My older brother came through Washington, D.C. where I was working in 1963 and spent a few days at my apartment in a Maryland suburb. He was moving furniture as a summer job while attending grad school and I took a few days off work to help him; one delivery was near Annapolis, Maryland.
We were having lunch at a small diner; you know, the kind with stools at the counter. A Black workman came in dressed like many of the other blue-collar patrons. Shortly after he took a seat a few stools down from us, a white waitress approached him, “What the hell do you want, spear chucker?” I couldn’t believe what I had heard; it was shocking to me, even back then. Yet, the man didn’t react or leave; he calmly placed an order.
Why relate this ancient event? Well, last fall, I started a blog about the economic effects of racial prejudice. It included some of my own experiences, like graduating from a segregated high school in Florida and working at the FBI where the only Black employee that I knew of was J. Edgar Hoover’s chauffeur. The objective of this blog was to show how racism in America has not only been horrific for those subjected to its evils, it has actually dragged down the economy.
This theory was confirmed when I found a September 2020 report by Citi GPS that detailed the economic cost of Black inequality. It estimated that $16 trillion – yes, trillion – would have been added to the U.S. economy if the gaps in wages, education, housing and credit access due to race had been closed 20 years ago. This report also projected that $5 trillion would be added to U.S. gross domestic product (GDP) over the upcoming five years if those gaps were closed immediately and that the U.S. economy would gain 0.4 percentage points each year.
The aftermath of last November’s election caused me to focus on other issues. But my blog on racial prejudice and the economy came back to mind during the recent controversy over including a minimum wage hike in the coronavirus relief legislation. Aren’t some of the same economic shackles that impede Black Americans holding back millions of other middleclass and lower income citizens? And how many more trillions could they have added to the economy?
Sadly though, lots of evidence indicates that the American Dream – that hard work will bring economic and social advancement regardless of a person’s status at birth – is no longer realistic. A 2020 report by the nonpartisan Peterson Institute for International Economics concludes that the United States has the most unequal high-income economy in the world and that the number of Americans in the middleclass has dropped from 61% in 1971 to 51% in 2019. While some have moved up, many more have fallen out of this iconic American category.
One graph presented by PIIE shows that the average pretax income of the lower 50% of workers in 38 European countries has grown by 37% since 1980, while the same tier of Americans saw their pretax income increase by a mere 3%.
Other research indicates that only the very wealthy in the U.S. are doing well. For example, the top 10% of Americans on the wealth scale owned 87% of all stock outstanding in the first quarter of 2020, according to data from the Federal Reserve, while the percentage held by the lower 80% was in single digits.
Inequality has numerous causes, of course. Certainly, the pitifully low federal minimum wage of $7.25 has depressed workers’ wages across the nation’s economy and so has the decrease in union membership, which fell from around one-third of the work force in the 1950s to about one-tenth today. Consequently, fewer American families have been able to buy a home or invest in stocks, two assets which have basically defined wealth over the past several decades.
The $1.9 trillion Republican tax cut of 2017 also exacerbated inequality by favoring higher income taxpayers. Yet, it barely budged the needle on the economy meter after only a slight bump to 3% growth in 2018. President Biden’s Covid-19 legislation cost about the same, but it will benefit millions of struggling families. This relief will help boost the economy by up to 8% in 2021 and reduce the unemployment rate to less than 5% by the end of this year, according to Goldman Sachs and other financial institutions.
What does this tell us? Well, since consumer spending is roughly 70% of the U.S. economy, putting money in the pockets of average Americans will produce more economic growth than enhancing the coffers of the wealthy.
Yes, but if the poorer folks in the lower 80% gain a much greater share of the economic pie, will the wealth of the upper 20% suffer?
Consider this. A family of four with yearly household income at the 2021 poverty level of $26,200 qualifies for Medicaid, food stamps and other federal safety net benefits. If most poverty level Americans earned enough to escape dependence on government programs, not only might their added spending boost the economy, but more tax dollars could be invested in infrastructure instead of welfare payments. I believe the resulting economic growth would actually benefit the rich, along with everyone else.
It just makes sense. Each of us will do better, if we can all do better.