Two Economists Fuel Democratic Debate Over How Far Left to Go

Sunday, July 14, 2019
Wall Street Journal

For decades, William Darity Jr. and Darrick Hamilton toiled in obscurity. They criticized mainstream economists and politicians for failing to address racial inequality, and touted more radical remedies of their own.

Now, with the 2020 presidential campaign under way and liberal Democrats ascendant, the two economists are in the spotlight, thrust into the middle of an intraparty debate over how much to embrace big government and a race-oriented message.

Their signature ideas—guaranteed jobs for all adult Americans seeking them, government-backed trust funds for American babies and reparations for slave descendants—are being talked about on the campaign trail and, in the case of reparations, during a raucous congressional hearing in June.

The two African-American economists’ theories on “stratification economics,” which focuses on economic gaps between whites and blacks, have helped shape the rhetoric and platforms of several candidates.

At a conference earlier this year for liberal activists, New Jersey Sen. Cory Booker told Mr. Hamilton he had “laid the foundation for a lot of things that we’re doing,” including “baby bonds.” Former Texas Rep. Beto O’Rourke name-checks Mr. Hamilton in television interviews, calling him an “extraordinary economist” who “talks about a more conscious capitalism.”

The two economists have influenced the rhetoric or platforms of several Democratic presidential hopefuls, including, from left, New Jersey Sen. Cory Booker, Massachusetts Sen. Elizabeth Warren and former Texas Rep. Beto O'Rourke. PHOTO: SAUL LOEB/AGENCE FRANCE-PRESSE/GETTY IMAGES

Mr. Hamilton, an Ohio State University professor, has advised the campaigns of California Sen. Kamala Harris on middle-class tax cuts, Vermont Sen. Bernie Sanders on job guarantees and Massachusetts Sen. Elizabeth Warren on student-debt relief.

As ideological ferment roils the party, the two scholars say they haven’t heard from the candidates positioning themselves more as centrists by steering clear of the types of big-spending, race-oriented prescriptions the two men advocate. Sen. Amy Klobuchar says her rivals’ “magic genie” big-spending plans are unaffordable. In a column titled “Reparations, Really?” the liberal American Prospect magazine called the idea a “priceless gift” to President Trump.

The Racial Wealth Gap

Wealth disparities between black and white households exist even when education levels, job status and income are similar.

 

The old-guard economists who shaped the past quarter-century of Democratic policies have expressed skepticism. “A lot of these new progressive ideas are great for the overall debate,” says Obama White House chief economist Jason Furman, who also has advised some presidential hopefuls. “Many of the specific ideas may turn out to be too large or too poorly thought out to work well.”

Mr. Darity, a 66-year-old Duke University professor, and Mr. Hamilton, 48, have gained prominence as more Democrats decry the incrementalism they associate with Presidents Clinton and Obama. Half of Democrats last year called themselves liberal, up from 36% in 2001, according to a Wall Street Journal/NBC News poll.

More Democratic leaders are talking explicitly about race. A Pew Research survey earlier this year found nearly two-thirds of white Democrats said the U.S. hadn’t done enough to give blacks equal rights, while about 80% said the legacy of slavery “affects the position of black people in American society today.”

By some measures, the robust economy appears to be providing new gains. The unemployment rate for black workers in June was 6.0%, a tick above the lowest level recorded since the government started collecting such data in 1972. The black labor-force participation rate has risen in recent years, meaning a greater portion of working-age African-Americans are looking for work.

Wages in low-skilled sectors that tend to employ a disproportionate number of blacks have risen at a faster pace in recent months. Republicans regularly cite that data as a reason to support their policies of tax cuts and deregulation.

Racial disparities remain. The white unemployment rate in June was 3.3%. Gaps persist in income, poverty and home-ownership rates. The main argument of Messrs. Darity and Hamilton’s work is that those differences are so entrenched they outlast economic cycles.

Mr. Darity, a Duke University professor, says only reparations can make a serious dent in the persistent wealth gap between blacks and whites. PHOTO: JUSTIN COOK FOR THE WALL STREET JOURNAL

They have teamed up to write more than 50 articles for academic and popular journals and books, and pioneered what they consider a new field of scholarship they branded stratification economics. They contend that mainstream economists tend to regard racial discrimination as a short-term market glitch that market forces will correct eventually. That logic, they say, leads to the conclusion that persistent African-American woes result mainly from their own failings, such as inadequate education or poor financial choices.

Policy makers, they contend, focus too much on employment, income and education and not enough on family wealth across generations. They say wealth is a better measure of household economic security—the ability to weather emergencies, pay for education, afford homes in good neighborhoods and take risks.

Their statistics show that black households headed by a college graduate have, on average, less wealth than those headed by white high-school dropouts, and that black households headed by someone working full time have less wealth than those headed by unemployed whites.

The racial wealth gap accumulated over years, they say, stoked not just by slavery but by 20th-century policies that helped whites and marginalized African-Americans. No matter how hard blacks work to improve their education or earn more, the two men say, they won’t catch up financially. Only significant government intervention can address the disparity, they argue.

They published frequently in “The Review of Black Political Economy” but rarely cracked the most widely cited journals.

As they gain political prominence, their work also is drawing more attention from mainstream economists.

Two regional Federal Reserve Banks have teamed up with Messrs. Darity and Hamilton to quantify wealth disparities in major U.S. cities. One widely cited conclusion: The median nonimmigrant black household in Boston had a net worth of $8 in 2014, versus $247,500 for the median white household.

One central-bank economist, William R. Emmons of the St. Louis Fed, says Mr. Hamilton persuaded him to alter his analysis of the roots of the racial wealth gap. They began speaking after Mr. Hamilton criticized his 2015 research focused on poor financial choices by blacks and Hispanics. 

“Darrick changed my mind,” says Mr. Emmons, who later looked more at the effects of discrimination.

Mr. Darity, who is known as “Sandy,” was born into an academic family. Both his parents held university and college deanships. He studied at Brown University and the Massachusetts Institute of Technology.

Mr. Hamilton grew up in Brooklyn’s Bedford-Stuyvesant neighborhood. He says his father spent time in prison before dying of AIDS. He was orphaned before finishing high school. “One thing for sure, my work is personal,” he says.

He studied economics at Oberlin College and then at the University of North Carolina. There he met Mr. Darity, who became his adviser and a mentor. At a 2017 awards ceremony where the two were honored, Mr. Hamilton broke down in tears recounting how Mr. Darity helped him navigate the overwhelmingly white field of economics.

They viewed the Obama presidency a missed opportunity. They bristled at Mr. Obama’s suggestions that a black culture disparaging academic achievement as a form of “acting white” played a role in African-American struggles. During the 2012 campaign, Mr. Darity told PBS that he wouldn’t vote for Mr. Obama’s re-election.

Messrs. Darity and Hamilton were early advocates of reparations for descendants of slaves, which they saw as the most direct and comprehensive way to address wealth disparities. 

“Such a payment is both just and necessary as a mechanism to close the persistent racial gaps that exist in the United States,” Mr. Darity wrote in an essay titled “Forty Acres and a Mule in the 21st Century,” a reference to the post-Civil War broken promise of compensation. In recent Congressional testimony, he suggested the cost of reparations at about $10 trillion.

Mr. Hamilton, an Ohio State University professor, backs a plan to give Americans at birth a government-backed trust fund, which he calls ‘baby bonds.’ PHOTO: ANDREW SPEAR FOR THE WALL STREET JOURNAL

Recognizing the high political and fiscal hurdles to reparations, they developed proposals aimed at addressing economic concerns for Americans of all races—albeit ones that, if enacted, would disproportionately benefit blacks.

In 2010, they laid out their vision for “baby bonds,” a plan to give most Americans at birth a government-funded account with a guaranteed return of about 2% a year. The amounts would be calibrated to a family’s net worth, with the wealthiest getting a token amount and the poorest up to $60,000. Recipients couldn’t touch the money until turning 18. Their estimated annual cost for the federal government: $60 billion a year—a bargain, they said, compared with the $300 billion to $400 billion a year allocated for other asset-promoting programs such as the mortgage-interest deduction.

In a 2012 essay, they proposed a federal jobs-guarantee program for all adult Americans, offering a minimum annual salary of about $20,000, enough to stay out of poverty—plus benefits comparable to those offered other federal workers. They said that would alleviate wage stagnation and provide new economic security, especially for African-Americans, whose unemployment rate is nearly double that of whites. They see it as a better alternative to the $15-an-hour minimum wage supported by many Democrats, saying that policy only helps those who can find jobs. 

The estimated annual cost of a jobs program: about $543 billion, an amount they said would be offset in part by the reduced need for unemployment insurance and federal welfare payments.

Some who sympathize with the goals blanch at the price tag and complexity. Even many liberals favor keeping expanded redistribution policies tethered to the private job market through the income-tax system. They are uncomfortable with big new payments for people who aren’t working.

At a May conference run by the Center for American Progress, an establishment Democratic think tank, Neera Tanden, CAP’s president, pressed Mr. Hamilton to make the case that baby bonds and job guarantees would improve economic growth overall—to help sell those ideas to the broader electorate. Mr. Hamilton, who calls himself a “scholar-preacher,” rejected the “neoliberal norms” of “self-interested economic gains” implicit in the question, saying: “We should do it because it’s the right thing to do.”

Sen. Booker’s staff consulted with Mr. Hamilton and Mr. Darity before introducing legislation to create a baby-bond program. No other presidential candidate has co-sponsored the bill, nor has any other senator.

Mr. Hamilton has advised the campaign of California Sen. Kamala Harris on middle-class tax cuts. PHOTO: AARON P. BERNSTEIN/REUTERS

Some of the candidates’ advisers question the wisdom of prioritizing money for a program that, by definition, wouldn’t help a needy family for 18 years.

Many Democratic economists say they are more intrigued by the job-guarantee program but doubt its viability on the scale envisioned by Messrs. Darity and Hamilton. They see its value more as a short-term supplement, filling in gaps in the private market, rather than the big public alternative competing with the private sector, as described by the leading proponents of the concept.

Social Divisions

Americans are divided about government economic involvement and the legacy of slavery. 

 

Sources: Gallup, survey of U.S. adults conducted Apr. 17-30, 2019 (wealth); Pew Research Center, survey of U.S. adults conducted Jan. 22-Feb. 5, 2019 (slavery)

“The ideas around a job guarantee are worthy of a lot of future study,” Lawrence Summers, a top economic adviser to Presidents Clinton and Obama, told a recent Harvard Business School podcast. But “my preference would be to commit macroeconomic policy to full employment.”

Conservatives warn a federal job guarantee would distort labor markets and wreck productivity by drawing low-skilled workers to inefficient tasks.

Sen. Booker’ s staff worked with the two men on legislation setting up a jobs-guarantee program, in the form of a pilot experiment in 15 communities around the country. Three other presidential candidates—Sens. Warren, Harris and Kirsten Gillibrand of New York—have co-sponsored that proposal.

The reparations debate is more preliminary and vague. So far, the only concrete legislative proposal calls only for a commission to study the issue. That idea, until recently seen as radical, is rapidly gaining support. All 10 Democratic lawmakers running for president have co-sponsored the measure. When they are pressed to define what they mean by “reparations,” answers vary. Many indicate support for policies that would alleviate poverty or inequality, but not for direct payments to make amends.

Republican leaders say it makes no sense to create a slavery-related reparations program when no slaves or slaveholders are alive, and argue it would be impossible to determine who would qualify for benefits.

Many Democrats want to proceed cautiously, with polls showing the idea unpopular. A survey conducted last year by Data For Progress, a group seeking to help frame the liberal agenda, found net support for some kind of job guarantee at plus 32%, versus minus 21% for reparations.

The campaign of Vermont Sen. Bernie Sanders has gotten advice from Mr. Hamilton on job guarantees. PHOTO: CHARLIE NEIBERGALL/ASSOCIATED PRESS

Protégé and mentor tangle repeatedly, publicly via Twitter , over the best approach for carrying out their stratification platform. Mr. Hamilton favors deepening ties with presidential campaigns and praising candidates who nod toward his general ideas. Mr. Darity frequently attacks those same candidates as insufficiently bold.

Mr. Hamilton emphasizes how baby bonds could close the wealth gap between most black and white households. Mr. Darity stresses it would do little to narrow the chasm between total black and total white wealth, saying only reparations can make a serious dent.

Mr. Darity says he is playing the long game. “The intensity of my commitment to reparations means that I won’t take an accommodating position,” he says, adding with a laugh: “I suspect I won’t get too many more calls” from politicians.

“We’re different in that way,” says Mr. Hamilton. “I don’t want to be the contrarian…I’m trying to win.”

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