WEBVTT - Racial Repression Is Built Into the U.S. Economy 0:00:00.120 --> 0:00:02.520 I'm Carol Masser and I'm Jason Kelly. It's time for 0:00:02.560 --> 0:00:06.880 this week's cover story. Mainstream economics has many ideas about 0:00:06.960 --> 0:00:11.760 getting beyond racism, so the question becomes which lessons apply 0:00:12.000 --> 0:00:16.320 in real life. White scholars, however, smart and well intentioned, 0:00:16.360 --> 0:00:21.079 can never really know how discrimination is experienced and understood 0:00:21.079 --> 0:00:24.200 by its victims. And Jason, the problem is that racism 0:00:24.280 --> 0:00:27.280 is embedded in the structure of society, made more harmful 0:00:27.640 --> 0:00:31.240 by the fact that it doesn't require deliberate hostility to persist, 0:00:31.640 --> 0:00:34.560 and the greatest frustration for many is that nothing ever 0:00:34.640 --> 0:00:40.920 seems to change stop killing black men. Mainstream economics has 0:00:40.960 --> 0:00:44.680 many ideas about getting beyond racism. Which lessons apply in 0:00:44.760 --> 0:00:50.159 real life? By Peter Coy, The economics profession has had 0:00:50.200 --> 0:00:53.880 a hard time getting a fix on racial discrimination. Quite 0:00:53.920 --> 0:00:58.120 apart from its cruelty, it seems illogical. One of the 0:00:58.160 --> 0:01:01.480 first lessons in microeconomics is that workers are paid a 0:01:01.520 --> 0:01:05.040 sum equaling the marginal product of their labor their value 0:01:05.080 --> 0:01:08.080 to the enterprise. Any employer who tried to pay them 0:01:08.160 --> 0:01:11.559 less would lose them to a competitor. Clearly, that doesn't 0:01:11.560 --> 0:01:14.440 always happen in the real world. For more than half 0:01:14.440 --> 0:01:17.080 a century, some of the biggest names in economics have 0:01:17.160 --> 0:01:21.679 wrestled with why, including Nobel laureates Gary Becker, Edmund Phelps, 0:01:21.880 --> 0:01:26.640 Kenneth Arrow, Joseph Stigletz, George Akerloff, and Michael Spence, all 0:01:26.720 --> 0:01:30.520 white men. By the way, the question is urgent because 0:01:30.640 --> 0:01:33.679 racial discrimination is the fuel of the anger and discontent 0:01:34.040 --> 0:01:37.039 that have spilled onto the streets. The trigger was the 0:01:37.120 --> 0:01:41.200 asphyxiation death of George Floyd in Minneapolis under the knee 0:01:41.240 --> 0:01:45.040 of police officer Derek Chauvin, who's been fired and charged 0:01:45.080 --> 0:01:48.680 with second degree murderer. Can economists help us find a 0:01:48.680 --> 0:01:52.600 way out of the chaos? In nineteen fifty seven, Becker 0:01:52.640 --> 0:01:56.480 published the first economic theory of racial discrimination, which until 0:01:56.520 --> 0:02:00.200 then had been the domain of sociologists and lawyers. He 0:02:00.280 --> 0:02:03.360 likened it to an employer's taste, like the preference for 0:02:03.400 --> 0:02:08.079 a certain food or beverage, except with evil consequences. Becker's 0:02:08.080 --> 0:02:11.359 economic model reduced a charged social issue to an economic 0:02:11.400 --> 0:02:16.080 fundamental supply and demand. His University of Chicago colleague Kevin 0:02:16.160 --> 0:02:19.839 Murphy recalled in a retrospective in twenty fifteen, the year 0:02:19.840 --> 0:02:23.000 after Becker died, it is only through widening of the 0:02:23.080 --> 0:02:26.519 usual assumptions, that it is possible to begin to understand 0:02:26.520 --> 0:02:30.480 the obstacles to advancement encountered by minorities, Becker said in 0:02:30.520 --> 0:02:35.400 his Nobel lecture in Becker believed that competition for talent 0:02:35.480 --> 0:02:40.680 among employers would reduce, but not completely end discrimination. Later 0:02:40.720 --> 0:02:44.360 scholars speculated that discrimination was perhaps not a taste but 0:02:44.480 --> 0:02:48.680 a statistical phenomenon, with employers basing hiring decisions on their 0:02:48.720 --> 0:02:53.240 perhaps false impressions of a group rather than individual characteristics. 0:02:53.880 --> 0:02:58.640 They said, employers stereotypical thinking otherwise known as prejudice, could 0:02:58.680 --> 0:03:01.280 become a self fulfilling prop see if it led minorities 0:03:01.320 --> 0:03:04.800 to lose hope and under invest in schooling and work skills. 0:03:05.680 --> 0:03:09.400 White scholars, however, smart and well intentioned, can never know 0:03:09.440 --> 0:03:13.560 how discrimination is experienced and understood by its victims. Some 0:03:13.639 --> 0:03:16.679 of their theories feel too slight to explain a society 0:03:16.720 --> 0:03:19.720 that's torn apart by race and remains damaged by the 0:03:19.800 --> 0:03:25.000 legacy of slavery, America's original sin. Any modern analysis of 0:03:25.080 --> 0:03:27.400 race relations has to be grounded in the fact that 0:03:27.440 --> 0:03:30.960 the US was built on the backs of enslaved Africans 0:03:31.000 --> 0:03:33.760 and that leading thinkers of the day defended slavery on 0:03:33.840 --> 0:03:38.280 economic grounds, if not slaves, who would harvest the cotton, rice, 0:03:38.360 --> 0:03:43.200 and tobacco. Derrick Hamilton's, a black economist at Ohio State 0:03:43.280 --> 0:03:46.720 University's John Glenn School of Public Affairs, is among the 0:03:46.760 --> 0:03:51.640 scholars elaborating the new field of stratification economics, which places 0:03:51.720 --> 0:03:55.000 race at its center. He cites Stiglets and others, but 0:03:55.040 --> 0:03:58.720 says his biggest inspiration is the late nobelist Arthur Lewis 0:03:58.760 --> 0:04:01.760 born in St. Lucia, then a British colony, who studied 0:04:01.760 --> 0:04:05.640 how developing countries get stuck in a middle income trap. Hamilton's, 0:04:05.760 --> 0:04:10.080 who advised the presidential campaign of Bernie Sanders, argues that 0:04:10.160 --> 0:04:14.200 racial discrimination is a feature of the white dominated economic system, 0:04:14.240 --> 0:04:17.760 not a bug or a taste or a statistical error. 0:04:18.320 --> 0:04:23.880 In other words, stratification economics treats racism as rational, albeit reprehensible. 0:04:24.480 --> 0:04:27.000 That places it more in the mainstream of economic thought, 0:04:27.120 --> 0:04:30.919 oddly enough, than explanations that lean on emotions or mistakes. 0:04:31.360 --> 0:04:35.240 The irony isn't lost on Hamilton's. The reviewers who serve 0:04:35.279 --> 0:04:38.760 as gatekeepers for academic journals and economics seem to believe 0:04:38.800 --> 0:04:42.400 that the African American experience is Suey genneries, a special 0:04:42.440 --> 0:04:45.800 case from which we cannot generalize, says Lisa Cook, a 0:04:45.839 --> 0:04:49.479 black economist at Michigan State University. It took her ten 0:04:49.560 --> 0:04:52.039 years to find a publisher for a paper showing that 0:04:52.320 --> 0:04:56.400 patenting by African Americans declined during historical periods of lynching 0:04:56.480 --> 0:05:01.760 and white race riots. Economists from other countries is including China, Israel, 0:05:01.839 --> 0:05:05.440 and Russia, immediately saw the wide applicability of the research. 0:05:05.600 --> 0:05:09.880 She says. The Emancipation Proclamation ended slavery, but not the 0:05:09.920 --> 0:05:13.400 maltreatment of blacks. To this day, testers have found that 0:05:13.480 --> 0:05:16.159 resumes with black sounding names are less likely to earn 0:05:16.200 --> 0:05:20.440 interviews than ones with white sounding names. Black Americans are 0:05:20.440 --> 0:05:24.039 steered into costlier home and auto loans, They get worse 0:05:24.120 --> 0:05:28.760 healthcare than whites, and suffer worse outcomes, especially from COVID nineteen. 0:05:29.160 --> 0:05:33.000 They have chronically higher unemployment rates, though ironically the gap 0:05:33.040 --> 0:05:36.080 has narrowed during the pandemic because more black than white 0:05:36.080 --> 0:05:39.960 employees have kept working under risky conditions because their jobs 0:05:39.960 --> 0:05:44.000 are deemed essential. More than sixty years after the U. S. 0:05:44.000 --> 0:05:48.400 Supreme Courts, Brown versus Board of Education desegregation decision, Black 0:05:48.440 --> 0:05:52.599 students continue to attend inferior public schools on average and 0:05:52.640 --> 0:05:56.279 are less likely to attend college. Black college graduates have 0:05:56.400 --> 0:05:59.599 less wealth on average than white high school dropouts, calling 0:05:59.600 --> 0:06:01.919 intotion the idea that they can pull themselves up by 0:06:01.920 --> 0:06:06.640 the bootstraps through more schooling, far more than other wealthy nations. 0:06:06.960 --> 0:06:10.640 The US solves its social problems with prisons, and black 0:06:10.680 --> 0:06:14.480 people and other minorities are disproportionately affected. At the time 0:06:14.480 --> 0:06:18.680 of the last descenial census, in census takers recorded that 0:06:18.800 --> 0:06:21.800 forty percent of black men from the poorest families in 0:06:21.839 --> 0:06:25.919 the Watts neighborhood of Los Angeles were incarcerated. The greatest 0:06:25.920 --> 0:06:30.960 frustration is that nothing ever seems to change of counties. 0:06:30.960 --> 0:06:33.560 Boys from black families will earn less as adults than 0:06:33.640 --> 0:06:36.640 boys from white families who come from the same neighborhoods 0:06:36.640 --> 0:06:40.039 and have the same parental incomes, according to a study 0:06:40.080 --> 0:06:44.200 by RAJ. Chetty then at Stanford and Nathaniel Hendron of Harvard, 0:06:44.440 --> 0:06:46.599 and Maggie Jones and Sonya Porter of the U. S 0:06:46.640 --> 0:06:50.440 Census Bureau, the idea that racial discrimination is alive and 0:06:50.480 --> 0:06:53.200 well is hard to absorb for people in the majority 0:06:53.680 --> 0:06:57.760 economists or otherwise who prefer to think that society is meritocratic, 0:06:57.960 --> 0:07:01.760 says Julia Coronado, president and founder of the economic consulting 0:07:01.800 --> 0:07:06.080 firm Macro Policy Perspectives. The textbook principle that workers are 0:07:06.080 --> 0:07:08.640 in the marginal product of their labor tells them that 0:07:08.960 --> 0:07:12.280 they're there because they deserve it, Coronado says, so of 0:07:12.320 --> 0:07:14.960 course they want to believe it. The same goes for 0:07:15.000 --> 0:07:18.000 corporate America, which is as invested in the principles of 0:07:18.040 --> 0:07:21.720 the free market as the economics profession is. When stocks 0:07:21.840 --> 0:07:24.720 rose on June one, after a weekend of historic turmoil, 0:07:25.120 --> 0:07:28.240 it seemed like some kind of secret had been inadvertently revealed, 0:07:28.720 --> 0:07:32.280 that the optimism reflected the color of the stakeholders. If 0:07:32.320 --> 0:07:34.520 the companies in the SMP five hundred can be worth 0:07:34.640 --> 0:07:37.160 more at a time like this, what does that say 0:07:37.200 --> 0:07:41.160 about their connection to, or rather disconnection from life in 0:07:41.320 --> 0:07:45.640 US cities. The Internet is thick with comments that corporations 0:07:45.640 --> 0:07:49.040 are the real looters. Davy d a journalist and hip 0:07:49.080 --> 0:07:52.240 hop historian, garnered almost half a million likes on Twitter 0:07:52.320 --> 0:07:55.960 for a tweet saying corporations collected over five hundred billion 0:07:56.000 --> 0:07:58.960 dollars in stimulus money, while everyone else was left with 0:07:59.000 --> 0:08:01.920 a twelve check and having to decide if they pay 0:08:01.960 --> 0:08:06.000 for food or rent. Nowhere is the corporate disconnect clearer 0:08:06.000 --> 0:08:09.760 than in Minneapolis, whose history of philanthropy by local businesses 0:08:10.080 --> 0:08:13.200 did precisely nothing to save the life of George Floyd. 0:08:13.840 --> 0:08:16.960 Minneapolis and its twin cities St. Paul have a tradition 0:08:17.000 --> 0:08:20.360 of progressive policy and generous corporate giving from a dense 0:08:20.440 --> 0:08:25.280 regional concentration of corporate headquarters, including those of Best Buy, Cargill, 0:08:25.480 --> 0:08:29.880 Eco lab, General Mills, Landa Lakes, Target, three M, and 0:08:30.080 --> 0:08:33.800 US Bank Corps. When the philanthropist John D. Rockefeller the 0:08:33.880 --> 0:08:37.080 Third visited in the nineteen seventies, he said he'd heard 0:08:37.120 --> 0:08:39.599 so much about local business giving that I feel a 0:08:39.640 --> 0:08:42.199 bit like Dorothy in the Land of Oz. I had 0:08:42.200 --> 0:08:44.520 become to the Emerald City myself to see if it 0:08:44.559 --> 0:08:49.080 really exists. But while the companies were giving, twentieth century 0:08:49.160 --> 0:08:52.920 segregationists were barring black residents from living in certain parts 0:08:52.920 --> 0:08:57.120 of town. When segregation became illegal, the zoning code took 0:08:57.120 --> 0:09:00.760 its place, restricting seventy of the city's resididential land to 0:09:00.880 --> 0:09:04.719 single family housing, which was unaffordable to many black families. 0:09:05.320 --> 0:09:08.000 In Minnesota as a whole, the difference in the poverty 0:09:08.080 --> 0:09:11.600 rate between white and black residents is the nation's third widest. 0:09:12.000 --> 0:09:15.880 The Star Tribune in Minneapolis reported last year the police 0:09:15.880 --> 0:09:19.640 department has been a special problem. Black people constitute twenty 0:09:19.640 --> 0:09:22.319 percent of the city's population but accounted for more than 0:09:22.360 --> 0:09:24.880 sixty percent of the victims of police shootings from late 0:09:24.920 --> 0:09:28.720 two thousand nine through May twenty nineteen. There were widespread 0:09:28.760 --> 0:09:32.320 protests two years ago when police killed Thurman Blevins, a 0:09:32.360 --> 0:09:35.440 black man who begged for his life a decade ago. 0:09:35.520 --> 0:09:38.640 The narrative was, we got it all figured out. Now. 0:09:38.679 --> 0:09:41.960 The issue is a great city includes everyone, and we're 0:09:41.960 --> 0:09:45.000 not there yet, says R. T Ryback, who was mayor 0:09:45.040 --> 0:09:47.520 from two thousand two to twenty fourteen and is now 0:09:47.640 --> 0:09:51.480 chief executive officer and president of the Minneapolis Foundation, which 0:09:51.480 --> 0:09:55.840 manages charitable funds for donors. We solved so many issues together, 0:09:56.080 --> 0:09:59.760 but we haven't solved race, and certainly not with the police. 0:10:00.240 --> 0:10:03.200 Before the killing of Floyd, Minneapolis was moving in the 0:10:03.280 --> 0:10:06.760 right direction. In twenty eighteen, it became the first big 0:10:06.880 --> 0:10:10.400 US city to abolish single family zoning, a step that should, 0:10:10.400 --> 0:10:13.560 over time reduce segregation and the cost of housing for 0:10:13.600 --> 0:10:17.600 all by increasing the supply of living units. Under Mayor 0:10:17.640 --> 0:10:21.280 Jacob Fry and Police Chief Madaria Aredondo, there have been 0:10:21.320 --> 0:10:26.760 steps to demilitarize policing. It clearly wasn't enough. Ryback, the 0:10:26.800 --> 0:10:29.640 former mayor, says, the city has finally woken up to 0:10:29.679 --> 0:10:33.120 the problems in its midst Minneapolis has been smug for 0:10:33.200 --> 0:10:36.559 too long. It's not just one city that's been smug. 0:10:37.040 --> 0:10:39.480 Many whites view the nation's race problem as more or 0:10:39.559 --> 0:10:44.160 less fixed, well except at times like this, feeling absolved 0:10:44.160 --> 0:10:47.240 by the successes of black athletes and entertainers and their 0:10:47.280 --> 0:10:51.080 own cordial relations with people of other races. The problem 0:10:51.160 --> 0:10:54.160 is that racism is embedded in the structure of society, 0:10:54.640 --> 0:10:57.079 made more harmful by the fact that it doesn't require 0:10:57.120 --> 0:11:00.839 deliberate hostility to persist. It should go without saying that 0:11:00.920 --> 0:11:04.439 none of this amounts to an excuse for rioting, looting, arson, 0:11:04.600 --> 0:11:08.600 and attacks on police officers. The crimes dishonor the memory 0:11:08.600 --> 0:11:12.599 of George Floyd and others who've died. Authorities are investigating 0:11:12.640 --> 0:11:14.920 clues that some of the attacks have been carried out 0:11:15.080 --> 0:11:19.319 or at least instigated by trained anarchists whose goal is destruction. 0:11:20.160 --> 0:11:24.160 Owners of small businesses have lost their life savings. Cities 0:11:24.200 --> 0:11:28.680 already burdened by COVID nineteen haven't even tougher challenge. Detroit 0:11:28.760 --> 0:11:31.760 and Newark, New Jersey, never fully recovered from the riots 0:11:31.760 --> 0:11:35.200 of the summer of nineteen sixty seven. Even the triumphant 0:11:35.280 --> 0:11:38.600 launch of space x is manned spacecraft on May to 0:11:38.679 --> 0:11:42.760 resupply the International Space Station was tinged with sadness. To 0:11:42.880 --> 0:11:46.800 those with long memories. It recalled the nineteen sixties, another 0:11:46.880 --> 0:11:50.319 time when American cities burned while astronauts flew in space. 0:11:51.040 --> 0:11:53.600 Has the US made no progress in more than half 0:11:53.640 --> 0:11:57.120 a century. Trump is seizing on the riots to cast 0:11:57.200 --> 0:12:00.400 himself as a law and order president, threatening to deploy 0:12:00.480 --> 0:12:04.000 active duty troops in cities. You have to dominate, he 0:12:04.040 --> 0:12:06.960 said on June first, in a video conference with governors 0:12:06.960 --> 0:12:10.440 and law enforcement authorities. If you don't dominate, you're wasting 0:12:10.480 --> 0:12:13.240 your time. They're going to run over you. You're going 0:12:13.280 --> 0:12:16.319 to look like a bunch of jerks. An hour earlier, 0:12:16.440 --> 0:12:20.000 Joe Biden, his presumptive Democratic challenger in the November election, 0:12:20.480 --> 0:12:23.000 was more sympathetic to the protesters in a meeting with 0:12:23.080 --> 0:12:26.920 big city mayors, saying, the fact is we need that anger. 0:12:27.320 --> 0:12:30.880 We need that to tell us to move forward. If 0:12:30.920 --> 0:12:34.400 anger is what's needed, as Biden says, then the US 0:12:34.520 --> 0:12:37.679 is well supplied with raw material. There's anger on the 0:12:37.760 --> 0:12:41.800 left and the right, from protesters and police, from families 0:12:41.800 --> 0:12:45.160 of victims of police brutality, and families whose businesses have 0:12:45.280 --> 0:12:48.200 burned to the ground. Whether all that anger will move 0:12:48.200 --> 0:12:52.040 America forward isn't so clear. What's clear is the need 0:12:52.120 --> 0:12:54.880 for the power structures of economics and business to grapple 0:12:54.920 --> 0:12:58.400 with life as it's lived, not as the textbooks specify. 0:13:01.200 --> 0:13:03.560 And that's the cover story. Find that story and so 0:13:03.640 --> 0:13:07.160 many other important stories. There's a whole political takeover dealing 0:13:07.160 --> 0:13:09.920 with the unrest. This week Jason must reads for everyone. 0:13:10.000 --> 0:13:13.240 Find that in the magazine, on newsstands, online, and of 0:13:13.280 --> 0:13:16.320 course always on the Bloomberg terminal. I'm Carol Masser and 0:13:16.360 --> 0:13:19.359 I'm Jason Kelly. Please join this every day on Bloomberg 0:13:19.360 --> 0:13:22.000 Business Week on the radio starting to get two pm 0:13:22.000 --> 0:13:25.239 Wall Street Time. Also catch up with us via podcast 0:13:25.559 --> 0:13:28.040 wherever you get your podcast. This is Bloomberg