The Unassuming Economist

In conversation with Bill Gale, Arjay and Frances Miller Chair in Federal Economic Policy and senior fellow at the Economic Studies Program, Brookings Institution…

In this episode of Econofact’s podcast, Gill discusses the impact of inequitable racial impacts of government policy. Some notable points include the following:

1. Race-blind policies are typically neither race neutral nor race fair because past injustices cast a shadow on current conditions. The absence of racist animus does not mean a policy is not racist.
2. The mortgage interest deduction which favors homeowners who are disproportionately wealthier and white is discussed as a case in point to explain the difference between equity and equality.
3. He discusses the critical race theory (seemingly race-neutral policies lock in the effects of past racism).

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Source: NBER Working Paper (2022)

Researchers Sergey Chernenko and David S. Scharfstein write about the significant racial disparities in borrowing through the Paycheck Protection Program (PPP) using data gathered from a large sample of restaurants in Florida and then investigate the causes of these disparities. They find that- “Black-owned restaurants are 25% less likely to receive PPP loans. Restaurant location explains 5 percentage points of this differential. Restaurant characteristics explain an additional 10 percentage points of the gap in PPP borrowing. On average, prior borrowing relationships do not explain disparities. The remaining 10% disparity is driven by a 17% disparity in PPP borrowing from banks, which is partially offset by greater borrowing from nonbanks, largely fintechs. Disparities in PPP borrowing cannot be attributed to lower awareness of PPP loans or lower demand for PPP loans by minority-owned restaurants. Black-owned restaurants are significantly less likely to receive bank PPP loans in counties with more racial bias. In these counties, Black-owned restaurants are more likely to substitute to nonbank PPP loans. This substitution, however, is not strong enough to eliminate racial disparities in PPP borrowing”.

Abstract of this National Bureau for Economic Research (NBER) working paper (2021) by Jean-Felix Brouillette, Charles I. Jones, and Peter J. Klenow of Standford University:

“We construct a measure of consumption-equivalent welfare for Black and White Americans. Our statistic incorporates life expectancy, consumption, leisure, and inequality, with mortality rates playing a key role quantitatively. According to our estimates, welfare for Black Americans was 43% of that for White Americans in 1984 and rose to 60% by 2019. Going back further in time (albeit with more limited data), the gap was even larger, with Black welfare equal to just 28% of White welfare in 1940. On the one hand, there has been remarkable progress for Black Americans: the level of their consumption-equivalent welfare increased by a factor of 28 between 1940 and 2019 when aggregate consumption per person rose a more modest 5-fold. On the other hand, despite this remarkable progress, the welfare gap in 2019 remains disconcertingly large. Mortality from COVID-19 has temporarily reversed a decade of progress, lowering Black welfare by 17% while reducing White welfare by 10%.”

Click here to read the full paper.