Here’s What Economists Don’t Understand About Race

Tuesday, October 18, 2016
Institute for New Economic Thinking

As an undergraduate at Brown University in the 1970s, William Darity, Jr. expected to learn the reasons behind the inequality he’d seen all around him growing up in the Middle East and North Carolina. He realized pretty quickly that economists were not going to be much help. 
Darity, the son of North Carolinians, spent his first eight years in Lebanon and Egypt while his father worked for the World Health Organization, then lived until the age of twelve in Chapel Hill, North Carolina. During the Jim Crow era, he visited his grandmother in a town where a railroad track divided the city into black and white sections, marking two separate economic worlds.

At Brown, Darity was disappointed by how his teachers explained why some people reap the benefits in a society and some don’t. Most taught that some individuals and groups grew more prosperous than others because of differences in education — what economists refer to as “human capital.” Labor economists tended to say that educational differences meant that some people were more productive than others, which explained why some flourished and others languished in the long run. They believed that competitive markets would ensure that everybody ended up earning according to what they produced. Those with higher earnings were able to save more, and so they accumulated more wealth over the course of their lifetime.

Darity wondered, then, why disparities persist, even when markets are competitive. Black Americans, for example, are paid less than their white counterparts at every level of education.

Motivated by what he describes as youthful hubris, Darity got a Ph.D. in economics and set out to change the way economists deal with these issues. Today he is the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, and Economics and the Director of the Samuel DuBois Cook Center on Social Equity at Duke University. With a group of colleagues that include Darrick Hamilton and James Stewart, he has developed a framework for understanding the inequality problem, which he calls “stratification economics.” The new approach —interdisciplinary and integrating economics with psychology and sociology — expands the boundaries of how economists analyze intergroup differences.

“The traditional approach says that educational attainment is a consequence of parental investment,” says Darity, “but it doesn’t explain how parents can feasibly make those investments.” The explanation he puts forth is a blow to the long-cherished view of America as a land of equal opportunity, where it’s not supposed to matter who your parents and grandparents are or how much money they have.

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