A Different Vision

Race and Public Policy, Volume 2

Thomas D Boston

• Publisher: Routledge
• Year: 2002
• eBook ISBN: 9781134798520
• Edition: 1
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

A Different Vision: Race and Public Policy, Volume 2 brings together for the first time the ideas, philosophies and interpretations of North America's leading African American economists. Presented in two volumes, Volume 2 includes: * an analysis of urban poverty * discusses aspects of racial inequality and public policy * examines the theory and method which underlies public policy

1
PREAMBLE
The economic cost of discrimination against black Americans^*

Andrew F. Brimmer

ANDREW FELTON BRIMMER

Dr. Andrew Felton Brimmer is President of a Washington, DC-based economic and financial consulting firm, and he serves simultaneously as Wilmer D. Barrett Professor of Economics at the University of Massachusetts-Amherst. He is also Chairman of the Presidentially-appointed Financial Control Board which oversees the fiscal affairs of the District of Columbia.

Brimmer was born in 1926 in Newellton, Louisiana, a small town located in the northeast section of the State a few miles from the Mississippi River. His family had been long-time cotton farmers who were forced off the land as the boll weevil devastated the crops.

After graduating from the local, racially segregated high school, Brimmer joined an older sister and her family in Bremerton, Washington, in 1944. During the day, he worked as an electrician’s helper in the Bremerton Navy Yard where war-damaged ships were repaired. At night, he continued his education at the equivalent of a community college. He was drafted into the US Army in May 1945, and served through November 1946. Ten months of that service was in Hawaii.

In January 1947, Brimmer enrolled in the University of Washington, Seattle. He completed his undergraduate work in three years. He first studied journalism; but, half way through, he switched his major to economics earning a BA in March 1950. He continued in the field and was awarded an MA in the summer of 1951. Brimmer won a Fulbright grant for the academic year 1951–52, which enabled him to study at the Universities of Delhi and Bombay in India. Between September 1952 and June 1955 he was enrolled in the doctoral program at Harvard University. He received his PhD in economics in March 1957, with a dissertation entitled “Monetary Policy, Interest Rates, and the Investment Behavior of Life Insurance Companies.” From June 1955 through August 1958, Brimmer was an economist at the Federal Reserve Bank of New York. During three and a half months of that period, he served on a three-manmission to Sudan to help that country establish its central bank. He taught economics at Michigan State University from 1958to1961. He taught money and banking and macroeconomics at the Wharton School, University of Pennsylvania, during 1961–63. On leave of absence from the University, he served as Deputy Assistant Secretary and Assistant Secretary for Economic Affairs in the US Department of Commerce, from May 1963 until early March 1966. From March 9 of that year Brimmer began a fourteen-year term as a member of the Board of Governors of the Federal Reserve System–having been appointed by President Lyndon Johnson. He served for eight and a half years. He resigned in August 1974 to return to Harvard University, where he was appointed Thomas Henry Carroll Visiting Professor in the Harvard Business School. He held that position during the period 1974–76. In 1976 he established his consulting firm.

Brimmer is a Director of a number of major corporations–including Bank of America and the Du Pont Company. He has published extensively, and is the author of several books and many articles in economic and financial journals–with the main concentrations in banking and monetary policy, international finance, and the economic status of black Americans. Brimmer states that the economic research of which he is most proud is the Testimony he prepared when he was in the US Department of Commerce which demonstrated the burden of racial segregation on interstate commerce. The US Supreme Court cited it extensively in its unanimous opinion upholding the Public Accommodations Section of the Civil Rights Act of 1964.

Brimmer has been honored a number of times by the economics profession. He was the Richard T. Ely Lecturer of the American Economic Association in 1981, and he was Distinguished Lecturer on Economics in Government of the Association (joint with the Society of Government Economists) in 1988. He was Vice President of the AEA in 1989. He served as Westerfield Lecturer of the National Economics Association in 1990. He was President of the Eastern Economics Association in 1991–92, and he was elected a Fellow in 1993. He was President Elect (1996) of the North American Economics and Finance Association.

The disparate treatment of blacks cost the American economy about $241 billion in 1993. This figure is equal to roughly 3.8 per cent of that year’s gross domestic product (GDP). While part of the loss can be attributed to the lag in blacks’ educational achievement, the bulk of the shortfall appears to be related to continued discrimination, which limits their access to higher-paying jobs. Furthermore, over the last quarter-century, the relative cost of discrimination seems to have risen. And, given the slow rate at which blacks are being absorbed into managerial, professional, and technical positions, the income deficit they face–and the corresponding economic cost to the nation– will probably narrow very little in the years ahead.

ECONOMIC IMPACT OF RACIAL DISCRIMINATION

The earliest assessment of the economic cost of discrimination against nonwhites in the United States was prepared by the President’s Council of Economic Advisers (CEA) in 1962.¹ The CEA estimated the cost at approximately $17.8 billion, or 3.2 per cent of gross national product (GNP)–which totaled $554.9 billion in that year. (Note that GNP, the value of total production of goods and services measured at market prices, was the official measure of economic activity in use in 1962.)

In 1965, when I was assistant secretary of commerce, at my request the US Bureau of the Census made estimates of the cost of discrimination against nonwhites for the years 1949 through 1963. The Census Bureau’s estimating procedure was more comprehensive than that employed earlier by the CEA. The Census Bureau’s estimates sought to account for the economic losses originating from two sources: inefficiencies in the use of the labor force arising from failure to use fully the existing education, skills, and experience of the population, and failure to develop fully potential education, skills, and experience. The losses were described in terms of the gains that might accrue to GNP if discrimination were eliminated–or had been eliminated in the past. However, the Census Bureau recognized that, because the legacy of past discrimination affects the contemporary occupational, geographic, and capital structures as well as the education, training, and skills of the nonwhite labor force, the gains would accrue only over time as the labor force is upgraded and the economy adjusts.

Based on the Census Bureau’s analysis described above, I estimated that discrimination against nonwhites cost about $20.1 billion in lost GNP in 1963, equal to 3.5 per cent of that year’s total GNP of $583.9 billion. Roughly $11.1 billion (1.9 per cent of GNP) reflected the failure to use fully nonwhites’ existing skills, and $9.0 billion (1.6 per cent of GNP) arose from the failure to improve and fully use their educational achievement.²

Applying the Census Bureau’s technique as used in 1965, I have recently updated the estimates for the economic cost of discrimination against blacks. The detailed results for four years (1967, 1973, 1979, and 1993) are shown in Appendix Tables 1.A1 and 1.A2.

TRENDS IN THE ECONOMIC COST OF DISCRIMINATION

The figures show that, over the last twenty-five years or so, the American economy has been losing between 1.5 per cent and 2.2 per cent of GDP because racial discrimination against blacks limits the full use of their existing educational attainment. In 1967, this loss amounted to 1.5 per cent of GDP or $12.1 billion (Table 1.1). Another 1.4 per cent ($11.1 billion) of GDP was lost because of the failure to improve and fully utilize blacks’ educational level. In combination, lost GDP amounted to $23.2 billion, equal to 2.9 per cent of the 1967 total of $814.3 billion. By 1993, the shortfall in GDP due to the failure to use blacks’ existing education amounted to $137.5 billion (2.2 per cent of GDP). Failure to improve their education cost $103.9 billion (1.6 per cent). The aggregate loss was estimated at $240.9 billion–3.8 per cent of GDP.

Table 1.1 Economic cost of discrimination against blacks, 1967–93 (estimated loss of Gross Domestic Product, $ billion)

The statistics in Table 1.1 enable one to apportion the loss in GDP between contemporary discrimination against blacks (failure to use fully their existing education) and the legacy of past discrimination (failure to improve their education). The figures suggest that, while no dramatic shifts have occurred over the last two and a half decades, the proportion of the loss that can be attributed to current discrimination has risen slightly. The latter component varied from 52.2 per cent in 1967, to 54.31 per cent in 1973, to 54.44 per cent in 1979, and to 56.87 per cent in 1993.

FACTORS CONTRIBUTING TO THE COST OF RACIAL DISCRIMINATION

A number of interwoven factors lie behind the loss of GDP from racial discrimination. In the first instance, discrimination has historically restricted many blacks to working in positions in which they could not fully utilize their qualifications. For example, for many years, the US Postal Service employed thousands of black men with college degrees in mathematics, chemistry, and other sciences who could not find jobs in the private sector. There were numerous cases where blacks with BA and MA degrees in business administration worked as warehouse and stockroom clerks–while their white counterparts held managerial jobs in areas such as banking, insurance, and real estate. Even today, despite the lessening of restrictions because of equal opportunity laws and the spread of affirmative action practices in industry, many blacks are still concentrated in positions which do not make full use of their talents. If racial discrimination were to be eliminated, blacks could migrate more freely from low to high productivity occupations where their contribution to total production would be increased. The result would be a gain in the nation’s total output of goods and services.

Furthermore, a more rational use of the labor force most likely would require increased investment in the stock of capital. Plant and equipment outlays would rise–further boosting the gain in output. Thus, capital as well as labor incomes would be enhanced.

Self-employed entrepreneurs (particularly blacks) would have greater access to markets–and thus, become more efficient–in the absence of racial discrimination. In response, their incomes would rise to reflect their higher productivity. This is another source of the gain in GDP resulting from the elimination of racial discrimination.

LONG-TERM OUTLOOK

There appears to be little likelihood that the economic cost of racial discrimination will diminish appreciably over the current decade. While overt acts of discrimination in industry will almost certainly continue to decline, institutional or systemic discrimination will nevertheless persist due to the legacy of previous discrimination. Consequently, blacks’ educational levels will remain well below those of whites, and they will continue to be underrepresented in the higher-paying positions and overrepresented in those at the low end of the occupational scale. The net result will be a continuation of large deficits in blacks’ employment and income. The latter will continue to be translated directly into a sizeable loss in GDP.

The significant gap between blacks’ educational attainment and that of the nation at large can be seen in Table 1.2. The figures compare the distribution of black workers by years of school completed with the corresponding distribution of all workers in 1990. It will be noted that, while blacks represented 10.15 per cent of total employment, they accounted for 13.29 per cent of workers with less than a high school education. At the high school level, they represented 11.13 per cent of the total. The black proportion was 10.53 per cent among workers with one to three years of college, and 6.22 per cent among those with four or more years of college. Expressed differently, in 1990, 45.5 per cent of all workers had at least some college education compared with 37.0 per cent of all black workers. The weighted average number of years of schooling for all workers combined was 13.29. The corresponding weighted average for blacks was 12.66 years. This meant that the typical black worker’s average level of education lagged about 4.75 per cent behind that of all workers. Although the differential will probably narrow somewhat, it most likely will not be closed any time soon.

Table 1.2 Distribution of total and black workers, by years of school completed, 1990 (thousands)

In a similar vein, blacks will continue to hold a disproportionately small share of the hig...

Table of contents

• COVER PAGE
• TITLE PAGE
• COPYRIGHT PAGE
• ILLUSTRATIONS
• CONTRIBUTORS
• PREFACE
• 1: PREAMBLE THE ECONOMIC COST OF DISCRIMINATION AGAINST BLACK AMERICANS*
• Part I: POVERTY, INEQUALITY AND PUBLIC POLICY
• Part II: HISTORICAL PERSPECTIVES ON RACE, ECONOMICS, AND SOCIAL TRANSFERMATION
• Part III: THEORY AND METHOD