Cook Center Director William A. “Sandy” Darity Jr. and former Diversity Initiative for Tenure in Economics (DITE) fellow Stephan Lefebvre published a new article in the AEA Papers and Proceedings titled “Root Causes of the Racial Wealth Gap: A Critique of the Fed View”.
In this piece, Darity and Lefebvre challenge the Federal Reserve’s approach to explaining the Black–White wealth gap. The Fed’s model relies on an “expanded wealth concept,” which counts future income flows from Social Security and defined benefit pensions as current assets. According to the Fed, this framework reduces the size of the racial wealth gap and attributes it largely to differences in income shaped by individual decisions about education and family structure.
Darity and Lefebvre argue that this approach is misleading. They demonstrate that treating future income streams as wealth artificially distorts the picture of inequality. Even under the Fed’s expanded measure, they note, the absolute Black–White wealth gap actually increases. Using data from the Panel Study of Income Dynamics (PSID), they further show that parental wealth—not income or personal decision-making—better explains the intergenerational transmission of advantage and disadvantage.
Read the paper here: Root Causes of the Racial Wealth Gap: A Critique of the Fed View