As Economic Growth Expands, So Does Black Income Expand

As Economic Growth Expands, So Does Black Income Expand
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As a boy with his family in 1968, this author visited Virginia from the north and had to ask his parents why flags weren’t at half-staff following Martin Luther King’s assassination.  Today, anyone with memories of the 1950’s and 60’s recognizes race relations have come a long way, as has The Old Dominion, yet a distance to go remains.

In their own way, racial income statistics, covering a broad national cross section, can be more wrenching than George Floyd footage, an isolated although for many blacks representative incident.

In 2018, over half a century since the Civil Rights Act, black household income was just 62% of the level for whites.  Worse, after steadily increasing for three decades from 58% in 1980 (the beginning of Census Bureau data) to 68%, this ratio has fallen since 2008.  The decade-long deterioration in back Americans’ economic status likely is a root cause of recent racial unrest catalyzed by police brutality.

Black income decline in the last decade is due to slow economic growth since the Financial Crisis and not some sudden change in racial attitudes compared with the previous thirty years.  The major driver of black household income is black employment, and black employment’s major driver is economic growth.  Since the Financial Crisis recovery in 2010, U.S economic growth averaged 2.3% for ten years, compared with 3.1% for the previous thirty years of black income progress.  In years black incomes gained relative to whites, growth averaged 3.2% compared to 1.8% in years black incomes receded.

Notwithstanding evident slow but steady black advances before 2008, the U.S. economy had entered a period of stagnation.  Liberal Northwestern economist Michael Gordon describes a “slowdown” since 1970, termed “The Great Stagnation” by libertarian George Mason economics professor Tyler Cowen.   Gordon notes additional decline in growth since 2006 which has tipped black incomes into retrenchment.  The deterioration prompts outcry for yet more government spending, but this politically convenient nostrum from antiquated economics textbooks has failed for the last fifty years.  Increased government spending is the signal characteristic of the Great Stagnation.  From 1952 to 1971, U.S. government spending was 28% of the entire economy, rising to 34% since then.  Since 1970 there is a very strong negative relationship between government spending and both investment and growth, some of which is the ups and downs of the business cycle, but, adjusted for cycles, government spending’s negative effect remains.  This is true, not just for the U.S. but for other advanced economies as well.  Countries with increased government see slower growth and countries with larger government sectors generally grow more slowly than their smaller government counterparts.

The U.S. situation is worsening.  The Congressional Budget Office projects another increase in government spending of 2.4% of Gross Domestic Product over the next 10 years with still more after that.  This path of diminishing prospects is selling out not just the young generation but the disadvantaged as well.

Don’t look to either party to face these issues.  The Democrats offer merely redistributionist concoctions to increase spending that already have stifled growth around the world in Europe, Japan, and here.  The Republicans, once a fount for innovative reform, are too brain dead even to muster an alternative to the Rube Goldberg contraption of Obamacare.  Bipartisan adherence to the Alfred E. Neumann “What me worry?” doctrine of public finance must end before the wreckage of debt and deficits threatens everything government does.

Radical spending reform is unimaginable in this era of polarized political trench warfare but countries that did this prospered with accelerated growth.  Bernie Sanders favorite, Sweden, cut government spending by 20% of GDP and saw growth accelerate 1% yearly.  Ireland reduced government by even more and grew 9% annually for the last six years.  Throughout the world, countries such as Switzerland and Singapore have retirement and health plans superior to our insolvent programs.

From crossing the Bering Strait 20,000 years ago to arriving in rickety boats whether in the 1600’s or today, the promise of a better future has drawn Americans, excepting those who arrived enslaved.  Their descendants must now fully participate in this promise.  For them, it’s black jobs that matter, and those jobs need growth to “ring from every mountainside” enabling black Americans to join a thriving mainstream.  Better than any big government program, radical spending reform can do this.

Douglas Carr is a financial markets and macroeconomics researcher. He has been a think tank fellow, professor, executive and investment banker.

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