The Surprising Cross-Racial Saga of Modern Wealth Inequality
3 min read
Why the "racial wealth gap" fails to explain economic inequality in black and white America
These trends in income distribution are significant in parsing the racial wealth gap because income distribution directly shapes the maldistribution of wealth across the races. That has been the finding of another recent study published under the aegis of the Federal Reserve Bank of Cleveland, which notes that the income gap seems to be the most important source of persistent black-white wealth inequality.

Researchers have long chronicled the great differences in accumulated wealth between African Americans and whites. But they have been less successful in identifying the causes of those persistent differences. They usually argue that because the gap exists at all levels of income and education, it can't be attributable to income disparities. As a result, they look to noneconomic factors like neighborhood differences, family size, age, and direct or indirect discrimination. But none of these inquiries really explains how those factors produce the great wealth inequalities.

In reality, the maldistribution of income across the races can supply a good part of the answer to this quandary. Dionissi Aliprantis and his co-authors have estimated the effects that eliminating income inequality at a given point would have produced in the later trajectory of black wealth accumulation—and found them to be significant. They took this approach because incentives for saving and opportunities for accumulating wealth vary over time and through the life cycle. This means in turn that income differences at one point can have significant impact on wealth differences at a later time—a critical consideration, because wealth typically accumulates only gradually.

Aliprantis and his colleagues draw forth this critical point via predictions of what the current wealth gap would be like if income inequality had been eliminated in the 1960s. As they pivoted the actual data forward from 1962, they found the numbers matched up with current outcomes. And in turn they projected that finding to estimate that, if current trends persist, it will take 259 years for black mean wealth to reach 90 percent of the white mean. They then adjusted the model to assume that income equality had been attained in 1962 and to make similar projections from that base. They found that, if median black and white incomes had been equalized in 1962, by 2007 median black family wealth would have been 90 percent of median white family wealth, nearly wiping out the racial wealth…
Read full article