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Why There Is a Black-White Wealth Gap

By Alison Southwick and Robert Brokamp, CFP(R) – Jun 15, 2020 at 4:09PM

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A look at the systemic reasons behind the wealth gap and a way forward.

In this episode of Motley Fool Answers, Alison Southwick is joined by Motley Fool personal finance expert Robert Brokamp and Dr. Trevon Logan, professor of economics at Ohio State University, to discuss the black-white wealth gap in America. Other economic news is also discussed in this podcast.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on June 8, 2020.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert Brokamp, Personal Finance Expert here at The Motley Fool. In this week's episode, we're joined by Ohio State University Professor of Economics, Dr. Trevon Logan, and we're going to talk about the Black-White wealth gap in America. All that and more on this week's episode of Motley Fool Answers.

So, Bro, what's up?

Robert Brokamp: Well, I'll tell you what's up; that crazy old stock market, that's what's up.

Southwick: Oh, what?

Brokamp: [laughs] It's crazy. So, just to give you an example. On June 3rd, Ryan Detrick of LPL Financial tweeted that the return of the S&P 500 for the 50 trading days since the market bottomed on March 23rd, 39.6%, the best 50-day rally of the S&P 500 since it was launched in 1957.

Southwick: [laughs] What! Seriously?

Brokamp: Yes. Didn't it feel like you were in the best rally ever?

Southwick: I mean, I just can't help but feel that, yeah, this is just the best time to live in America today, it's just fantastic.

Brokamp: It's crazy. Yeah. Anyway, so the S&P 500 is now within 5% of its all-time high. And the Nasdaq on Friday, and again today -- and we are taping, by the way, on Monday, June 8th -- the Nasdaq reached another all-time high. So, the Nasdaq is at an all-time high at this point.

According to the Bespoke Investment Group there's only one stock in the entire S&P 500 that's down since March 23rd, and it's down less than 2%, it's Coty, the beauty care products company. And there are only eight stocks that aren't up more than 10% since March 23rd, and this includes, there are actually some big names, Costco, Walmart, Kroger, sort of, like the consumer staples that got left in the dust during the rally.

So, looking at the sectors since March 23rd. The best sector, Energy, up 107%, followed by Consumer Discretionary, 70%; and Financials, 59%. That said, they went up the most because they went down the most in the first part of it; and for the year they're still down. So, Energy stocks are still down almost 30% for the year, and Consumer Discretionary Financials are still down 11% for the year.

When you look at the best sectors for the year, as you might guess, top performer, Technology, 4.7%; and Healthcare up 6% for the year.

Now, looking at the biggest companies in the U.S. stock market, we now have three companies worth more than a $1 trillion. Apple is on top, $1.397 trillion. Microsoft is just barely behind, at least as of Friday's close, $1.387 trillion. And then, Amazon at $1.227 trillion. And Google/Alphabet is not that far behind at $964 billion. So, it's quite amazing.

As has been the case for years now, larger growth-oriented companies are doing better, which means, in some cases, pricier stocks have gotten pricier and cheap stocks have gotten cheaper. Here's an interesting tidbit from Jason Zweig's Wall Street Journal article from last Friday, "The 50 most expensive stocks in the S&P 500, as of December 31st, were up an average 11.3% through June 3rd, according to Drew Dickson, the Chief Investment Officer at Albert Bridge Capital. The 50 cheapest stocks at the end of last year, meanwhile, were down 16.8%." So, growth stocks are doing well; value stocks are still struggling.

All that said, the stock market is not the economy. And last week, we got all kinds of, sort of, contradictory news about employment. It was mostly not good, but with some stuff that was pointing in a positive direction. So, on Wednesday, ADP announced that private employers had slashed 2.7 million jobs in May. Then on Thursday, the Department of Labor announced that another 1.9 million Americans filed initial claims for unemployment in the last week of May, but then on Friday, that very same Department of Labor announced that employers hired 2.5 million Americans in May, more than half of which came from leisure and hospitality. So, you're looking at, like, restaurants and bars, right, everyone is opening up at least a little bit, a lot of those businesses are hiring back their employees.

In fact, if you saw the headlines, you would have seen that maybe the headline said that the unemployment rate had dropped to 13.3%, but something was, kind of, unusual in the report from the Department of Labor. There's a very long disclaimer at the bottom of it, it says that there's actually a "miscalculation error" in the report, and that if it weren't for the error the unemployment rate would be three percentage points higher. So, you really are --

Southwick: What?

Brokamp: Yes. It really comes down to, unemployment is based on a survey, and the survey, it's kind of complicated, but some people are not working because they've been laid off, some people are not working because they've been furloughed, some people have every expectation to go back to work very quickly. So, the way they answered the question was a little fuzzy. And the Bureau of Labor Statistics, who collects all this, has a policy of, even though if the person answering the survey doesn't quite understand the question, you don't change the way they answered the question, so. It's the same with the last report too.

So, basically, we still have a situation where tens of millions of Americans are either unemployed, underemployed or being paid less than they were at the end of 2019. Oh, and by the way, right before we started recording this, it was officially announced that we are in a recession by the National Bureau of Economic Research. So, we are in a recession; it's a bit of a foregone conclusion.

Here's the deal, to the extent that the stock market is a leading indicator of future economic growth, to the extent that there is good news -- and there is, when you have 2.5 million people being hired, when you have people looking at the numbers, like, Goldman Sachs' lead economist has said, this may have been the sharpest recession in our lifetimes, but chances are it is going to be the shortest. All of that basically gives us reason to be optimistic. And you know me, I don't tend to be [laughs] naturally inclined toward optimism, but these are green shoots that I feel very comfortable with.

Southwick: So, I guess everyone lost their chance to buy low, is that what you're saying?

Brokamp: I don't know about that, I mean, nobody knows about that, right, nobody knows. The thing that I base my analysis on, is always in terms of what I think is going to happen over the next 10 years so I know what to put in my retirement calculators, and that's valuation, valuation is the best predictor of future returns over the next five, seven, 10 years. And stocks are still highly, highly, highly valued. They got cheap there for a while, but now they're back to where they were on February 19th, but earnings are much lower. So, in my opinion the stock market is still highly valued. But does that mean I'm selling? No, I'm just holding on.

I read an article about a company in Scotland that manages money. And the sign above their door, I'm not going to get it exactly right is, but it was something like, true investors think in terms of decades. And when I think in terms of decades and when I think of the alternatives, like, cash and bonds that are yielding virtually nothing, very comfortable holding stocks.

Southwick: Stocks and Scotch drinkers think in terms of decades. Stocks and scotch.

Brokamp: And that, Alison, is what's up.

Southwick: We don't realize just how hard it can be for black people, for anyone of color. And you know they say, walk a mile in someone else's shoes. And I can never walk a mile in a black person's shoes, but I can make an effort to look at the advantages I have just because I was lucky enough to be born white and try to understand what is holding others back, this includes, implicit bias, systemic racism, national and local policies, history and so much more. So, today, we're going to talk about the wealth gap between black and white Americans and some reasons behind it.

Dr. Trevon Logan is the Hazel C. Youngberg Distinguished Professor of Economics at the Ohio State University. He specializes in economic history, economic demography and applied microeconomics. Dr. Logan, thank you so much for joining us.

Dr. Trevon Logan: Thank you so much for having me.

Southwick: So, we tend to like to get to know our guests a bit before we dive into a topic. On Twitter you shared a story about how your grandmother inspired your path to specialize in economic history. And I was hoping you could share that story with our listeners.

Dr. Logan: Yes. So, one aspect of the economic history that I'm very interested in that actually is related to what racial wealth gaps are, is residential segregation. And my grandmother grew up in a very small town, Coffeeville, Mississippi, which is in Yalobusha County, it abuts the Mississippi Delta.

And what I found, interestingly enough, was that she grew up in a sharecropping community and her community was actually more integrated than where I grew up in Saint Paul, Minnesota. And with John Parman, who's at William & Mary, we developed a measure of segregation that uses next door neighbors to determine the level of segregation in a community and it was directly inspired by my grandmother, sort of, walking me down the street that she grew up on in the 1930 census.

Southwick: Yeah. And you talk about how the work that she inspired actually got, at this point, three international publication awards, which is pretty cool.

Dr. Logan: Yes. I'm just now remembering that, but yes. [laughs] My father would kill me for forgetting that, but, yes, three [laughs] international research awards due to her inspiration.

Southwick: That's such a great story. And you point out that she was denied schooling behind the elementary level, and here it was getting international awards. So, not too shabby. So, to get into the topic of the wealth gap, it feels a little weird to say, share your favorite statistics with us for a topic that is so serious. But you're an economist and so I feel like you probably have some favorite statistics that really drive home the problem. So, could you walk us through what some of those stats are that show how much of a wealth gap there is between Black and White households in this country?

Dr. Logan: Yes. So, if we just start at a basic level and we just look at average wealth levels by race. Blacks in the United States have, on average, less than $20,000 in wealth. And whites on average, in the United States, have over $160,000 in wealth. And so, that's at the average. You can break it down into different groups, but already you see, just at a basic level, that there is just a huge chasm between the wealth level of African-Americans and the wealth level of whites.

Why that's so important is wealth has been something that has largely been missing from a lot of our economic analysis. Wealth is a really hard thing to capture. So, if you're thinking about the recent Democratic debates and presidential debates for choosing a candidate, they were talking about, and Elizabeth Warren advanced a wealth tax. And one of the big questions about that was, how do we implement it? How do we measure wealth? We, sort of, know what wealth is, but it's not something that, as a government, we actually track because we don't tax it. So, income, on the other hand, where we have a lot of information about mobility, we have a lot of information about racial gaps, is recorded, because it's administrative data your employer tells me what your wages, which of course is what your income is, unless you have it from some other sources, but we have pretty good accounting for that on an annual basis.

Your wealth is largely held in illiquid assets and that value changes, of course, over time, but we have no accounting for it until perhaps you pass away and the state is valued at such that we know how much wealth you actually held, that's when we actually have good estimates of wealth. There are some procedures to back out or try to get wealth estimates, but it's not something that we have as much systematic data on.

We do have, however, several surveys that survey about wealth, that survey about asset ownership, survey about the value of real estate holdings, etc., and we can use that information to inform what we know the wealth gap to be by race.

Southwick: So, when we're looking at the wealth gap -- ugh! OK, I'm just going to sound dumb, OK. So, if we have, [laughs] let's say, instead of, however many families we have in America, we just have 10 [laughs] representative families, are we seeing, for example, that the most wealthiest family of out of our ten is White and they have a bazillion dollars, and then everyone else is, kind of, scattered around in their wealth, but they're all down here. Like, is there anything throwing off this average or what are we seeing when we look at where everyone is, kind of, scattered?

Dr. Logan: This is very good. There are two issues when we think about, sort of, wealth gaps, which is the distribution of wealth in a society irrespective of race, and then, of course, gaps that might exist between those groups. If we look at the distribution of wealth, we know that we have high levels of concentration of wealth in the United States. If we're thinking about having, you know, 10 people represent the United States of America, the majority of those people, a significant number of those people, will have very little in terms of wealth and there will be one person who will have a dramatic share of wealth; nearly all of it, if you were just really breaking it down into 10 people, because of the distribution. So, we have a highly unequal distribution of wealth, period, in the United States.

Then, if you look further in that distribution of who is at that top end, right? If we're thinking about the wealth distribution, the next question is, what do we have in the top 10% of the wealth distribution? And what do we have in the top 5% of the wealth distribution? The top, you know, 0.1% of the wealth distribution? That distribution gets wider and wider and wider as you go higher and higher and higher into the wealth distribution.

So, not only is wealth unequally distributed in the United States, full stop, it's also highly disproportionate by race, which is an added dimension which then, of course, exacerbates this black-white wealth gap.

Southwick: Alright. Let's look at some of the factors that lead to this wealth gap. I mean, it seems fair to start with history; you focus on history. And it seems like it's also really fair to go back all the way to, I don't know, let's say, 400 years of slavery in this nation followed by Jim Crow laws, it's resulted in unconscious biases, institutional racism, policies that seem to be creating an even larger wedge today, that a lot of us are thinking about right now maybe for the first time.

Dr. Logan: Let's start at the beginning then we can, sort of, make a point about everything before the Civil War and enslavement and then we can talk about things that happened after, because both are actually equally important.

If we're thinking about enslavement, we have to really think about the maldistribution of resources during an enslavement regime. And what I mean by that is, the United States becomes an economic superpower largely driven by exports. People pay a lot of attention to cotton, in particular, as a key driver of exports and something that is actually uniting the world in an international system together. Excellent books on this, you know, Sven Beckert's Empire of Cotton is one example.

And what we forget about this is that if you have -- the United States at this time is a price taker in the cotton market. And the world has essentially unlimited demand because of the textile industry and the booming textile industry at the time. So, if anyone could go down to the American South, for example, establish a plantation, become successful in its operation, realize those economies of scale, there was a lot of money to be made in that market.

One of the things that artificially disturbs the price of cotton and disturbs the resources is, you don't have to pay labor, it's a marginal revenue product of labor. So, the lack of a competitive labor market means that the workers in that environment, who were enslaved, are certainly not earning what they would have been earning in a free market system. So, already you have, at the time of emancipation, a debt that would be due to the fact that the United States, in fact, is not paying workers what they should be under a free market system.

So, the fundamental contradiction of the United States is that it's advocating free market principles, it's operating an enslavement economy. And that's diametrically opposed to what we think about America as being about. Even historically, people noted that this was a contradiction. So, there is a debt that is owed right there, right up to 1865.

The advantages of that sort of debt is that it's actually quite calculable if you really think about the volume of international exports, the tariffs that the United States government received on exports, imports etc., you can think about what the value of a reparations program would be, up to the debt that is owed in 1865.

After that time period, however, there are lots of things that happen that work in two different dimensions that really give us the wealth gap that we have today. The first is the systematic exclusion of African-Americans from the economy. And this happens largely through discrimination, substandard schooling, segregation, Jim Crow, etc. And then the second is, the expansion of American opportunity to whites. So, we see the expansion, for example, of public education, the investment and creation of public universities, large transfers of land to white individuals for pennies on the dollar. All of this is a wealth transfer via the public, via the government to whites, to the exclusion of blacks. So, Homestead Acts, for example, which were racially exclusionary, are large transfers of wealth or large transfers of land, that is a wealth transfer from the government and it's something that excluded African-Americans.

So, it's not only a story of discrimination or holding black people down, it's also a story of, at the same time, pulling whites up via transfers that give them wealth, right, and so you're really creating this chasm between blacks and whites, both, due to public policy.

Brokamp: One example, along those lines, that you've written about is the G.I. Bill. And when I think of history, you can't really see behind me, but I have a whole bunch of books about World War II. I mean, you look back at that, it wasn't that long ago that the military was not integrated at that point. And then you come back and there were all these systems by which to help people who've come back from the war, but they mostly advantaged the white people.

Dr. Logan: Thank you for mentioning the G.I. Bill, because it's very important, it's another example of something that was giving whites a hand-up, and something that was used to push African-Americans down.

We have this, sort of, stylized view of World War II veterans as coming back and being the greatest generation, but there are two aspects of this that I think are missing from that narrative. The first is, the exclusion of African-Americans from G.I. Bill generosity. So, there were some African-Americans who were able to take advantage of it, but due to structural issues, both, in terms of, if you returned to the state of Alabama as a veteran, a black veteran, of World War II, you had limited options to use your G.I. Bill to, in fact, advance your schooling. You could not attend many of the public universities in the state to use your G.I. Bill benefits.

Then you move to the system VA loans for homes, and you are going to face extensive segregation. Astronomically high home prices for African-Americans. And if you were able to own a property, it was likely in a highly segregated area and the quality of that housing was, in fact, lower and inferior than it would otherwise have been. Another thing that's going to, of course, exacerbate racial wealth inequality.

And then we have, at the same time, all of these benefits being given very freely to whites. In addition, to the fact that the federal government is investing in the interstate system, which is allowing for the housing market to continue to accelerate in terms of prices by creating housing demand. So, it's making the whites, who are now being given VA loans for their homes, richer, due to this subsidy in the form of public investment in infrastructure, at the same time that the infrastructure is destroying the communities that African-Americans live in, where African-Americans are finally able to own homes.

So, again, while they're giving a hand-up to some people, they are forcing another group down.

Southwick: What I initially just thought about what could possibly be behind the wealth gap? I mean, I was thinking, oh, well, I know that if you take two resumes and one has a name that sounds African-American and one that sounds white, then chances are the white-sounding name is going to get a callback, you know, 50% more likely to get a callback. So, it's easy to think about ways that, like, biases and prejudices impact wealth and growth, but it's fascinating to think that this goes back hundreds of years, [laughs] and that it's money that never filtered down through the generations to help people today.

And so, you talk about how wealth creates wealth and how having wealth facilitates the acquisition of an expensive education, I think I'm quoting you from Fast Company where you said, rather than education leading to wealth, it is wealth that facilitates the acquisition of an expensive education. Can you talk a bit more about the impact on education?

Dr. Logan: A big policy solution a lot of people have advocated for is education. We know that there are education gaps in terms of percent who graduate from high school and college or test scores, you know, those sorts of things. And so, if we close those gaps, we'll close the racial wealth gap. It just doesn't work that way in reality.

So, if you look at the wealth of African-Americans who have a college degree, so those who are at and have a college degree, according to the most recent analysis of this from the SIP survey, they have, on average, less than $25,000 of wealth. If you're a white household who has not graduated high school, so you're a high school dropout, those households have on average around $35,000 of wealth. So, education itself is not going to be some closing factor here.

There is a positive trajectory, both holding with education for both blacks and whites, but the order of magnitude difference between the races is so high that education itself is not going to overcome this. And part of this is due to this historical process I was talking about earlier, where when we have these really large wealth transfers, I never said that they were, sort of, means tested, I never said that these transfers were conditional on being educated or anything, but those become stores of wealth. Those allow you to do a lot of things.

Owning wealth, and in particular, we're thinking in the United States about, sort of, things like asset ownership and homeownership, becomes your own bank. You can leverage against it, for example, to finance education, you can leverage against it to become an entrepreneur, these things are not available to people who simply do not have those assets.

So we know, even in the education example, that African-Americans who do receive college degrees do so with higher levels of indebtedness than whites. So, it makes it harder for them to do several things. One, to accumulate assets such as homes that appreciate in value, but second, to even have the ability to undertake entrepreneurial activity because they don't have any wealth holdings that would insulate them from the risk, an inherent risk, in say being an entrepreneur or being an innovator. So, all of this is depressing at a macroscale or output, but its source is going to be in racial wealth inequality.

Southwick: Would you say that the education component is the biggest myth around wealth disparity or --?

Dr. Logan: Education is one big component, I think another that's missing that's related to it, because people would say, education is financial literacy, right. So, if we just told people how to save their money we would, you know, ameliorate the black-white wealth gap. There's absolutely no evidence for this. We don't see those differences in consumption patterns that would explain the racial wealth gap. It's not that people are not financially literate and that's the reason why there's a racial wealth gap. You can have all the financial literacy in the world, if you don't have any wealth, you don't have any wealth. [laughs] So, it's isn't going to necessarily solve the problem of how to create wealth. That isn't going to solve the problem.

Southwick: What are some of the possible solutions that are being talked about as far as how to close the wealth gap?

Dr. Logan: So, probably the most progressive solution that people are talking about now, that is gaining a significant amount of traction is reparations, a direct reparations program. Acknowledging that the current racial wealth gap is a function of enslavement, institutional discrimination, Jim Crow, segregation and the lack of equal opportunity for African-Americans even via Federal policy. So, that has as a goal the elimination of the black-white wealth gap under the belief that the black-white wealth gap represents, sort of, the net present value of all of that discrimination, enslavement, etc., that has accrued to African-Americans since they first came to what would become the United States in 1619. So, if you have a reparations program, by definition, you would solve this racial wealth gap, because that's how the reparations program would be enacted. So, that's the most progressive solution.

Other solutions are race neutral, but take into account and, of course, would help to close the racial wealth gap because of the existing fact that if you have a means-tested or wealth-tested program, it would disproportionately benefit African-Americans because of their low-levels of wealth holdings. So, if you had a baby bonds program, for example, that would be something that would help to reduce the black-white wealth gap, it would not eliminate it, but because it is tied to wealth itself, it would help to, in fact, reduce the racial wealth gap. So, that's a less racially prescriptive policy, but Sandy Darity at Duke University has been really strong in arguing and showing that you would have to take race into account to eliminate the black-white wealth gap. There is not a racially neutral policy that's going to eliminate the racial wealth gap.

And this makes intuitive sense to us, because the policies that led to the racial wealth gap were themselves not race neutral, they were, in fact, explicitly racially discriminatory or they were explicitly racially enhancing to, say, white individuals. So, we've taken race into account for a very long time and we simply cannot have a race neutral solution to what is a race specific problem.

Brokamp: You know, you would think the financial services industry would have a role to play in closing the wealth gap, but they have their own diversity problems. Only 1.6% of certified financial planners are African-American, plus the vast majority of people in the financial services industry want to work with wealthy people and they exclude other people by having asset minimums. So, it's really another example of wealth begetting wealth, and people who would like some professional help in building wealth, not having access to it.

Dr. Logan: Yes, you're exactly right. If you're looking at the top 10% of the black wealth distribution, what they're holding, the median, sort of, net worth of those houses in the top 10%, is under $400,000. If you're looking at the median of the white households in the top 10%, it's nearly $2 million. So, if you're a financial planner and you're wanting to work with wealthy customers you're going to want to work with predominantly white individuals.

Even in that though, we've seen that there is discrimination in that market for the individuals, the few of them, who are high net worth African-Americans. And so, something else is going on in this market that once again doesn't make a whole lot of sense. There was a very famous story about a retired professional athlete who's covered in The New York Times, who was discriminated against or felt that they were discriminated against by a private service from a large commercial bank, they are private client servicers.

And so, there is some evidence that even within that market of high wealth individuals, where there are some African-Americans, they are still facing some discrimination that would simply not make a lot of sense to us in terms of just being, sort of, market behavior. But if you're thinking about that customer base, it is going to be predominantly white. So, this might be one of the reasons why financial planners, for example, or those in the financial services industry, should be interested in a reparations program, because it will create a larger base of individuals for them to provide financial service advice to.

If you think about really enacting a reparations program, we're talking about a relatively large wealth transfer to African-Americans. And, obviously, one of the things that you'd want for this group of people who are receiving a large transfer of wealth is to receive some sort of guidance about how to maintain and build wealth, right? And particularly for those who don't have wealth right now and don't have intimate knowledge, for example, wealth generating asset things. So, those who don't know necessarily the difference between a mutual fund and an IRA or the difference between an ETF and owning an individual stock, there would be some scope, say, for financial literacy and probably some remuneration for the financial service industry to provide that sort of education. I know that the groups who are involved in thinking about reparations programs have talked about that and the need for some of that financial education and for the financial services industry to be involved. So, I think it will be in their interest to want to pursue that, because it would expand their customer base.

Brokamp: Now, you mentioned Sandy Darity earlier, I've actually had conversations with him about the baby bonds program. And just for people who aren't familiar with it, it's, every person born in the country would get a certain amount of money, but based on one variation, at least, it would be, sort of, means-tested. So, everyone will get something, but people with lower wealth would get more. But the premise is that once you get to a certain age, and they're still talking about details, you would start off with something and use that for education, you start that for the business, to buy a home, but these are all things that lead to wealth. And one of the things that intrigues me about it is what you just touched on, it also teaches about investing and asset management and being responsible with money and it's something really you learn by having it, it's very difficult to learn how to do that if you don't have it.

Dr. Logan: Yeah. And that's one of the things, I think that as we push on that is to think about the way that we deal with retirement savings in this country. So, we talk about this, but people are saving for their retirement, their employers have made them -- largely now transferring defined benefit programs to defined contribution programs and we have a lot of financial literacy there immediately with the aspects of retirement. And so, having that knowledge base is something that has had to develop in the United States, in general, in the consumer market, in the labor market.

If we think about, say, generations ago, there wasn't a retirement system like the retirement system that we have today, it wasn't as heavily invested in the asset market and it was a defined benefit pension program, so people were not individually making investment decisions. So, as we move to a much more market-oriented asset-oriented retirement system, we have had to increase our financial literacy. Many more people now pay attention to the stock market, for example, because their retirement, or a significant portion of their retirement is riding on what's happening in the markets. And so, this is a similar thing that could happen if we have a baby bonds program and other sorts of aspects that would simply bring more people into this attention to the asset market.

Southwick: You've been economists for a while, and I was wondering what has been, sort of, the biggest change in your thinking over the years from when you first started studying to now?

Dr. Logan: I think that probably the biggest change in my own thinking is, and I've been a professional economist now for a little bit over 15 years is, the recognition of the salience of wealth, the size of the racial wealth gap is really something that's come along in the last 10 years, I think, in terms of really reaching prominence in the economics field but also reaching prominence in terms of public policy and public discussion.

As economists, a lot of our models are actually keyed to income, when we think about wage regressions, when we think about inequality, even if you're thinking about the work on intergenerational mobility, that work uses income. And the reason we have tied ourselves empirically and theoretically to income is because it's something that we can measure. And so, we have a lot of work that has looked at income, and thankfully now, a new generation of scholars working outside of that tradition have really taken us to account for wealth and thinking about the functional role of wealth.

And this gets us then thinking about inequality and a whole lot of other issues that are now, sort of, engaging our discussion about what to do in terms of policy about the inequality that we see in the United States. And so, the turn, the big turn at the macro level in terms of thinking in the conceptual level is a renewed focus on wealth as opposed to income.

Southwick: So, for someone who's interested in learning more, where should we send them?

Dr. Logan: If you're really interested in learning more about the racial wealth gap, in particular, I think a great brief read is a terrific brief that was published by Sandy Darity and his group with Derrick Hamilton, Anne Price, Rebecca Tippet and Vishnu Sridham called Umbrellas Don't Make It Rain, and it really is talking about the construction of the black-white wealth gap and why these particular solutions that we've discussed, such as, education or other sorts of remediation, will not close the gap itself. It's a great little short brief and it has some wonderful figures in there that really drive home the point about the size of the racial wealth gap and about the limits of some of our traditional explanations of policies in terms of ameliorating it.

Southwick: And what are you going to be working on next? You have worked on just fascinating and very different things from sports to, obviously, what we've talked about today, to male sex workers. I mean, you've done a lot of interesting work. So, what's next for you?

Dr. Logan: Yes, that's a great question. I'm a Dean now, so I don't get to do nearly as much of this stuff as I would like. [laughs] In a perfect world, if I was just going on, on my research, I'm working on a new project now which looks at public accommodations via the Green Books, which probably some of your listeners would know about from the movie, which was not appropriately titled. [laughs] But the Green Books, and we're looking at places of public accommodation, particularly in the middle of the 20th century. And this is an aspect of discrimination that we haven't really explored very well in economics.

So, we know, for example, about business owners who might discriminate in the labor market, right? So, we've talked about resume studies where you don't hire the African-American applicant, for example; and that's a really significant form of discrimination. But there's another form of discrimination that people may engage in and that has impact on the labor market, impact on the consumer market, that is functional even if you're not yourself a discriminator. So, say, that you own a business and you understand that your customers don't want you to serve people of a particular group, so you may not be a discriminator, but it's to your business interest to in fact engage in discrimination. And one of the things about that sort of discrimination, which is called consumer discrimination, is that there is not a market solution to it.

When you think about what we've talked about in terms of the racial wealth gap, if the consumers in the market who are all wealthy who will patronize your business are all white, and they have a decided taste about not having equal access for African-Americans at the establishment, if you're a profit-maximizing firm, you will not have an integrated customer base. And there's no market solution that takes this away.

When you think about this in a traditional economic model about, sort of, an employer discriminating, their competing firm doesn't discriminate, they get more productive workers and eventually they run you out of business as a discriminating firm. When you have consumer discrimination that's actually market sustainable, and so studying that is actually really interesting, it's another one of these dimensions about discrimination that economists simply have not been able to pay a lot of attention to due to data limitation, but also really a lack of empirical analysis of the issue.

Southwick: Dr. Logan, thank you so much for joining us today. I would love for you to stay in touch with your future research.

Dr. Logan: Great, I'm, of course, happy to. Yeah.

Southwick: Wonderful. Alright. Well, again, thank you so much, this has given us a lot to think about and I really appreciate you joining us.

Alright. Once again, I want to thank Dr. Logan for joining us on the show today, if you want to read more of his research, you can find him at the Ohio State University's website where, of course, he is in the Department of Economics; a Chair at the Department of Economics, I should say.

That's it for the show today, it's edited, neighborly, by Rick Engdahl. Our email is [email protected]. For Robert Brokamp, I'm Alison Southwick, stay Foolish, everybody.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Alison Southwick owns shares of Amazon. Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, and Twitter. The Motley Fool recommends Costco Wholesale and Nasdaq and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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