You're a minority, it's not your fault


iconThere's a new study out that shows women and minorities are hardest hit by the wealth gap. Apparently there is only so much wealth to go around and of course, it's all white people's fault for selfishly hording all the goodies to themselves.

"Wealth is a measure of cumulative advantage or disadvantage," said Roderick Harrison, a researcher at the Joint Center for Political and Economic Studies, a Washington think tank that focuses on black issues. "The fact that black and Hispanic wealth is a fraction of white wealth also reflects a history of discrimination." [...]

Roberto Suro, director of the Pew Hispanic Center, said the accumulation of wealth allows low-income families to rise into the middle class and "have some kind of assets beyond next week's paychecks."

"Having more assets enabled whites to ride out the jobless recovery better," he said.

The whole problem with their study is that it relies on the fallacy that there is only so much wealth to go around. But of course, there isn't. Wealth is not finite and can be created or destroyed. Allow me to give you an example.

Steve works in IT. He builds computers and works with hardware and software. James works as a carpenter and builds furniture. Now, Steve could build his own table, but it would probably take 6 months of trial and error. Also, Steve's table would be wobbly and probably not last a year before it fell apart. James doesn't know much about computers, but he could probably learn to build a computer. It would take him months of studying and the computer would probably not run very well. But through specialization, Steve and James can take advantage of each others labor. Steve could build a computer for James in as little as a week. Likewise it would cost only have as much and run twice as well than if James had tried to do the work himself. On the other hand, James could build Steve's table in a week. It also would cost half as much and would stand the test of time.

By exchanging goods, Steve gets his table and James gets his computer. They also save more than 5 months of labor and untold hundreds of dollars. The spare time and money gives both Steve and James a tremendous economic benefit. In short, by engaging in an economic transaction, they have created wealth for each other. They both have more free time and more money available, and their economic output is greater than it would have been had they not used specialization. Since time is money, both Steve and James can now spend the benefit as the please; including building more tables and more computers to sell for other goods and services.

Albeit oversimplified, this is how economies create wealth. In a sense, the big pot of money gets even bigger. Those getting the largest shares are those who provide the most desirable economic benefit to their fellow man. It has everything to do with hard work and education and nothing to do with race. Evidence of this is the fact that a large share of entrepreneurs and small business owners in America are immigrants. Victimization is not the answer.



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Slight correction, the pot of money doesn't get bigger. Money isn't wealth. If anything, it matches the amount specialization to the time to organize a project. Its limited supply keeps too many people from calling on specialists at once. You want just enough so there's no idle specialists, but no waiting lists either.

Your example bypassed the use of money entirely, and in fact pressured the Fed to sell debt to reduce the money supply, causing alarm at the NYT and probably will aid in defeating Bush.

Posted by: Ron Hardin at October 19, 2004 9:46 AM

You are right, money isn't wealth. But it does act as a placeholder for wealth.

Posted by: Ravenwood at October 19, 2004 9:56 AM

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