Freedom, Markets, and Well-Being Fall 2022

Darity on Inequality


Piketty is worried about societies dominated by inherited wealth. Hamilton and Darity describe such a society: ours! More specifically, they attribute the inequalities in wealth across racial groups mostly to inheritance. They seek to refute an alternative explanation, namely, that inequalities in wealth across racial groups are due to cultural factors.

The Culture of Poverty Theory

The culture of poverty theory holds that the racial wealth gap is due to the so-called culture of poverty. The idea is that the members of the poorer racial groups are poor because they make worse financial decisions and they value education less than the members of the wealthier racial groups do. The solution to the problem, assuming this diagnosis is correct, is to encourage personal responsibility and to expand access to higher education.

Hamilton and Darity think the diagnosis is wrong: indicators of good financial decisions, such as savings and non-secured debt, are pretty much the same across racial groups (Hamilton and Darity 2017, 61–62). Furthermore, the solutions proposed do not work. Nagging people to be more responsible is futile and access to higher education does not address inequalities in income, much less inequalities in wealth.

Our report (Hamilton et al., 2014) highlights that the median wealth for Black families whose head earned a college degree is only about two-thirds of the median wealth of White families whose head dropped out of high school—it amounts to a difference of more than $10,000 ($34,700 vs. $23,400). A college degree is positively associated with wealth within race, but it does little to address the massive wealth gap across race. It is noteworthy that a “good” job is not the great equalizer either. Income-poor White families have more wealth than middle-income Black families ($15,000 vs. $13,800). The typical White family whose head is unemployed has nearly twice the wealth as the typical Black family whose head is employed full-time (about $23,000 vs. $12,000). The typical Black family whose head is unemployed has zero wealth to deal with their financial calamity (Hamilton et al., 2014). (Hamilton and Darity 2017, 69)

Warning: be careful with the sentence about college education not mattering. Imagine comparing the wealth of a recent college graduate with that of a fifty year old plumber who has been working for thirty years and owns a home. The older person is going to have more wealth than the recent college graduate regardless of race: he has savings and a house! We need to be sure we are comparing people at similar stages of their lives, not just putting Black college graduates up against white non-college graduates.

In any event, Hamilton and Darity have a different diagnosis. They think inequalities in wealth across racial groups are due to inheritance. The solution they propose is to build wealth directly through what they call Baby Bonds. Everyone born into a family without much wealth would get one of these bonds; they would be used at age 18 specifically for “asset-enhancing endeavors” such as purchasing a house, starting a business, or financing higher education (Hamilton and Darity 2017, 71).

What is the main part of the story?

I said that I was troubled by this paper’s lack of focus. There is a fact to be explained: Black people have much less wealth than non-Hispanic White people. There is a straightforward explanation of this fact: how much wealth you have largely depends on what you inherited from your family and it should be clear to anyone with even a cursory familiarity with history why this would lead to the distribution of wealth across racial groups in America that we see.

That’s a tidy story. And it fits pretty nicely with the proposed solution of baby bonds.

It is not an exclusively racial story. Poor white people should have the same problem. And, indeed, baby bonds are not addressed solely to the members of any particular racial group. If we just look at the part of the population in poverty, the benefits will mostly go to non-Hispanic Whites since they make up the largest group living in poverty.1 Again, the solution fits the problem. It just is not as much about race as you might have thought it would be.

It is harder to fit some of the other things they say into a tidy story. For example, it is true that dominant groups seek to maintain their place in the economic hierarchy. But it is hard to get from that truth to an explanation of the distribution of wealth across racial lines. It would be surprising if there were no relationship. It is just that it is hard to say exactly what it is. For example, you have to explain why the racial group with the most political power did not block Asians from earning the highest incomes. You also have to explain why there are poor non-Hispanic White people. “It’s easy! It’s class!” you say. And I agree, except for the “it’s easy” part. My point is that this is a different story. And it is going to be complicated when you start mixing race and class as explanations of the observed facts.

Finally, there is a problem that David noted. If the explanation of the racial wealth gap is that the powerful steal from those who have less power, then baby bonds aren’t the right solution. The entrenched groups will just steal them. You would need a solution on the political or legal levels. And you probably do need to do something like that! I am just saying that if that is the diagnosis of the problem, then baby bonds cannot be the whole solution for the reasons David gave.

I think there is a lot of interesting material in the paper to explain why upward economic mobility is harder for Black families than it is for poor non-Hispanic White families. The list is long and every point on it seems valid to me. All I wish to say is that it is hard to disentangle all of that from the simple inheritance story. More importantly, isn’t clear how far baby bonds go towards addressing those other factors. For example, stereotype threat is going to continue to exist even with baby bonds.

One last point. I think that stratification economics has a lot of truth to it. One thing I think it implies is that politically powerful groups will always exist and they will always try to entrench their position in the social hierarchy at the expense of others. If you buy that, you can engage in an imaginative exercise to see where it goes. Suppose the US solved the racial wealth gap. What will happen next, assuming stratification economics is correct? Will that be as bad as the current racial wealth gap is? If not, why not?


Hamilton, Darrick, and William A. Darity. 2017. “The Political Economy of Education, Financial Literacy, and the Racial Wealth Gap.” Federal Reserve Bank of St. Louis Review 99 (1): 59–76. doi:10.20955/r.2017.59-76.
Shrider, Emily A., Melissa Kollar, Frances Chen, and Jessica Semega. 2021. “Income and Poverty in the United States: 2020.” Washington, D.C.: U.S. Census Bureau.

  1. In 2020, the poverty rate for non-Hispanic Whites was 8.2 percent while the poverty rate for Blacks was 19.5 percent. However, non-Hispanic Whites in poverty outnumber Blacks in poverty by 7.5 million: 15.9 million to 8.4 million (Shrider et al. 2021, 16).↩︎