Interview with William “Sandy” Darity Jr.: Inequality, Race, Stratification, and More

Douglas Clement interviews William "Sandy" Darity Jr. in The Region magazine from the Federal Reserve Bank of Minneapolis (June 3, 2019). As the subtitle reads: "His recent focus has been on reparations for African Americans, but his scholarship spans decades and ranges from imperialism to psychology, from “price-specie flow” to rational expectations." Here are a few points that caught my eye, but the entire interview is worth reading.

Wealth Inequality by Race

The racial wealth gap is customarily measured at the median for households to bypass the problems that are created by large outliers. At the median, when we’re taking the middle households, the most recent data from the Survey of Consumer Finances (SCF) for 2016, I believe, places the white household median at $171,000 and the black household median at $17,600. So, essentially, at the median, blacks have 1 cent in wealth to every 10 cents held by whites. [The SCF 2016] probably has the most conservative estimate of the gap. If, for example, you use the Survey of Income and Program Participation from 2014, which I believe is the most recent year that it’s been taken, the ratio is closer to 1 cent for blacks per 13 cents for whites at the median.

In work that our research group has done for the National Asset Scorecard for Communities of Color, we attempted to get data about individual metropolitan areas throughout the United States, where it might be possible to look at the wealth position of very specific national origin groups. All of our cities have much lower estimates of black median wealth than the national statistics. The number of cities that we’ve studied is substantial but hardly comprehensive. It’s been Boston, Los Angeles, Washington, D.C., Miami, Tulsa, and Baltimore. ...  That’s what we found. $8 is the median [wealth of black households in Boston]. In Miami, it’s $11. I’m not sure how the national statistics get as high as $17 thousand; it’s not really consistent with what we’re finding. So I’m just not sure. There’s something odd. We consistently found, across all of these cities, much, much lower estimates of median black household wealth than you see in the national data. ...

I’m absolutely convinced that the primary factor determining household wealth is the transmission of resources across generations. The conventional view of how you accumulate wealth is through fastidious and deliberate acts of personal saving. I would argue that the capacity to engage in some significant amount of personal saving is really contingent on already having a significant endowment, an endowment that’s independent of what you generate through your own labor.

That being the case, I think that there’s actually some superb research that’s recently come out that supports the importance of what I’d like to call intergenerational transmission effects, rather than intergenerational transfers. I think these effects go beyond inheritances and gifts. I think it includes the sheer economic security that young people can experience being in homes where there is this cushion of wealth. It provides a lack of stress and a greater sense of what your possibilities are in life. ... The sociologists Pfeffer and Killewald have done very, very powerful work on the relationship between grandparents’ and parents’ wealth and the wealth of the youngest generation when it’s of adult age. The connection or the correspondence between which households have higher levels of wealth across three generations is pretty strong.

Then there’s the work of two economists who are with the Fed, Feiveson and Sabelhaus. Their work shows that at least 26 percent of the net worth of a person in the current generation is determined by their parents’ wealth. At least 26 percent. And that’s their lower bound. ...  And if your family’s wealthy enough, you come out of college or university without any educational debt. That can be a springboard to making it easier for you to accumulate your own level of wealth.

What's a "Baby Bond"?

Baby bonds are not really a bond. They’re really a trust account for each newborn infant. It would be different from other types of programs like seed accounts or child savings accounts because no contribution would be expected from parents, whether they’re rich or poor. The amount of the trust account would vary with the wealth position of the child’s family. It would vary on a graduated basis, so we wouldn’t have any kinds of notch effects. That’s basically the idea.

In most of the versions of the proposal that we’ve advanced, we’ve said the federal government is essentially providing a publicly funded trust account to every newborn child, so it’s a birthright endowment. We would guarantee a 1 percent real rate of interest until the account can be accessed by the child when they reach young adulthood. There’s some debate among us about what that young adulthood date should be.

What is "Stratification Economics"?

Stratification economics is an approach that emphasizes relative position rather than absolute position. What’s relevant to relative position are two considerations: one, a person’s perception of how the social group or groups to which they belong have standing vis-à-vis other groups that could be conceived of as being rival groups.

Now, it’s an interesting issue as to who constitutes groups that are viewed as rivalrous or oppositional in some sense. But the first thing that individuals value is a superior position for the groups with which they identify. The second thing that they value is a superior position relative to other members of their own group. ... There are two sets of comparisons that are going on: an across-group comparison and a within-group comparison. This kind of frame as the cornerstone for the analysis comes out of, in part, the old work of Thorstein Veblen and also out of research on happiness. The latter increasingly shows that people have a greater degree of happiness if they think that they’re better off than whoever constitutes their comparison group rather than simply being better off; so it’s comparative position that comes into play.

Conventional economics doesn’t start with an analysis that’s anchored on relative position, as opposed to absolute position; so I think that’s the fundamental shift in stratification economics. But also important to stratification economics is the notion that people have group affiliations or group identifications. People feel like they’re part of a team. There can be varying degrees of attachment but, in some sense, people think of themselves as being part of a team, and they want their team to win. That’s somewhat different from conventional economics.

A version of this article first appeared on Conversable Economist.