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Pusillanimous Prosperity: Why America's Economic Boom Rings Hollow for Blacks

To say that American politicians have their chests poked out over America's 109 consecutive months of economic growth may be an understatement. In major media outlets in print, radio, television and the internet, one can hardly bypass a story that doesn't make reference to America's prosperity. But closer to the streets and especially in the inner cities of Black America one is hard-pressed to come across the same sentiments.

The chasm between what is projected as the disbursement of widespread wealth and the harsh reality of urban life in Black America is increasingly evident though politicians and economists seem comfortable to cite statistic after statistic in order to support their claim that the longest economic expansion in American history is indeed a rising tide that lifts all boats. Indeed, the statistics do paint a picture. According to the U.S. Bureau of Labor of Statistics, the unemployment rate among Blacks has fallen from 11.7% in 1993 to 8.2% in 1998 to the current 7.9%. The drop in unemployment in White America has not even fallen as dramatically according to the same statistics, dropping from 5.8% to 4.1% during the same time period. For many this is evidence that Black America's historic position at the bottom of the economic ladder is coming to an end. But does the story that the numbers tell reflect reality? To some they do not.

Labor Economists Lawrence Katz and Alan Krueger have pointed out the fact that a record 1.7 million people are currently imprisoned in the U.S. They aptly note that prisoners are excluded from employment statistics and calculations and as a result, the level of American unemployment is not being correctly gauged. They argue that the proportion of the population behind bars since 1985 has doubled and that if this rate of incarceration were held constant, the current national unemployment rate of 4.1% would read 4.3%. But the implications of their analysis weigh most heavily in the Black community. Because more Blacks are incarcerated disproportionately,--according to Katz and Krueger's calculations-the Black unemployment rate would not be 7.9% but would read 9.4%.

Their argument brings into question the current explanation that Black employment is increasing because of the booming economy. Even monetary policy makers have accepted the said argument in unison and in a manner that seems to work against the unemployed. It is standard procedure for the Federal Reserve and its Chairman Alan Greenspan to track the unemployment rate and factor it into its monetary policy decision-making.

Quite simply, a low rate of unemployment, under 5%, is an indication to Greenspan and the Federal Reserve that the economy is growing too fast or "overheating" and that inflation may be on the rise as employees earn higher wages. A low rate of unemployment is used as a means to justify increasing interest rates in an attempt to slow down the economy. This policy, which correlates unemployment with inflation results in the Fed actually fighting to maintain an acceptable level of unemployment. To many this policy seems perverse.

Rep. Jesse Jackson (D-Ill.) is one of the leading opponents of the manner in which the Fed uses the unemployment rate in the formulation of its monetary policy. Jackson in a released statement said, "In fact, if the economy really begins to grow and unemployment begins to recede below five percent, Federal Reserve Chairman Alan Greenspan and the Federal Open Market Committee raise interest rates to slow the economy and reduce job creation, based upon the view that the economy is overheating. So just as the jobs begin to flow down, providing employment opportunities for former welfare recipients, Mr. Greenspan turns off the spigot." Rep. Jackson's sentiments have been echoed by labor unions and their principal monetary advocate in the U.S. Congress, Rep. Barney Frank (D-MA)

Furthermore, many believe that the study of unemployment itself is underdeveloped and far too unreliable to be relied upon to determine whether more or less money should be pumped into the U.S. economy. Interestingly, the Federal Reserve tightens its monetary policy when the "pool of available workers" begins to get smaller. The "pool of available workers" is made up of those officially referred to as unemployed and those who are available and capable of working but who are not actively looking for employment. But those looking at the unemployment numbers say the Fed's policies are misguided.

Economist and Polyconomics Inc. Vice-President David Gitlitz sees the Fed as struggling to account for the numbers of Americans moving into the ranks of the employed and the effect this is having on the U.S. economy. In a December report to his clients entitled, "How 'Tight' Is The Labor Market?" he wrote, " In the past year, some 2.7 million workers have been added to U.S. payrolls. During the same period, though, the "pool of available workers" has shrunk by about 460,000, to about 9.45 million. "Available workers" as defined by the Fed, in other words, explained only about 17% of the new jobs. A significant increment of the rest, estimated at about 1.5 million, was accounted for by normal expansion of the working-age population. But that still leaves some three-quarters of a million jobs that have not been captured by any of the usual measures of labor availability.

It appears that the bulk of this can be explained by a huge pool of potential human capital, more than 60 million people, that has been disregarded in all the hand wringing over the labor supply. This is the population over the age of 16 that is not counted as employed, looking for work, or out of the labor force but "available" to work. Obviously, a significant portion of these people will remain, for whatever reasons, untouched by the enticements of the labor market. But it is just as clear that the workforce now is tapping segments of the population that previously were considered "unemployable," and that the Fed has no idea to what extent this could continue to expand the labor supply."

Before the lowest rung of the economic ladder can be integrated into the U.S. economy the Federal Reserve is attempting to slow down the bank loans and investments that are required for the economy to expand and create jobs for millions of still-unemployed workers. When one takes into account the combined impact of an increased incarceration rate among Blacks and a Federal Reserve monetary policy that limits economic growth because it thinks that too many people are now finding jobs that previously couldn't, it is not hard to understand why so many Blacks feel they have been left behind in the last 109 months of economic growth.

Cedric Muhammad

Wednesday, April 5, 2000

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