As we celebrate Dr. Martin Luther King Jr.'s life and legacy this year, we must do so with an understanding that the current state of African American economics is not one that he envisioned when he spoke to the great possibility of America before his death. It has instead become a very different economic reality for black America that we must all be aware of moving forward.
The data that was used to support the Federal Reserve's bleak numbers that the middle white American household is worth 13 times that of the middle black household may have used accounting that actually understates the gap in wealth between white and black families in America.
Professor Edward Wolff in his report for the National Bureau of Economic Research stated that in performing this calculation the Federal Reserve was including consumer durables that should be excluded when calculating assets.
Thus, only assets that can be readily converted to cash (that is, "fungible" ones) are included. As a result, consumer durables such as automobiles, televisions, furniture, household appliances, and the like, are excluded here, since these items are not easily marketed, with the possible exception of vehicles, or their resale value typically far understates the value of their consumption services to the household. Another justification for their exclusion is that this treatment is consistent with the national accounts, where purchase of vehicles is counted as expenditures, not savings. As a result, my estimates of household wealth will differ from those provided by the Federal Reserve Board, which includes the value of vehicles in their standard definition of household wealth.
According to Wolff's report the median black family is actually only worth $1,700 when you deduct these durables. In contrast, the median white family is worth $116,800 using the same accounting methods. In accounting for the losses of the Great Recession he wrote:
"black households" median net worth actually fell from $6,700 to $1,700, and the ratio relative to white households plunged from 0.06 to 0.01.
To give this greater historical context, according to the National Review in South Africa during the atrocities of apartheid the median black family was worth nearly 7 percent of what a white South African family was worth. Whereas today using the data above, the median African American family is worth a mere 1.5 percent of what the median white American family is worth.
By way of comparison, black South Africans under apartheid had a median net worth about 6.8 percent that of white South Africans. Repeating: Black Americans are worse off relative to their white countrymen than black South Africans under apartheid were to theirs.
As we celebrate Dr. Martin Luther King Jr. we must do so with an understanding that his life's work was not completed with the accomplishment of the Civil Rights Act. Rather it was the opening for us all to move the discussion forward on how to reach racial equality.
Initially written on Eurweb.com: Electronic Urban Report