Where Have All the Economists Gone? (Racism)

In my previous post, I noted that non-economists who know almost nothing about socialism are the ones who seem to talk about it the most. Whereas economists who know a lot about socialism rarely talk about it at all. And that’s a problem.

Another area where economists have abandoned public discourse is in discussions about economics and race. Economists know an enormous amount about income and race. They have been studying the subject for years. But when was the last time you saw an economist expressing a public opinion about what all economists know on this subject?

All I have seen lately is what flies under the banner of “critical race theory,” which generally holds that income differences between blacks and whites are due to systemic racism that has evolved over time, dating back to the days of slavery.

As it turns out, critical race theory is a misnomer. It doesn’t generate hypotheses that scholars can test against reality.

Take a look at the chart below. It shows a great deal of difference between the annual income of disparate racial and ethnic groups. The average white household earns more than 50 percent above what the average Black household brings in. At the same time, the average Indian household earns almost twice what white households are earning.

Not only are whites not dominating the income race, but they are also in the middle of the pack.

Can critical race theory explain the pattern depicted in the chart? Not by a long shot.

But economists can explain it; and the explanation has very little to do with discrimination – at least not marketplace discrimination.

Writing in the Wall Street Journal the other day, Heather Mac Donald compared black students with Asian students. For example, a Brookings Institution study finds that Black high-school students spend a little more than a quarter of the time on homework that Asian students do. The average Black math score on the SAT in 2020 was 454 on an 800-point scale. The score was 632 for Asians. Only 21% of Black SAT takers met the math benchmark score of 530. That is the score that the College Board predicts, with 75% certainty, will allow a college freshman to receive at least a C-plus in first-year math. By comparison, 80% of Asian SAT takers met the math benchmark.

Economic studies have found that how students do in school and how they score on tests has a big impact on earnings later in life.

June O’Neill, an economist who used to direct the Congressional Budget Office, and her husband Dave O’Neill produced a comprehensive survey of the economic research on this issue almost a decade ago. They concluded that while discrimination may exist, it’s not the main determinant of overall wages and incomes.

Take the difference in pay for black and white men. The O’Neills found that the difference narrows to just 4% after adjusting for years of schooling and it reduces to zero when you factor in test scores on the Armed Forces Qualification Test (AFQT), which is basically an intelligence test. In other words, after adjusting for just two factors that cause people to be different, the pay gap between black and white men disappears entirely.

Among women, the gap actually reverses after adjusting for education and AFQT scores. Black women get paid more than white women.

The pioneering work in this field was done in the 1950s by Nobel laureate Gary Becker when there was more real racial discrimination than there is today. Becker began with a simple observation: If Blacks are paid less than whites for the same work product, companies could increase their profit by hiring only Black workers. Conversely, a company that hired only white workers would be paying an economic penalty. This same principle applies to wage gaps between men and women, Hispanics and non-Hispanics, etc.

In a free market, employers can discriminate. But they pay an economic penalty for doing so.

Another implication of Becker’s approach is to realize that in non-market settings, in contrast, there may be no cost to discrimination. If rent control causes demand for housing to exceed supply, renters can be choosy. They can discriminate at no cost to themselves. If a minimum wage law causes the supply of labor to exceed demand, employers can be choosy. They get a free pass to indulge their racial preferences.

Not only are whites not dominating the income race, but they are also in the middle of the pack.

Can critical race theory explain the pattern depicted in the chart? Not by a long shot.

But economists can explain it; and the explanation has very little to do with discrimination – at least not marketplace discrimination.

Economic studies have found that how students do in school and how they score on tests has a big impact on earnings later in life.

Among women, the gap actually reverses after adjusting for education and AFQT scores. Black women get paid more than white women.

In a free market, employers can discriminate. But they pay an economic penalty for doing so.

If Blacks are paid less than whites for the same work product, companies could increase their profit by hiring only Black workers. Conversely, a company that hired only white workers would be paying an economic penalty.

Truman set the benchmark asking for the legendary "One-armed Economist."
Now we need a black one-armed economist?

Clearly Impossible.

“Take the difference in pay for black and white men. The O’Neills found that the difference narrows to just 4% after adjusting for years of schooling and it reduces to zero when you factor in test scores on the Armed Forces Qualification Test (AFQT), which is basically an intelligence test. In other words, after adjusting for just two factors that cause people to be different, the pay gap between black and white men disappears entirely “

Which is to be expected. IQ is a dominant factor of success, so people with similar IQs will perform similarly in life.

What this article fails to mention, though, and what in reality is the most important point, is that the AVERAGE IQ of blacks is significantly lower than the average for whites. It’s that difference in the AVERAGES that cause all the racial strife and accusation of racism, and self flagellation on the parts of whites.

The reason for this is that under a strict system of meritocracy blacks end up with the more menial jobs and black kids will end up performing poorly in school.

And if you’re led to believe that all races on average are the same and you see such disparities in results what are you to conclude? The only rational conclusion is that somebody is keeping the blacks down. And who can that somebody be? Well it has to be the dominant group - the whites in this case.

If Chinese were foolish enough to let a significant number of blacks migrate into their country the racial discord there would be even greater than ours.

I find this interesting....

India is not known for their high standard of living or high IQ, yet Indian-Americans do extremely well here in the US. I’ve often wondered why.

What I’ve been able to find out is that most Indians that migrate here are from the upper casts - the ones with the higher IQs and ambitions.

I imagine the same is true of the other Asian people in that chart.

It all makes sense.

“Same holds for modern African migrants who outperform AAs.”

True, most recent Africans do better than AA. Most of it is due to self-selection. The people that come here have to have some above average level of intelligent, as well as initiative and mental and physical toughness. Also they have not been spoiled and pampered like the AAs, and appreciate the opportunities that this country offers. I just hope that they don’t get infected with the gimme and dependence mindset that AA’s have.

“Note how this will not hold for Latins, since illegal immigrants are not selected for economic class or intelligence.”

I’m not so sure about that. The same self-selection qualities apply to them as well. No they don’t come from the upper class, but again it must take a lot of initiative, courage and risk taking to take on that tough journey. These are entrepreneurial qualities. And I know lots of latinos that have started their own little businesses - restaurants, gardening, house cleaning, construction, the trades, etc. And the illegals have even more hurdles to climb.

Now, don’t get me wrong... I’m not at all for illegal immigration, but I would not be at all surprised if these people end up doing very well in the US in the coming years... provided we (the libs) don’t end up spoiling them by throwing free stuff at them... like we’re already doing.

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