William Spriggs: How Economic Theory and Policy Reinforce Racism

William Spriggs, the AFL-CIO’s chief economist, talks about the inadequacies of the pandemic economic rescue package and how mainstream economic theory continues to fail everyone, but especially Blacks

Abridged Transcript:

Rob Johnson: Here we are, near the end of June 2020, world turned upside down, all kinds of things being unmasked, all kinds of comfortable assumptions devastated. What are you seeing, as an economist, as a citizen, and as a Black man, that gives you cause for concern? What do you see people doing well and what poorly?

William Spriggs: Well, the first challenge I see is that we’re experiencing two recessions in one, and one is caused by the disruptive nature of a virus. We don’t have a cure or a vaccine for it, and that is preventing people from taking advantage of demand in a large set of industries.

More specifically in the United States, the restaurant industry employed 12.6 million people and so that workforce was essentially equivalent to the entire manufacturing workforce in the United States. From restaurants, to movie theaters, to large social gatherings, to travel more broadly, hotels, have turned into a collapse of aggregate demand. And so now we have a full-blown recession. And because this is global, this isn’t something that we will have an easy way out of if there are global imbalances. There are global imbalances in the auto sector already because of this and the reaction in the emerging economies to all of this uncertainty has been about capital fleeing their countries. So, you’ve got a strong dollar and weak global markets. You got everything that makes for a regular recession, plus this uncertainty. I call it recession squared because both of them interact with each other and they have given us depression level unemployment, with the difficulty that the normal course of action of just making aggregate demand increase isn’t going to work very well because of this uncertainty around the virus.

Even in April, when Americans got those huge checks signed by the president, it wasn’t very well targeted. The result was that most of it went to the bank. Most people saved it. They understood it wasn’t a change to their permanent income.

So, those sectors that have been most effected have had a little breathing room to come back, but the problem is the distortion. If you just increase aggregate demand, you risk permanent scarring that may make the long-term recovery worse. If everyone spends more right now, the way things are structured, you’re going to make Amazon and Walmart the biggest corporations in the universe. But you’re going to wipe out the retailers who have been reeling for some time and they won’t be able to come back. And because of the data advantage that Amazon Walmart and others have, it’s virtually impossible to understand how they would ever get competition. It’s the data that gives the wealth and market advantage to Amazon.

There are some serious issues around how we can recover. The way in which people have done workarounds to the downturn. For example, a number of people are out exercising. You cannot buy a bicycle right now. If you go to a bicycle store, they will tell you we don’t have any, because they’re almost all made in China.

But if they make that investment, if they do one of these new online exercise things like Peloton, or some of the others, it’s just unlikely that households are going to say, I spent all this money on this bike or this expensive way of doing exercise that I’m going to come back to the gym.

Then you have the issue of a company’s workarounds. People use zoom meetings now, WebEx. They have their different platforms that they’re using. And, in the end, after companies make the technological investment to make those platforms work efficiently, you have to wonder, will they ever approve travel in the same way?

My fear is that coming out of this, to remove the scarring, is going to be a problem because it’s not in the training of economist to do that, even when they know good and well the history of the policies that they put in place, even though they know everything that we did to create this imbalance there, there’s that unwillingness to say, you need to have an industrial policy response in this environment. I think it’s going to be a huge challenge.

Rob Johnson: Bill you’re based in Washington, I see a lot of very intense critiques of the composition of these bailouts. I remember Jesse Eisinger at ProPublica did a webinar with INET recently about a paper, where he said the bailout is working well for the rich. He talked about how many small businesses were going out of business, while many private, highly leveraged private equity firms, their stock prices were up 50 and 80%. How do you see all of that unfolding?

William Spriggs: In United States, we chose a very weird path and this is because we have made a fetish of the market. And even when we disrupt the market, we expect the market to correct itself despite our disruption. So in the US, we just said, shut it down. Now we’re used to doing that and please do not interpret this as I think we should open everything up and let’s just all get the virus and die. That would be equally stupid. But in the past, when we said shut things down, because we knew a hurricane was coming, it’s because the hurricane will be over in two days or three days. We should have been used to the idea that maybe things could be worse than a two- or three-day event. I was astounded when we were shutting down restaurants and no one raised their hand and said, “I understand you’re going to shut it down, but what’s the plan?”

In Europe, on the other hand, because they are used to tripartite negotiations, to bring workers and management together, so we can figure out how we’re going to do this. The workers in some countries have to give up some of their vacation days, but, essentially, they came together, not making a fetish of the market. They came together and said, how do we hibernate?

I am convinced Europe is going to come out of this far better than the United States because they don’t have this fetish. Germany’s unemployment rate, for example, may be 6% or 7%, as they open up. Real projected for the United States is going to be in double digits for the rest of this year. This failure to plan is frightening to me, but it highlights this fetish for the market. We just threw money around and hoped that the market was allocating it correctly, including the paycheck protection program, which we just threw it all small businesses. We didn’t target the small businesses that actually got shut shutdown.

Rob Johnson: There’s a lot of trust or faith in the ideas that the market produces economic justice that I find quite troubling. The use of marginal productivity theory creates a notion that economic justice is when you get paid your marginal product. If you get paid more than that, you’re subsidized. If you get paid less than that, you’re exploited. But if you look at the marginal product notion, as embedded as legitimacy, what you see is that people don’t make enough money to have an adequate livelihood for themselves, their family, their future, their retirement, their health.

I think you have to go back to that marginal product and recognize that it’s not solely about the individual. That the context of health, education, experience, and relationships that help you become professionally vital, is actually the product of a system design. Therefore, we are all responsible jointly for that systemic failure, not just the individual being an underperformer.

William Spriggs: The deep problem is the one you mentioned, which is, it’s a belief in a system that has justice to it, that there’s an ethics to it. I accuse economists of actually practicing a religion because beyond the justice, there’s a kind of virtue to it and there’s a belief that the market delivers this as a kind of impartial judge.

Picking out the virtuous from the not virtuous and therefore, in the American context, there’s the element of punishment. So those who don’t do well have, in a way, sinned against the system and therefore we get to punish them.

The odd thing in this debate around the $600, that was added to the weekly unemployment check, Congress was confronted with a difficulty that our state unemployment systems are so antiquated. The simplest thing was to say, look in most States, the average maximum benefit is close to $400. And the average earnings of an American worker are close to a thousand dollars a week, so we’re just going to add $600.

That would mean the average maximum benefit will be about what the average American makes. And then you have these people complaining because they’re saying, but if you give $600 a week, for many of the workers in the restaurant industry, that’s more than they make in a week, so they won’t want to work. So we need to punish them, so they will work.

When economists applied this to try and explain racial inequality, it’s a buy-in to a belief that the market would not discriminate and therefore that must be the case. There’s something deficient about Black workers, because if they’re being paid less, their marginal product must be less. And that part of the distortion in economics is almost inevitable, given that the first modern economists, the ones who set up the American economic association at the end of the 19th, beginning of the 20th century, were the brains behind eugenics in the United States.

They believed that races were scientific categories. It’s the end of the 19th, beginning of the 20th century, when you see Jim Crow come into being. A drop of Black blood meant you were Black. A state got to say, there are a group of people that we have marked that we can deny benefits, access, or anything else we want to, we get to do that. That’s legal.

When the modern city began to develop, the streetcar made suburbs possible. They allowed cities to spread in different ways, and that gave us the first modern housing tracks linked together with these streetcar lines meant you could suddenly have new open space to build homes. Many land developers put race covenants on the land and Norfolk, Virginia, as a weird little example, where Blacks owned the farmland around the city of Norfolk, some land developers bought land from these Black farmers.

The developers put race covenants to make sure that Black people would never again own the land. These developers wanted to make sure the land was segregated. Now, other landowners saw what an advantage that was. If you could assure segregated housing and they went to the city and said, we want residential zoning that segregates the city, because why should you only give these developers the ability to create segregated tracts?

Well, the Supreme Court in one of the weirdest decisions ever, looked at some of the cases that were involved because in the case of Richmond, Virginia, or Ashland, Virginia, they had this case where they had declared a block as segregated and therefore a Black person couldn’t move into the block if it was majority white. But what had happened was, a Black person had owned the land and had rented their house to a white person. And as the neighborhood became white, they actually profited from that. But then they ran into some difficulties and they wanted to come back to their own house. And the city said you can’t occupy your own house because this is now segregated, and Black people can’t live here.

The court decided, you can’t pass a zoning ordinance like that because you can’t limit the rights of the property owner in that way. So, the courts held, a city cannot do that, but if the landowner does it, they can do it. You could have racial covenants, but you couldn’t have city ordinances until the 1940s. In a case involving St. Louis, that Thurgood Marshall was able to finally argue, if the courts and the state are brought to bear to enforce this private action of segregating the neighborhood, that owner is relying on state action. And if the state itself couldn’t do it, then how is it that the individual owner could do it, because the state should not be able to enforce an action that the state itself could not do. He won that case. But that was in 1945, 1946. It took that long a time to finally establish that this ability to categorize people could be used differently than on housing.

You look at the segregation of occupations, for example. For many years, unions were segregated, a clear intent to collude, to change the market outcome, to give better benefits to whites. That’s the whole point of the collusion, and the economics profession looks at that entire history and looks at all those mechanisms and then sees the persistence of occupational segregation, of residential segregation, of disparities, and unemployment and marvels at it and says, “Oh, well, it must be differences in productivity.” And you go, “Wait, timeout. Don’t you know, this history?”

It makes it impossible for economists to explain some things because of that. Because, lower value must mean lower marginal productivity, you have to come up with some way in which Black people are inferior. The polite way of doing that is to say, well, the way that systemic racism works is Blacks are restricted in housing, which then restricts their schooling opportunities, which then makes them less productive and therefore employers are being objective.

I always scratch my head about this. They are willing to accept that there are actors who act with animus to create segregated housing and schools, but then when somebody goes to get a job, another set of people come in and these are objective honest people who don’t look at race? Where did they come from?

In another well-known example, the Black unemployment rate is twice the white unemployment rate. When you point that out to a lot of economists, they want to fall back on, “It’s differences in skills and ability.” But in 1972, the majority of Black workers attended segregated schools. Many of them lived in counties that would not have had high schools for Black people. So, you had a lot of people who didn’t finish high school. People only went to segregated schools and only a small number went to college. Fast forward to today and you see the change in the makeup of the Black workforce. A much higher share then went to integrated schools, a much higher share that went to high school and finished, and much higher share that go to college. And that unemployment rate stays two to one every month.

Every month, as the relative position of Blacks in terms of skills and abilities closes relative to whites, but job requirements are changing at that exact same rate. So, for the last 50 years, the skill attainment of Blacks has only been sufficient to match this unknown technological change, which doesn’t show up anywhere else, except to equilibrate this two to one ratio.

That’s a remarkable, constant. What happens is, when the economy does really well, then the unemployment rate for better educated Blacks will approximate the unemployment rate for only slightly less educated whites. When the economy is really hot, a Black person with an associate degree can get the unemployment rate for a white high school graduate. If you run it super-hot, then Black associate degree holders can get an unemployment rate lower than a white high school graduate. And so, you’re not closing the racial gap.

Rob Johnson: You’re looking at what I will call a stubborn false consciousness and a profession that’s defining and defending a framework because they’re looking through their maintained assumptions. It’s not really science, it’s more like a psychological projection, but we’re now in a place not only in the United States, but all around the world, in the aftermath of the death of George Floyd and “I can’t breathe,” where they are metaphorically storming the gates. How is society and how is the economics profession going to respond, to the depth and breadth of outrage around the world?

William Spriggs: This is where one would hope there would be a teachable moment. There are so few sports that are being broadcast. I’m assuming that a much higher share of Americans than before are watching premier league soccer from the UK. And you see on the back of the jerseys of the players, the UK Black Lives Matter. You see how this parallels the US, when you look at the athletes, they rely heavily on the talents of African descendant athletes in the UK, to play this very high level of soccer. But their protest, while it was in solidarity with the US, it was really about the UK. As in the US, they have had incidents of police misconduct. They have discrimination against people who are Bangladeshi because they’re Muslim, and discrimination against Blacks.

And it’s clear from their colonial history, they have in their minds decided there were countries that were populated by people who didn’t look like they were British, that Britain was superior to as a people and therefore could restrict and limit the rights of those people, as a colonial power. Now, immediately after World War II, they desperately needed those people. The war was devastating on the population of the UK and they desperately needed workers to come in and rebuild the UK and mind the ports and run the trains, and all of that. They are left with this population, which is the subject of those same colonial lines, those same demarcations of who can we discriminate against?

It’s not exactly the same context as the United States. They eerily have similar outcomes though. When you look at the Coronavirus outbreak in the UK and in the US, you see the death rates are twice as high, proportionately for Blacks in the US as they are in the UK. But you look at who does what in the UK and who does what in the US and you see these similarities, the people who drive the trains in the tube in London, they look like the people who drive the trains in New York. They look the same.

Many of these frontline public facing occupations repeat themselves. And even though they define race differently than in the US, it’s still the same concept of colluding against the group that we formally had designated we could deny things to. And you get the same outcome.

The disappointing thing is that the American domination of the economics profession is that Americans think that the concept of race has the same meaning everywhere, or that the color line is drawn at the same point everywhere. But once you understand that, no, the color line is drawn at different places. And sometimes not even on color. Some countries it’s on language, some countries it’s on religion, but there is a dominant group that gets to write the rules against the subordinate group. And they have some line that they have figured out and it gets repeated.

These institutions are different, but still, an accurate model would be, groups can collude. Across most countries we see evidence of collusion of the sort that we see in the US. Maybe that’s what we should be modeling. As economists, we know how to attack collusion. We know that there are policies that can make it more difficult to collude. There are conditions under which the collusion doesn’t work.

This is a moment when you see the Black Lives Matter Movement sweep throughout Europe and resonate, not just because they’re appalled by the United States, but they’re having an internal conversation.

Rob Johnson: Bill, you’ve talked about the nature of the recession and what you called recession squared. We took a very, very detailed tour of how things happen in the economics profession that impedes our capacity to address the questions of race. And then we went through the global phenomena in the aftermath of George Floyd’s death.

As we turn to the future, as we turn to being stewards for our children and their children, what kind of remedies, what kinds of things do you think are essential to put us onto a trajectory of a future that is both humane, nourishing, and hopeful?

William Spriggs: Well, I think a big clue was in the way you phrased the question and that is in economics, when you have handed over to the market everything, including the discount rate. And this is a huge mistake because if you make decisions, thinking of your children, your grandchildren, your great grandchildren of a great, great grandchildren, you’ll never meet, you need a different discount rate. We’ve stripped from our government, the ability to act on the behalf of the generations we’re never going to meet. It shows in thinking through global warming. I mean, that’s the most direct way in which we can understand it and having put this off for so long.

If we don’t correct ourselves now, then it’s actually going to be our grandchildren. We’re going to face catastrophe and it’s this fetish that particularly Americans have, and the American economy has with the market, the sense that the market is virtuous as it, the market embodies values, and it is truly a religion. And so therefore we don’t want the government to regulate it. There is a younger generation that does not want to accept the old excuses anymore. They want a true democracy and it will be a test whether Americans believe democracy is greater than the market. What is it that we truly believe in? And if we truly believe in a democracy, then we understand that the government has to serve the people.

I’m hopeful because this moment with the Black Lives Matter Movement has been encouraging. I was with the National Urban League in the nineties and had to confront police misconduct then. We were alone, really. I mean, there were some well-meaning people, but no one protested with the Black community at that time. And even not that long ago, when Eric Garner was murdered, and we had a video tape and he said, “I can’t breathe,” no one was with us, but this time people are with us. Everybody is protesting it. Everybody. I mean, in red States, blue States and places where there are no black people are protesting because they want to defend American democracy.

Rob Johnson: Bill, I want to thank you for being my guests today. I hope somewhere down the road you’ll come back and join me and we’ll do another episode of this podcast.

William Spriggs: Well, that’d be great.