The admirable Timothy Taylor has a piece looking at the racial wealth gap in the United States. We disagree, vehemently, with it. Not with what Taylor is saying, he’s outlining the current accepted wisdom. But with that current accepted wisdom. We’d probably want to mutter something about single parent incidence being an obvious enough thing to look at when considering inherited wealth for example. Something that none of this literature, to our knowledge at least, does do. Children who inherit from two parents are likely to have more wealth than those who inherit from one.
But our real disagreement is in the definition of wealth that is used in all of this literature. Which means that we disagree, vehemently, with this conclusion:
There’s a lot that can be said about all this, but I’ll limit myself to the obvious: Four decades–call it two generations–of no progress on the white-to-black wealth ratio is a long, long time.
We disagree that that is true.
Now, given what is measured it is true. But our disagreement is that what is measured isn’t the correct thing to be measuring. Wealth is measured as the stock of what can be sold off, for cash, over and above any associated debt. So, housing equity, private pensions provision and the two very much smaller categories of financial investments and personal possessions. That’s pretty much what does make up the wealth being considered. Those are, after all, the four groups that household wealth is normally broken up into.
We insist this is the wrong measure. The policy important - assuming that we are trying to craft some policy here - measure is a wider definition of wealth. Which we’d put at something like the ability to consume without having an income. No job, no labour income, yet still being able to consume - that’s wealth.
Now to be naughty and switch to UK figures - just because the Office for National Statistics does calculate this, in a way that Census, BEA and BLS seem not to.
Taxes and benefits lead to income being shared more equally in financial year ending 2021
In the financial year ending (FYE) 2021 which covered the first year of the coronavirus (COVID-19) pandemic, the median household income in the UK before taxes and benefits was £34,000, increasing to £37,600 after taxes and benefits. The richest fifth had an average income before taxes and benefits of £107,600, over 13 times larger than the poorest fifth (£8,200).
After cash benefits and direct taxes, the richest fifth of people had an average disposable income of £78,100, 5.9 times larger than the poorest fifth (£13,200). After considering all taxes and benefits, this gap reduced to 3.7, with average final income of £79,200 and £21,400 for richest and poorest people, respectively.
We often do calculate (as the Americans often do not) income inequality after taxes and those cash benefits. The point we insist upon is that it needs to be after all benefits. The NHS may not be the finest health care system in the world but the access of all to its ministrations is worth something. State schooling isn’t - Lord Knows - perfect but free at the point of use is worth something.
Given that those two - and many other things - are the ability to consume without a labour income then those are also wealth. Wealth being a stock which allows consumption without a labour income. So, given that healthcare, education - and many other things - can be consumed in the absence of a labour income thanks to the Welfare State then the Welfare State is a source of wealth.
Having made the point using UK figures we’d go on to point out that yes, the US does have a welfare state. They spend $trillions a year on it in fact. Everyone in the US does get healthcare treatment, for example. It’s healthcare insurance that’s patchy and even there the poor do get that too - Medicaid and CHIPS. It’s the poor to middling who fall into the insurance gap, even as turning up at any hospital in the country gains treatment. American schools are indeed free at the point of use. There’re Section 8 vouchers (largely equivalent to Housing Benefit) and on and on to including free cellphones for some - all the ability to consume without the possession of a labour income. They’re wealth that is.
Now, that the black part of the population relies more on the welfare state part of that wealth than the white does could indeed be an historical crime calling out for reparatory vengeance. But, we insist, it’s not actually a wealth inequality. Or, at least, wealth inequality isn’t as wide as portrayed, simply because things are already done to lower both income and wealth inequality.
To put this all another way. There are those who insist that we must plan society in order to make it better. Could be, could be, although we’d be willing to have a stand-up screaming match about even that assertion. But if we are to plan society hadn’t we best understand how it currently works, first? Work out how much actual income and wealth inequality there is before trying to change it?
And a third way to make the point. If we don’t include the effects of government policy upon the wealth distribution then how can we employ government policy to change the wealth distribution?