion during this policy induced recession.  I am pretty confident that is true.  But why?

He makes the point that 40% of blacked-owned business revenues are from just 30 counties (out of 3,141 counties in the US) and 20 of those counties with high black-owned business revenues are counties with excess rates of Covid-19 infections and deaths.  I would imagine most of those are in counties in MA, NY, and NJ.  

So black owned business are substantially concentrated in a handful of counties in blue-states with draconian lock downs which have created outsized financial pain.  Rents are going to be higher than normal, as are property taxes, income taxes, regulatory burden, labor costs, etc.  Farrell could be laying the groundwork for arguing that black-owned businesses are too concentrated in economically unstable and fragile areas and therefore suffer disproportionately, along with white-owned businesses, when there is some exogenous shock such as local jurisdiction shutdown policies.

The argument that black-owned businesses are over-concentrated in blue regime jurisdictions and therefore overly exposed to financial pressure seems a logical one but it is not the one Farrell develops.  

He then makes the claim, correctly, that black-owned businesses tend to be undercapitalized and therefore, like all undercapitalized businesses (immigrant businesses and family owned businesses in general) are especially prone to failure when there are exogenous economic shocks.  

Farrell then transitions to a 2018 Brookings study (I cannot find the one he might be referencing) which found that Banks extended loans to 60% of white applicants but only 29% of black applicants.  

Without the Brookings report, I can't verify but it seems directionally right.  The disparity in loan acceptance is real and material and has been know of for decades.  As are the reasons for the disparity.  From Why Minorities Have So Much Trouble Accessing Small Business Loans by Jared Weitz.  The reasons:

1. Lower Net Worth - "Data recorded in 2016 found that white business owners start their businesses with an average of $106,720 in working capital compared to African-American-owned businesses, which are started with an average of just $35,205."  
2. Bad locations - "A great deal of minority-owned businesses are located in poorer, urbanized communities. Research from the Small Business Administration suggests that the location of a business plays a bigger role in the approval of a loan than the ethnicity of the business owner."
3. Little Credit History - "The average minority small business owner has a credit score of about 707 -- 15 points lower than the average small business owner in the U.S. . . .Still, credit score is arguably just as important as the business’s performance record when it comes to securing a bank loan."

This is much like the folderol around gender pay equity.  We now know with reasonably robust certainty that there is gender pay equity when you control for critical elements like years of experience, continuity of experience, choice of profession, industry, etc.  When you compare like to like, men and women are paid the same.  Just as the law requires.

I have not seen a study that compares white and black rejection rates for bank loans but I would wager that when you control for capitalization/net worth, for location, and for credit history, that you would find black and white loan rates to be about the same.  It is an open question.  I have seen no rigorous or recent studies.

But Farrell is happy to leap, without making the argument, to the logically fallacious conclusion that Post hoc ergo propter hoc, loan denial must be because of skin color.  He doesn't make the argument but glosses over it, referring to the "ingrained biases of financial institutions."  What poppycock.  This is basic logic and statistics.  

He ends with a statement to the effect that we need to eliminate the embedded inequalities in the financial sector.  I agree, we need more transparency and accountability.  But if we have good regulations and they are applied equally to all, I am good.  There is no need to soto voce advance the ignorant claims of social justice and critical theory.  If there is no disparate application of the rules which apply to everyone, then there is no problem.  

And in fact, there would be a problem if we stop letting the market work dispassionately.  We don't want scarce (well, usually scarce when governments aren't printing money) capital being misapplied to low return ventures.  If cities are creating unsustainable cost structures and too much policy and regulatory uncertainty (policies like whether there will be a police force to protect my property), then capital should not be going there.  The market works to encourage the most productive allocation of resources despite the wishes and desires of the ideologically motivated.