By Antonio Moore
As we celebrate Dr. Martin Luther King Jr.’s life and legacy this year, we need to understand that the current state of African American wealth in no way reflects what Dr. King envisioned when he spoke to America’s great promise before his death. The economic reality for black America has, in fact, become much worse than commonly thought.
A recent study by the Pew Research Center used data from the Federal Reserve Survey of Consumer Finance to show that the median white American household has 13 times the wealth of the median black household. But the data used to support this study’s bleak findings may have used accounting that actually understates the gap in wealth between white and black families.
New York University Professor Edward Wolff, one of the foremost economists studying wealth inequality, looks at the same Federal Reserve dataset that the Pew researchers used in a recent report he published in the National Bureau of Economic Research (paywall). Wolff points out that the Fed includes consumer durables in its net-worth estimates.
Wolff excludes these consumer durables from his net-worth figures because these assets — everything from automobiles and televisions to furniture and household appliances — cannot be readily converted to cash and their resale value typically far understates their consumption value.
According to Wolff’s calculations, the median black family is actually only worth $1,700 when you deduct these durables. In contrast, the median white family holds $116,800 of wealth using the same accounting methods. Black household wealth, Wolff adds, actually fell during the Great Recession from $6,700 to $1,700.
Some historical context: In South Africa, during the atrocities of apartheid, the median black family held about 7 percent of typical white South African family net worth. Today, using Wolff’s analysis, the median African American family holds a mere 1.5 percent of median white American family wealth.
As we celebrate Dr. Martin Luther King Jr. we must do so with an understanding that his life’s work was not completed with the accomplishment of the Civil Rights Act. Rather it was the opening for us all to move the discussion forward on how to reach racial equality.