E-Letter To The Chicago Tribune And James P. Miller Re: Black Joblessness Moving Back Up
We applaud you for so rapidly addressing the fragility of Black America's economic "boom" in your article, "Black Joblessness Moving Back Up". On Saturday morning, reading the new unemployment data, we immediately noticed what you did. While the unemployment rate had remained the same for White America at 3.7%, it had shot up over a full percentage point for Blacks rising from 7.5 % to 8.6%. For a full year now we have been writing that contrary to the Black establishment's constant bowing to Fed Chairman Alan Greenspan and President Bill Clinton, the Black community has been suffering in the last 8 years of America's "prosperity".
Even the unemployment numbers don't tell the whole story. As I am sure you know, labor economists Lawrence Katz and Alan Krueger have pointed out that the incarceration of Blacks over the last ten years artificially keeps the unemployment numbers down. They argue that the unemployment numbers should be almost a full two percentage points higher if prisoners were included in employment statistics and calculations. That would mean that Black unemployment is actually approaching 11%.
And the Black teenage unemployment rate is set to go through the roof because teenagers are the most sensitive of all Blacks to fluctuations in employment rates. As a consequence, if something is not done to reverse the trend no one should be surprised to see crime and transactions in the underground economy increase as Black teens and others attempt to obtain cash outside of the formal economy. In addition to Black teenagers we have little hope that the few Blacks who have left welfare and actually found decent jobs, will be able to hold on to them much longer.
The dramatic upswing in Black unemployment indicates how several factors are contributing to slow economic development and growth in the Black community.
First there is Alan Greenspan who believes that it is a bad thing when the unemployment level for America goes below 5%. He still adheres to an outdated Phillips Curve philosophy that posits that there exists a direct relationship between the rate of inflation, as measured by consumer price indices, and the level of unemployment. Never mind that this theory was disproved in the inflationary 1970s and the current deflation begun in the latter part of the 1990s.
So, Greenspan in a supposed war against inflation refuses to provide a sufficient amount of liquidity to the marketplace, even though the price of gold for 5 years has indicated that in fact, we have been in a deflation.
What does a deflation mean for the economy? It means that there is less money chasing more goods and services. It means that the supply of liquidity is insufficient to satisfy the demand for liquidity. It means that capital is scarce while labor is plentiful. And because the Black community relies disproportionately on its manual labor, it means that Blacks have the lowest capital to labor ratio of any group in the economy which is why on the margin, Blacks are feeling the deflationary squeeze before the rest of the American economy.
And it is not just Black laborers who are being crushed. The Black publicly traded firms, struggling to find liquidity, were driven down in value almost a full year before the most recent drop in the equities markets last month.
Now, as the unemployment statistics made clear last Friday, Black labor is catching the worst of the economic slowdown
As capital becomes more plentiful, available Black labor becomes more valuable and scarce as wages are bid upward and more people are employed. As capital becomes increasingly scarce, available labor becomes less valuable and plentiful, as wages are bid down and more and more Blacks are unemployed.
This scenario - scarce capital and plentiful labor - is what Black America is experiencing right now.
As your article makes clear, because Blacks are more dependent upon manufacturing, temp work and part-time jobs they are registering more quickly in the ranks of the unemployed.
But unemployment for these Blacks is only part of the problem. Another part of the problem is that because Blacks are more dependent upon debt to finance their purchases than any other ethnic group, they are being absolutely crushed in this deflation, having to pay back loans in 2001 with more valuable dollars than the ones that they borrowed in 1996 - in light of the fact that the price of gold has dropped from above $400 an ounce in 1996 to a current $ 257 per ounce. When one adds on the usurious rates of interest tacked on to the loans and credit purchases of Blacks, it becomes apparent that Blacks have to work twice as hard today in order to pay back money they "borrowed" in 1996.
And then there is fiscal policy.
Blacks, because of their dependence on labor, are the worst affected by the regressive payroll tax. And because Blacks are relatively capital-starved, the taxes applied to capital gains affect them the most, directly and indirectly, whether investors or laborers, as Black entrepreneurs are unable to attract venture capital and equity financing when a risk to reward evaluation is made by potential investors who compare these enterprises with other investment opportunities in the broader marketplace. These investors see too much risk and too little reward to pour capital into Black-owned businesses. As a result, less Blacks are hired by Black-owned enterprises which operate in Black communities but which lack the capital to expand their operations.
And then there is racism - the biggest barrier to capital formation. Banks continue to deny loans to Blacks simply on the basis of their skin color or because they live in a certain location.
But next to a deflationary Federal Reserve, tax and debt burdens, racism and redlining; the biggest barrier to capital formation in the Black community is imposed by Blacks themselves who do not do business with one another and who do not collectively provide capital to entrepreneurs in their own community.
Because of the lack of unity and the dearth of Black banks, venture capitalists and angel investors, numerous Black enterprises fail to receive the financial capital that enters the Black community, primarily in the form of after-tax earnings which leave the Black community within 1 to 24 hours after they enter Black hands.
By comparison, other communities circulate their after-tax earnings in their own communities for as long as 30 days.
What can be done?
First, pressure should continue to be applied to Alan Greenspan to provide liquidity to the economy through the direct purchases of government securities in the open market until the price of gold reaches $310 per ounce. Payroll taxes should be cut and the personal exemption on income tax should be raised from $500 to $2750 - just to keep up with the erosion in purchasing power caused by the monetary inflation of the 1970s. Raising the personal exemption would allow a family of four to pay no federal income tax on their first $35,000 of income. In addition, the capital gains tax should be reduced from 20 to 15% for all Americans and should be temporarily eliminated in America's distressed inner cities and rural areas, in order to provide enterprises operating within those communities with a comparative advantage. It also should be mandated that only a 12-month holding period be necessary for one to qualify for the zero cap gains exemption. And lastly, Blacks must collectively pool their resources and retained earnings and create financial institutions in their own communities which provide loans and make equity investments in Black businesses and entrepreneurs.
Only when capital is made more plentiful and barriers to capital formation are eliminated inside and outside of the Black community will the Black economy truly prosper.
Your article is a good one and should represent a red light for otherwise responsible Black leaders who have been asleep at the wheel when it comes to economic issues of import.
Hopefully they can awake in time to arrest the growing Black economic depression.
Wednesday, April 11, 2001