Wall St. and Business Wednesdays: E-Letter To Congressman Artur Davis (D-Ala.), Congressman Harold Ford (D-TN.), Congresswoman Barbara Lee (D-Ca.),Congressman Gregory Meeks (D-N.Y), Congressman David Scott (D-Ga.), Congresswoman Maxine Waters (D-Ca.), and Congressman Melvin Watt (D-NC.) Re: Blacks And The Wealth Distribution (July 21, 2003)
As members of the House Of Representatives Committee On Financial Services, I thought you handled yourselves reasonably well in your questioning of Federal Reserve Chairman Alan Greenspan at last week's hearing. Of course, as has been the case for years, I continue to be disappointed that the members of the Congressional Black Caucus (CBC) publicly demonstrate intellectual deference to others, such as Rep. Barney Frank, on monetary policy issues, and intentionally or unintentionally shelve some of the race-oriented implications of U.S. monetary policy in favor of making broader class-centered arguments. Certainly, I appreciate and enjoy Rep. Frank's colorful and usually informed presentations as much as anyone, but I am never in doubt that his passion and thinking results in him advocating on behalf of the concerns of establishment labor unions, rather than in favor of Black America's labor and capital interests. Sometimes the nuances of the Black economy intersect with establishment labor's interests, but in many important ways, they do not. I continue to hold out hope that the Congressional Black Caucus will view economic conditions from how they look from the ground in Black America, rather than from the perspective of professional interest groups hovering around the Capitol.
Liken, if you would, the United States Of America's economic wealth distribution to that of the shape of a pyramid. A small minority represented by the capstone, through their understanding and control of culture, economics and politics dominates the distribution of wealth in the country. But in terms of potential, it is the majority, below the capstone and at the bottom of the pyramid who really have the most "capital" - in its three principal forms - physical, financial and human (intellectual and manual labor). In this context, the United States Of America is a plutocracy, but a fragile one, always concerned about the potential disequilibrium that can cause the pyramid to come apart at the bottom. That likelihood for disequilibrium is best measured by the level of dissatisfaction, among the electorate, with the state of the economy. And while an overall uniform increase in such dissatisfaction can potentially lead to a revolution of the masses; it is more likely that a fall in position in the overall wealth distribution by one or more "groups" within the country, will be the precipitating event that causes the social fabric to deteriorate and fray, and confidence in government to fall precipitously. Usually the dissatisfaction of a society's uniform decrease of wealth, or the relative decline in position in the wealth distribution, experienced by one or more "groups" is never allowed to spiral out of control due to the stabilizing role played by leaders below the capital pyramid's capstone - cultural or political entrepreneurs - often with attachments to political parties, who manage the disequilibrium by speaking to the pain of the dissatisfied group and who, through real solutions or the illusion of rhetoric, are seen by the masses as addressing or obtaining "responsiveness" from the plutocracy, regarding the problem responsible for diminished wealth.
In the capital pyramid that I have described, politicians or political entrepreneurs, operating underneath the capstone, join and form teams, betting on pre-established ideas, or innovations on them, in a perpetual campaign to win the support of the masses. Depending upon the resonance and implications of the idea, the charisma of the political or cultural entrepreneur, and the unity and effectiveness of their network; those within the capstone - the plutocrats - will oppose or support the work of those claiming to solve endemic economic and political problems, to varying degrees. The plutocrats understand that dissent and opposition if it is controlled by them, but viewed as authentic by the masses, actually helps them maintain power. Managing disequilirium is more important to plutocrats than uniformity. In this sense, the goal is to maintain a status quo, not achieve complete domination.
I thought of this pyramid and process as I listened, during the hearings, to a couple of political entrepreneurs - members of Congress representing two schools of thought or "teams", underneath the capstone - who often amplify ideas that are labeled "radical" by the plutocracy's primary cultural medium to influence thought - the mainstream media. I am referring to Rep. Bernie Sanders (D-Vt.) and Rep. Ron Paul (R-Tx.) who, as your fellow members on the House Financial Services Committee, drilled Federal Reserve Chairman Alan Greenspan with blunt criticism and rhetorical questions at last week's hearing.
Their performance appeals to the White left and right extremes of the bottom of the capital pyramid - the socialists and the populists. For the socialists, and even moreso for the populists, the Federal Reserve, as an institution, represents the epitome of the plutocracy. Neither socialists or populists see the Federal Reserve as part of the federal government, but rather as an institution that represents the interests of a wealthy elite. Chairman Greenspan, is their spokesperson. As a reference point, Rep. Barney Frank, the political entrepreneur representing the interests of organized establishment labor, would publicly agree with much of the criticisms shared by both socialist and populist camps, but as a representative of establishment labor, maintains a working relationship with the plutocracy (his benefactors negotiate with and engage the most powerful corporations internally, and through enormous investments in the capital markets), and so he will never advocate that which will radically alter the wealth redistribution. Although all three men can be described as controlled opposition to the plutocracy; Rep. Frank's ideas and network - much more than those of either Rep. Paul or Rep. Sanders - are more overtly designed to make "deals" that stabilize or maintain the current distribution of wealth, not radically alter it.
I provide this schematic as a framework by which to make a point about the Black economy and why I think it is a mistake for members of the Congressional Black Caucus to intellectually defer on the subject of economics to establishment labor interest groups and the Washington D.C. area think-tanks that influence so much of the thinking of Democratic members of Congress - namely, the Brookings Institution and the Center on Budget and Policy Priorities (CBPP). And, while the socialist, populist, and certainly progressive camps can be helpful, and have much to offer in the way of ideas and a creative network to you (in your capacity as concerned and ambitious political entrepreneurs); they cannot individually or as a coalition solve the problem of the relative decline of Blacks in America's wealth distribution. You cannot make sustained progress taking their talking points and applying them to the Black economy. That is because unlike, the Congressional Black Caucus, these groups don't have a deep enough understanding of the cultural sentiment and indigenous markets and institutions that shape (and limit) thinking, behavior and unity in the Black community. Nor are any of these groups able to tolerate a race-centered discussion for extended periods of time. I would think in your extended individual and collective experience you can confirm what I am saying - that White socialists, progressives, populists and liberals at varying stages of dialogue and coalition are very uncomfortable with the subject of race. Yet and still, until the problems of the racial divide are adequately addressed and unless Blacks feel they have been addressed - it will be race more than class that results in the complete unraveling of the social fabric of this country. This country's original sin, for which it still has not atoned, revolves more around race than it does class.
It is no longer debatable that Blacks are currently experiencing a relatively greater decline in America's wealth distribution than any other group. While more and more Americans are finding themselves with less income and wealth, the relative position of Blacks in the wealth distribution is declining at an accelerating rate. We first pointed to this fact in April of 2001, in an e-letter to the Chicago Tribune, and in an October 2001 editorial, "Last Hired First Fired" after the Black unemployment rate jumped a full percentage point for Blacks while rising by only 0.1% for Whites, and continued disproportionately upward. Of the 2.6 million jobs lost over the last 28 months, 90% have been in the manufacturing sector with Black suffering a disproportionate loss of 300,000 manufacturing job losses. And although progressives, populists, socialists, and liberals will frequently ignore the racial nuances of the unemployment data that cut across class lines, it is white-collar Blacks as well as blue-collar that are suffering, to a relatively worse degree than their White counterparts. A recent article specifically dedicated to the Black decline in the wealth distribution, in the July 14, 2003 edition of BusinessWeek details how Black managers and professionals, especially those who work in financial services, are disproportionately losing jobs. An excerpt about a Black professor, Joseph McKenna, reads, "But the gains for blacks turned out to be more fragile than anyone realized. Since the stock market bubble burst in March, 2000, black unemployment has soared to nearly 11%, double that of whites. And it's not just less skilled blacks who got hurt. In 2002, the number of employed black managers and professionals fell, with much of the decline coming in financial services, where McKenna used to work. Meanwhile, the number of employed white managers and professionals continued to rise, including in financial services. 'Blacks have been disproportionately hit,' says Harvard Business School professor David Thomas."
And in a poll conducted by the Black think tank, the Joint Center for Political and Economic Studies, a cross section of Blacks, at rates alarmingly worse than Whites, expressed rapidly decreasing confidence in their economic standing, when compared to just a few years ago. When asked whether they were financially better off than a year before, worse off, or the same, Blacks, in October 2000, said that they were 45 percent better off, 10 percent worse off, and 44 percent the same. However in October 2002, only 18.9 percent said they were better off than a year earlier, while 36.7 percent stated they were worse off and 42.6 percent said their circumstances had not changed. And the disparity is not just with Black labor - blue collar or white collar. Naturally, as Blacks look to accumulate wealth through the increased use of financial instruments, disparities should also be expected to be found in the capital markets. Sure enough, last month, a detailed survey conducted by Ariel Capital Management Inc and Charles Schwab & Co showed that Blacks making $50,000 or more are exiting the stock market in the current bear market at striking levels, preferring to hold their money in cash.
I hope you will resist the temptation to view these statistics through only a narrow partisan lens. Not only would such a reaction be a betrayal of the mandate of the Congressional Black Caucus, it would lead to a serious mistake in judgment that would represent a blind spot that many Black partisans - Republican, Democrat or Independent - are suffering from as it relates to their understanding of a change that is underway in Black America. At the very same time, and I opine, as a continued result of the decline in Black America's relative position in the wealth distribution, Blacks are continuing to bet on "entrepreneurship", rather than "politics", as a vehicle to empowerment and overcoming the legacy of racial discrimination. I wrote about this paradigm shifty in May in my E-Letter to the New York Times and Daniel Altman Re: "Young Blacks Try Entrepreneurship". The New York Times, accurately, at the time, viewed the paradigm shift - as it relates to Blacks leaving corporate America (or being forced out) and starting their own businesses - in only anecdotal terms. That was just two months ago. Well, that powerful anecdotal evidence is now being supported by empirical data. Just last week the Kauffman foundation released a study that builds upon evidence which shows that Blacks are 50% more likely than any other demographic group to engage in business start-up activities. It was found by the study that venture-capital backed minority business enterprises are performing better than the S&P 500.
More is at work here than a simple "Clinton boom" turns to "Bush doom" scenario. If Black politicians are to avoid becoming increasingly viewed as irrelevant or even unpopular during this paradigm shift, they will have to become political entrepreneurs themselves, but those that bet more on economic ideas rather than partisan ones. You can become a valuable facilitator to this paradigm shift by setting partisan, progressive, liberal, socialist and populist economic analysis aside for a moment, and embracing a more Black-centered view of economics (free of the traditional labor-capital dichotomy); advancing capital accumulation and formation and focusing on the reality of Black America's "indigenous" markets and institutions.
You can begin by "betting" more on monetary policy and watching how Federal Reserve monetary policy affects the supply of capital and credit in Black America; and how the price of gold can represent a powerful leading indicator of what is happening with liquidity in America and the world (It has been 30 years since the Congressional Black Caucus has produced a leader who publicly demonstrated a deep understanding of this). You can also make a valuable contribution by being vigilant in monitoring how the Federal Reserve's institutional allegiance to disproved economic theory like the non-accelerating inflation rate of unemployment, or NAIRU (commonly referred to as the "Phillips Curve") guarantees a structural level of unemployment and therefore a permanent level of Black unemployment. Your colleague and fellow Black Caucus member, Rep. Jesse Jackson Jr., has shown great leadership in criticizing the Federal Reserve on this point.
On fiscal policy you should consider how taxes on capital negatively affect Black labor, capital, and those in between both, entrepreneurs. Mandating that the holding period on capital gains taxation exemption in distressed rural and urban areas be reduced to 6 months could foster a significant increase in private equity and venture capital investment in Black businesses.
On the regulatory side, your regular attention to the Community Reinvestment Act and redlining should be maintained, but with more attention to how the regulatory policies of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) negatively affect minority and Black-owned banks.
Lastly, the Congressional Black Caucus should use the bully-pulpit and its public visibility to trumpet the re-directing of the estimated $588.7 billion in 2000, and expected $852.8 billion in 2007, in Black consuming power toward Black-owned banks. The Black-owned banks, sprinkled across the country are the linchpin of any effort at developing financial intermediation in Black America. As I have mentioned before at BlackElectorate.com, academic studies show that Black-owned banks are more likely than White-controlled commercial banks to lend money to Blacks. Instead of just leaning on White institutions to do better in avoiding redlining, the CBC would do well to "greenline" Black communities by boldly encouraging Blacks to deposit their money in Black-owned banks (and to be a watchful eye preventing the regulatory oppression of these institutions). Did you know that the nation's largest Black-owned bank has only $500 million in assets? Or, that the top 25 Black-owned banks have only $3.6 billion in combined deposits?
I, and many others, I am sure, would love to see the Congressional Black Caucus convene a braintrust session and working group on improving the condition of Black-owned banks.
Perhaps you could use your upcoming and well-attended annual legislative conference to get the ball rolling. Interestingly, Baltimore, represented by Congressional Black Caucus Chairman Elijah Cummings is home to one of the largest concentrations of black-owned financial institutions in the country.
The problem of the worsening relative position of Blacks in America's wealth distribution, and developing solutions should become a top priority of the Congressional Black Caucus, free of the dictates or approval of the Democratic Party, coalition partners, think-tanks or interest groups. There are moments when 35 million Black people warrant special attention. If not the Congressional Black Caucus, who then, can we rely upon to provide it?
I would be more than willing to place the weight of the network and ideas of BlackElectorate.com behind any serious, comprehensive legislative and opinion-leading effort of the CBC to improve the increasingly desperate Black economy.
Editor's Note: This E-Letter first ran on July 21, 2003
Wednesday, January 19, 2005
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