The Legacy of Liberalism

By John C. Goodman

Saturday, August 31, 2013

The 50 year anniversary of Martin Luther King's march on Washington is causing a lot of people in my generation to reminisce.

In doing so, it is hard not to be struck by two puzzling facts: (a) the fall of racial barriers to success almost everywhere and (b) the lack of economic progress in the black community as a whole, relative to whites. On the one hand, it would seem that a black in America can achieve almost anything, even being elected president of the United States. On the other hand, if we compare the economic condition of blacks and whites as a whole, you would be tempted to conclude that almost no progress has been made.

For example, blogger Brad Plummer reminds us that:

    · The gap in household income between blacks and whites hasn't really narrowed at all in the last 50 years.

    · The black unemployment rate has consistently been twice as high as the white unemployment rate for 50 years.

    · For the past 50 years, black unemployment has almost always been at recession levels.

This incongruity has given rise to two liberal myths — repeated frequently on television talk shows over the past week: (a) that the fall in racial barriers is the result of liberal legislation, designed to outlaw discrimination in the private sector and (b) that the lack of economic progress is evidence that liberals haven't done enough — that still more intervention is needed to correct the effects of current and past discrimination.

The reality I believe is just the reverse. The decline of racial barriers in the job market and throughout the economic system — at least outside the south — had very little to do with liberal legislation. But the lack of economic progress by the black community as a whole is in many ways the result of the liberal approach to politics. On balance, liberalism has been an obstacle to black progress, not a help.

The natural assumption is to believe that a lot of labor market regulation is preventing discrimination — against blacks and other minorities, against women, against…Well, against just about everybody who isn't a young, white male with an Ivy League degree. However, June O'Neill, an economist who used to direct the Congressional Budget Office, and her husband Dave O'Neill have produced a comprehensive study of this issue and they find that the natural assumption is wrong.

Take the 1964 Civil Rights Act. The O'Neills find that the black/white wage gap was narrowing at about the same rate in the two decades leading up to the passage of the act as it did in the years that followed. Only in the South is there evidence that the legislation mattered. Outside the South, federal legislation basically followed social change rather than lead it. The wages of blacks rose relative to those of whites over time for two primary reasons: (1) more schooling and better schooling and (2) the migration of blacks out of the South.

[The approach of the Kennedy White House to race relations, by the way, was similar to the way Bill Clinton and Barrack Obama approached gay rights. One is tempted to call it "cowardly." In all these cases, the politicians waited until public opinion had clearly shifted before announcing their own change of heart and before doing or saying anything that would be considered politically risky. In other words, these presidents didn't lead. They followed.]

But isn't there a lot of discrimination going on right now? Isn't regulation combatting it? Take the difference in pay for black and white men. The O'Neills find that the difference narrows to just 4% after adjusting for years of schooling and it reduces to zero when you factor in test scores on the Armed Forces Qualification Test (AFQT), which is basically an intelligence test. In other words, after adjusting for just two factors that cause people to be different, the pay gap between black and white men disappears entirely. Among women, the gap actually reverses after adjusting for education and AFQT scores. Black women get paid more than white women.

Among Hispanic and white men, the pay gap narrows to 8% after adjusting for years of schooling and disappears altogether with the addition of AFQT scores. Among the women, these two variables cause the pay gap to reverse. As in the case of race, Hispanic women are actually paid somewhat more than white women.

But if discrimination isn't holding back black Americans, what is? Answer: the liberal economics.

The political genius of Roosevelt was to combine people who had nothing in common and who didn't even like each other into one grand coalition. This included farmers, labor union members, civil servants, the elderly, southern racists, blacks, etc. [Yes, black and white racists in the South both voted Democrat for years!] For each group, the liberal Democrat approach was to use the power of government to intervene in the marketplace. In return they expected political support. For example, the farmers got price supports; the steel workers got tariffs; the elderly got Social Security, etc.

In the Franklin Roosevelt era, the Interstate Commerce Commission (ICC) became a cartel agent for the trucking industry as well as the railroads. The Civil Aeronautics Board became a cartel agent for the airlines. The Federal Communications Commission (FCC) became a cartel agent for the broadcasters. The primary goal of all these agencies was to suppress "ruinous competition" and make sure the industries were profitable. Of course, you could argue (and some economists did) that regulation served the interest of both consumers and producers — a viewpoint that largely rejects almost everything Adam Smith said in the Wealth of Nations. However, even the pretense of consumer protection was blatantly tossed aside with the passage of the National Industrial Recovery Act.

The goal of the NIRA (modeled after Italian fascism) was to allow each industry to set its own prices, set its own wages and control its own output. Had Roosevelt gotten his way, we would have had predatory monopolies in every market. Fortunately, the NIRA was declared unconstitutional by the Supreme Court. But suppose the court had ruled the other way? Or suppose president Roosevelt had succeeded in his effort to overturn the decision by packing the court? Can you imagine what would have happened to blacks, immigrants, other minorities and any new entrants to the labor market?

Almost all government intervention in the labor market was designed to help establish unions (the modern equivalent of medieval guilds) and to promote their interests. Minimum wage laws were seen not as a way of lifting people out of poverty, but as a way of preventing blacks and other outsiders from competing for jobs. Skilled labor competes against unskilled labor. And the political goal of skilled labor has always been to price its competition out of the market.

Similarly, equal-pay-for-equal-work laws and the Davis Bacon Act (requiring that all workers on federal projects be paid the prevailing union wage) were seen as ways to prevent black workers from "stealing" white worker's jobs. In the old days, before there was "political correctness," politicians actually said these things in congressional debates.

What I'm describing contradicts not only Adam Smith, but also almost all of modern economics. Special monopoly privileges designed for one group create benefits for that group, but harm everyone else. And the harm to society as a whole is inevitably much greater than the benefits to the special interests.

That's where black Americans come in. Liberal government promises them a pittance or two. But these are mere crumbs compared to the harm of being closed out of huge portions of the labor market. Of being forced to send their children to bad schools because they cannot afford the price of an expensive house. Of being denied the right to choose better schools for their children because of counter promises made to the teacher's unions. Of being forced to rely on public provision of housing, transportation, and medical care because government regulation has priced low-cost alternatives out of the market. Of being seduced by a welfare state that subsidizes and enables single black mothers who try to provide for the 73% of all black children who are born out of wedlock. Of watching traditional black culture disintegrate along with the black family.

Here is background reading:

On the Democrats' unholy history on the question of race, see Bruce Bartlett, Wrong on Race: The Democratic Party's Buried Past.

On the consequences of liberal policies for black America, see Walter Williams, The State Against Blacks and other writings.

On an editorial that makes some of these same points, see Dr. Ben Carson, MLK Would Be Alarmed by Black-on-Black Violence, Lack of Family Values.