Speaker 1: I'm Carol Masser and I'm Jason Kelly. It's time for
Speaker 1: this week's cover story. Mainstream economics has many ideas about
Speaker 1: getting beyond racism, so the question becomes which lessons apply
Speaker 1: in real life. White scholars, however, smart and well intentioned,
Speaker 1: can never really know how discrimination is experienced and understood
Speaker 1: by its victims. And Jason, the problem is that racism
Speaker 1: is embedded in the structure of society, made more harmful
Speaker 1: by the fact that it doesn't require deliberate hostility to persist,
Speaker 1: and the greatest frustration for many is that nothing ever
Speaker 1: seems to change stop killing black men. Mainstream economics has
Speaker 1: many ideas about getting beyond racism. Which lessons apply in
Speaker 1: real life? By Peter Coy, The economics profession has had
Speaker 1: a hard time getting a fix on racial discrimination. Quite
Speaker 1: apart from its cruelty, it seems illogical. One of the
Speaker 1: first lessons in microeconomics is that workers are paid a
Speaker 1: sum equaling the marginal product of their labor their value
Speaker 1: to the enterprise. Any employer who tried to pay them
Speaker 1: less would lose them to a competitor. Clearly, that doesn't
Speaker 1: always happen in the real world. For more than half
Speaker 1: a century, some of the biggest names in economics have
Speaker 1: wrestled with why, including Nobel laureates Gary Becker, Edmund Phelps,
Speaker 1: Kenneth Arrow, Joseph Stigletz, George Akerloff, and Michael Spence, all
Speaker 1: white men. By the way, the question is urgent because
Speaker 1: racial discrimination is the fuel of the anger and discontent
Speaker 1: that have spilled onto the streets. The trigger was the
Speaker 1: asphyxiation death of George Floyd in Minneapolis under the knee
Speaker 1: of police officer Derek Chauvin, who's been fired and charged
Speaker 1: with second degree murderer. Can economists help us find a
Speaker 1: way out of the chaos? In nineteen fifty seven, Becker
Speaker 1: published the first economic theory of racial discrimination, which until
Speaker 1: then had been the domain of sociologists and lawyers. He
Speaker 1: likened it to an employer's taste, like the preference for
Speaker 1: a certain food or beverage, except with evil consequences. Becker's
Speaker 1: economic model reduced a charged social issue to an economic
Speaker 1: fundamental supply and demand. His University of Chicago colleague Kevin
Speaker 1: Murphy recalled in a retrospective in twenty fifteen, the year
Speaker 1: after Becker died, it is only through widening of the
Speaker 1: usual assumptions, that it is possible to begin to understand
Speaker 1: the obstacles to advancement encountered by minorities, Becker said in
Speaker 1: his Nobel lecture in Becker believed that competition for talent
Speaker 1: among employers would reduce, but not completely end discrimination. Later
Speaker 1: scholars speculated that discrimination was perhaps not a taste but
Speaker 1: a statistical phenomenon, with employers basing hiring decisions on their
Speaker 1: perhaps false impressions of a group rather than individual characteristics.
Speaker 1: They said, employers stereotypical thinking otherwise known as prejudice, could
Speaker 1: become a self fulfilling prop see if it led minorities
Speaker 1: to lose hope and under invest in schooling and work skills.
Speaker 1: White scholars, however, smart and well intentioned, can never know
Speaker 1: how discrimination is experienced and understood by its victims. Some
Speaker 1: of their theories feel too slight to explain a society
Speaker 1: that's torn apart by race and remains damaged by the
Speaker 1: legacy of slavery, America's original sin. Any modern analysis of
Speaker 1: race relations has to be grounded in the fact that
Speaker 1: the US was built on the backs of enslaved Africans
Speaker 1: and that leading thinkers of the day defended slavery on
Speaker 1: economic grounds, if not slaves, who would harvest the cotton, rice,
Speaker 1: and tobacco. Derrick Hamilton's, a black economist at Ohio State
Speaker 1: University's John Glenn School of Public Affairs, is among the
Speaker 1: scholars elaborating the new field of stratification economics, which places
Speaker 1: race at its center. He cites Stiglets and others, but
Speaker 1: says his biggest inspiration is the late nobelist Arthur Lewis
Speaker 1: born in St. Lucia, then a British colony, who studied
Speaker 1: how developing countries get stuck in a middle income trap. Hamilton's,
Speaker 1: who advised the presidential campaign of Bernie Sanders, argues that
Speaker 1: racial discrimination is a feature of the white dominated economic system,
Speaker 1: not a bug or a taste or a statistical error.
Speaker 1: In other words, stratification economics treats racism as rational, albeit reprehensible.
Speaker 1: That places it more in the mainstream of economic thought,
Speaker 1: oddly enough, than explanations that lean on emotions or mistakes.
Speaker 1: The irony isn't lost on Hamilton's. The reviewers who serve
Speaker 1: as gatekeepers for academic journals and economics seem to believe
Speaker 1: that the African American experience is Suey genneries, a special
Speaker 1: case from which we cannot generalize, says Lisa Cook, a
Speaker 1: black economist at Michigan State University. It took her ten
Speaker 1: years to find a publisher for a paper showing that
Speaker 1: patenting by African Americans declined during historical periods of lynching
Speaker 1: and white race riots. Economists from other countries is including China, Israel,
Speaker 1: and Russia, immediately saw the wide applicability of the research.
Speaker 1: She says. The Emancipation Proclamation ended slavery, but not the
Speaker 1: maltreatment of blacks. To this day, testers have found that
Speaker 1: resumes with black sounding names are less likely to earn
Speaker 1: interviews than ones with white sounding names. Black Americans are
Speaker 1: steered into costlier home and auto loans, They get worse
Speaker 1: healthcare than whites, and suffer worse outcomes, especially from COVID nineteen.
Speaker 1: They have chronically higher unemployment rates, though ironically the gap
Speaker 1: has narrowed during the pandemic because more black than white
Speaker 1: employees have kept working under risky conditions because their jobs
Speaker 1: are deemed essential. More than sixty years after the U. S.
Speaker 1: Supreme Courts, Brown versus Board of Education desegregation decision, Black
Speaker 1: students continue to attend inferior public schools on average and
Speaker 1: are less likely to attend college. Black college graduates have
Speaker 1: less wealth on average than white high school dropouts, calling
Speaker 1: intotion the idea that they can pull themselves up by
Speaker 1: the bootstraps through more schooling, far more than other wealthy nations.
Speaker 1: The US solves its social problems with prisons, and black
Speaker 1: people and other minorities are disproportionately affected. At the time
Speaker 1: of the last descenial census, in census takers recorded that
Speaker 1: forty percent of black men from the poorest families in
Speaker 1: the Watts neighborhood of Los Angeles were incarcerated. The greatest
Speaker 1: frustration is that nothing ever seems to change of counties.
Speaker 1: Boys from black families will earn less as adults than
Speaker 1: boys from white families who come from the same neighborhoods
Speaker 1: and have the same parental incomes, according to a study
Speaker 1: by RAJ. Chetty then at Stanford and Nathaniel Hendron of Harvard,
Speaker 1: and Maggie Jones and Sonya Porter of the U. S
Speaker 1: Census Bureau, the idea that racial discrimination is alive and
Speaker 1: well is hard to absorb for people in the majority
Speaker 1: economists or otherwise who prefer to think that society is meritocratic,
Speaker 1: says Julia Coronado, president and founder of the economic consulting
Speaker 1: firm Macro Policy Perspectives. The textbook principle that workers are
Speaker 1: in the marginal product of their labor tells them that
Speaker 1: they're there because they deserve it, Coronado says, so of
Speaker 1: course they want to believe it. The same goes for
Speaker 1: corporate America, which is as invested in the principles of
Speaker 1: the free market as the economics profession is. When stocks
Speaker 1: rose on June one, after a weekend of historic turmoil,
Speaker 1: it seemed like some kind of secret had been inadvertently revealed,
Speaker 1: that the optimism reflected the color of the stakeholders. If
Speaker 1: the companies in the SMP five hundred can be worth
Speaker 1: more at a time like this, what does that say
Speaker 1: about their connection to, or rather disconnection from life in
Speaker 1: US cities. The Internet is thick with comments that corporations
Speaker 1: are the real looters. Davy d a journalist and hip
Speaker 1: hop historian, garnered almost half a million likes on Twitter
Speaker 1: for a tweet saying corporations collected over five hundred billion
Speaker 1: dollars in stimulus money, while everyone else was left with
Speaker 1: a twelve check and having to decide if they pay
Speaker 1: for food or rent. Nowhere is the corporate disconnect clearer
Speaker 1: than in Minneapolis, whose history of philanthropy by local businesses
Speaker 1: did precisely nothing to save the life of George Floyd.
Speaker 1: Minneapolis and its twin cities St. Paul have a tradition
Speaker 1: of progressive policy and generous corporate giving from a dense
Speaker 1: regional concentration of corporate headquarters, including those of Best Buy, Cargill,
Speaker 1: Eco lab, General Mills, Landa Lakes, Target, three M, and
Speaker 1: US Bank Corps. When the philanthropist John D. Rockefeller the
Speaker 1: Third visited in the nineteen seventies, he said he'd heard
Speaker 1: so much about local business giving that I feel a
Speaker 1: bit like Dorothy in the Land of Oz. I had
Speaker 1: become to the Emerald City myself to see if it
Speaker 1: really exists. But while the companies were giving, twentieth century
Speaker 1: segregationists were barring black residents from living in certain parts
Speaker 1: of town. When segregation became illegal, the zoning code took
Speaker 1: its place, restricting seventy of the city's resididential land to
Speaker 1: single family housing, which was unaffordable to many black families.
Speaker 1: In Minnesota as a whole, the difference in the poverty
Speaker 1: rate between white and black residents is the nation's third widest.
Speaker 1: The Star Tribune in Minneapolis reported last year the police
Speaker 1: department has been a special problem. Black people constitute twenty
Speaker 1: percent of the city's population but accounted for more than
Speaker 1: sixty percent of the victims of police shootings from late
Speaker 1: two thousand nine through May twenty nineteen. There were widespread
Speaker 1: protests two years ago when police killed Thurman Blevins, a
Speaker 1: black man who begged for his life a decade ago.
Speaker 1: The narrative was, we got it all figured out. Now.
Speaker 1: The issue is a great city includes everyone, and we're
Speaker 1: not there yet, says R. T Ryback, who was mayor
Speaker 1: from two thousand two to twenty fourteen and is now
Speaker 1: chief executive officer and president of the Minneapolis Foundation, which
Speaker 1: manages charitable funds for donors. We solved so many issues together,
Speaker 1: but we haven't solved race, and certainly not with the police.
Speaker 1: Before the killing of Floyd, Minneapolis was moving in the
Speaker 1: right direction. In twenty eighteen, it became the first big
Speaker 1: US city to abolish single family zoning, a step that should,
Speaker 1: over time reduce segregation and the cost of housing for
Speaker 1: all by increasing the supply of living units. Under Mayor
Speaker 1: Jacob Fry and Police Chief Madaria Aredondo, there have been
Speaker 1: steps to demilitarize policing. It clearly wasn't enough. Ryback, the
Speaker 1: former mayor, says, the city has finally woken up to
Speaker 1: the problems in its midst Minneapolis has been smug for
Speaker 1: too long. It's not just one city that's been smug.
Speaker 1: Many whites view the nation's race problem as more or
Speaker 1: less fixed, well except at times like this, feeling absolved
Speaker 1: by the successes of black athletes and entertainers and their
Speaker 1: own cordial relations with people of other races. The problem
Speaker 1: is that racism is embedded in the structure of society,
Speaker 1: made more harmful by the fact that it doesn't require
Speaker 1: deliberate hostility to persist. It should go without saying that
Speaker 1: none of this amounts to an excuse for rioting, looting, arson,
Speaker 1: and attacks on police officers. The crimes dishonor the memory
Speaker 1: of George Floyd and others who've died. Authorities are investigating
Speaker 1: clues that some of the attacks have been carried out
Speaker 1: or at least instigated by trained anarchists whose goal is destruction.
Speaker 1: Owners of small businesses have lost their life savings. Cities
Speaker 1: already burdened by COVID nineteen haven't even tougher challenge. Detroit
Speaker 1: and Newark, New Jersey, never fully recovered from the riots
Speaker 1: of the summer of nineteen sixty seven. Even the triumphant
Speaker 1: launch of space x is manned spacecraft on May to
Speaker 1: resupply the International Space Station was tinged with sadness. To
Speaker 1: those with long memories. It recalled the nineteen sixties, another
Speaker 1: time when American cities burned while astronauts flew in space.
Speaker 1: Has the US made no progress in more than half
Speaker 1: a century. Trump is seizing on the riots to cast
Speaker 1: himself as a law and order president, threatening to deploy
Speaker 1: active duty troops in cities. You have to dominate, he
Speaker 1: said on June first, in a video conference with governors
Speaker 1: and law enforcement authorities. If you don't dominate, you're wasting
Speaker 1: your time. They're going to run over you. You're going
Speaker 1: to look like a bunch of jerks. An hour earlier,
Speaker 1: Joe Biden, his presumptive Democratic challenger in the November election,
Speaker 1: was more sympathetic to the protesters in a meeting with
Speaker 1: big city mayors, saying, the fact is we need that anger.
Speaker 1: We need that to tell us to move forward. If
Speaker 1: anger is what's needed, as Biden says, then the US
Speaker 1: is well supplied with raw material. There's anger on the
Speaker 1: left and the right, from protesters and police, from families
Speaker 1: of victims of police brutality, and families whose businesses have
Speaker 1: burned to the ground. Whether all that anger will move
Speaker 1: America forward isn't so clear. What's clear is the need
Speaker 1: for the power structures of economics and business to grapple
Speaker 1: with life as it's lived, not as the textbooks specify.
Speaker 1: And that's the cover story. Find that story and so
Speaker 1: many other important stories. There's a whole political takeover dealing
Speaker 1: with the unrest. This week Jason must reads for everyone.
Speaker 1: Find that in the magazine, on newsstands, online, and of
Speaker 1: course always on the Bloomberg terminal. I'm Carol Masser and
Speaker 1: I'm Jason Kelly. Please join this every day on Bloomberg
Speaker 1: Business Week on the radio starting to get two pm
Speaker 1: Wall Street Time. Also catch up with us via podcast
Speaker 1: wherever you get your podcast. This is Bloomberg