The Poor Are Not Poor Because the Rich Are Rich

Star Parker

8/1/2011 9:00:00 AM - Star Parker

A just released study from the Pew Research center reporting a record high wealth gap between whites and blacks should have been labeled “handle with care.”

Because care is needed to examine the complex reality behind the fact that “median wealth of white households is 20 times that of black households….” And without care, this information will be abused and misused by those in the race business as another excuse to claim racism and demand exactly what blacks, or any of us, do not need – more government.

And, indeed, Al Sharpton has already announced plans for protest in Washington, along with the statement: “For those who think we live in some sort of post-racial society, I have news for you: we’re anything but.”

For one thing, “median wealth” should not be confused with “average wealth.” “Median” is simply the number right in the middle – there are an equal number of households with higher and an equal number with lower wealth. “Average wealth” accounts for the actual wealth of those households and reflects the fact, not reflected in the median number, that there are a good number of well-to-do black households.

So whereas median white household wealth is 20 times higher than median black household wealth, average white household wealth is 3 times higher than average black household wealth.

The racially tinged headline obscures the deeper reality of what is driving the growing wealth gap. That is that over the period of the study, 2005 to 2009, the gap between those with more wealth and those with less has increased for the whole country.

In fact, over this period, the gap between the most wealthy and least wealthy blacks became more pronounced than the gap between the most wealthy and least wealthy whites.

In 2005, the top ten percent wealthy black families represented 56 percent of overall black wealth. By 2009, this top ten percent represented 67% of overall black wealth.

You have to wonder what kind of racial claims Al Sharpton will make about this.

All this is not to minimize a genuine problem. Far more important than where black wealth stands relative to white wealth is the fact that median, or average, black wealth is far less than it should be.

That 35% of all black households have zero or negative wealth (net indebtedness) is dismally sad.

What to do?

If there are any public policy implications, it is not to expand government, but to remove it as obstacle to black wealth creation.

At the most basic level, black children need to get better education and this means giving black parents choice to send their children wherever they want to school.

A better educated black population will mean a higher income earning black population. But income alone is a limited tool for creating wealth. Wealth is created through savings, investment, and entrepreneurship. And blacks lag far behind in each category.

The Pew study shows that the major destruction of wealth from 2005 to 2009 resulted from the collapse of housing prices. Blacks suffered disproportionately because black net worth has been almost entirely in their homes.

The idea of allowing of allowing investment in a personal retirement account rather than paying the Social Security payroll tax would be a boon to building black wealth.

But when President Bush suggested the personal retirement account idea, NAACP chairman Julian Bond said this was asking blacks “to play the lottery with their future.”

A life of government guarantees and controls is not a formula for building wealth. Freedom and capital markets are. Blacks need to decide which they want.

And entrepreneurship must become part of black culture. Blacks need to get that poor people are not poor because rich people are rich.

The formula for more black wealth: less government, more ownership and initiative.