Saturday, September 15, 2007

A Footnote to a Footnote

In "A Footnote..." I say this about black Americans' persistent achievement deficit:
If East Asians and Azhkenazic Jews could rise to the top of the IQ charts, as they have, why can't blacks rise too? [Thomas] Sowell would answer [e.g., here] that they could rise, if only they would break the bonds of the "black redneck" culture, which hinders so many of them. The law cannot break those bonds, for, as Sowell argues, the law only reinforces those bonds by making blacks dependent on the affirmative action, welfare programs, and other "white liberal" contrivances.
Whether blacks can break the bond of "black redneck" culture, is a good question. (Though, even if they could, it might not improve* their relative economic standing, on the whole.) Kerwin Kofi Charles, Erik Hurst, and Nikolai Roussanov, writing in an NBER working paper ("Conspicuous Consumption and Race"), say:
A large body of anecdotal evidence suggests that Blacks devote a larger share of their overall expenditure to consumption items that are readily visible to outside observers than do Whites. Automobiles, clothing, and jewelry are examples of these forms of "visible" consumption. There has to date, however, been little formal analysis by economists of the degree to which these racial differences in consumption patterns actually exist in the data, what accounts for them if they do, and what the consequences of any such differential expenditure might be. We address these questions in this paper.

The first part of our paper documents differences by race in expenditures devoted to visible consumption items. Using data from the Consumer Expenditure Survey (CEX) from the period of 1986-2002 [sample here: LC], we show that although, unconditionally, racial minorities and Whites spend approximately the same fraction of their resources on visible consumption, Blacks and Hispanics spend about thirty percent more on visible goods, after accounting for differences in permanent income. These expenditure differences are found within all sub-groups, except older households.

We find that these racial gaps have been relatively constant over the past seventeen years. And, we show that spending on housing or differential treatment in the housing market cannot explain these patterns. Finally, the gaps are economically large: the absolute level annual dollar differential for visible consumption is on the order of $2300, which is a non-trivial quantity given Black and Hispanic average income.

Because household spending must satisfy an inter-temporal budget constraint, spending devoted to visible consumption must be diverted from some alternative use. Reduced spending on specific types of current consumption on the one hand and lower savings (future consumption) on the other are the two possibilities. We show that the higher visible spending of racial minorities seems to come out of both future consumption and all other categories of current consumption: Blacks consume less than Whites in essentially every other expenditure category (aside from housing) to maintain higher visible consumption....

Strikingly, we find that, consistent with the status argument, there is a strong negative association between visible spending and the mean income of one’s reference group within all races....

We then turn to the obvious next step: Do differences in...income explain the racial expenditure gaps that are our main focus? In a series of regressions, we show that accounting for [relative income] explains most of the racial gap in visible spending...

Controlling for the mean income of one’s reference group at the state/race level dramatically reduces the measured difference in wealth holdings between similar Blacks and Whites. Specifically, roughly 60% of the unexplained racial gap in wealth holdings after controlling for permanent income and demographics is accounted for by average differences in reference group income...[I]t does appear that the mechanism that leads Blacks to consume more conspicuous
goods than their White counter parts could also explain some of the well documented Black-
White wealth gap.
So, the propensity for visible (exhibitionist) consumption varies inversely with socio-economic status. But, socio-economic status explains only 60 percent of the black-white wealth gap. That leaves a lot of room for the influence of "black redneck" culture. My question stands: Can blacks (on the whole) break the bonds of "black redneck" culture?
* This is a subtle reference to inherent racial differences in IQ, which I examine at length in the linked post. Following the lead of Arnold Kling, I hereby abandon subtlety.

I further direct you to this post by John Ray.