November 07, 2013
Does that seem surprising? After all, people do choose to buy into the market voluntarily, why would African Americans and Hispanics buy stocks if the result was just to make white people richer? Well, I’m not talking about market manipulations, which may well have this result. I’m actually referring to an Urban Institute analysis of Social Security which was highlighted in an Economix blog post by Eduardo Porter.
This methodology compares the benefits that each group receives by decade, starting in the 1970s, with the taxes they pay into the system. It ignores the taxes that they paid into the system in prior decades. The result is that whites, primarily because they are older, receive more back relative to what they pay in each of the decades from the 1970s to 2030s.
While this is presented as a surprising result, it really should have been pretty self-evident. Imagine that we did the exact same sort of analysis with the stock market starting in the 1970s. We counted every dollar that a group received in dividends as a benefit as well as any net sales of stocks. In other words, the benefits for whites in the 1970s would be their dividends receipts, plus their net sales of stocks. Their payments into the system would be the net purchases of stocks.
Since whites already held large amounts of stock by the 1970s, their net purchases were probably small. It’s possible they were even negative. In this case, whites would be getting money back from the stock market even though they paid nothing into it. For both African Americans and Hispanics it is likely that they were net purchasers of stock, since relatively few African Americans and Hispanics owned much stock before 1970. Their dividend payouts in the 1970s would also be quite small.
If we looked at this ratio of benefits to payments into the system through the purchase of stock, it is virtually certain that the trade-off for whites would look much better for non-whites through the present and long into the future. By the Urban Institute methodology, non-whites are getting a bad deal from the stock market.
Is the comparison between the stock market and Social Security inappropriate? Suppose we had a privatized system where people were required to put 6.2 percent of their wages in a private account. We would be telling the exact same story.
Unfortunately there are many real issues of discrimination against African Americans and Hispanics in today’s economy. This story with Social Security is not one of them.
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