Jun 23, 2020 - Economy & Business

Larry Kudlow fights statistics on black-white wealth gap

Larry Kudlow leans back while being interviewed by Jonathan Swan of Axios

Photo: "Axios on HBO"

White House economic adviser Larry Kudlow says he believes the wealth gap between black and white people has narrowed, and questioned statistics that show the gap now is as wide as it was in the 1960s.

Why it matters: In an interview with "Axios on HBO," President Trump's top economic adviser told Axios' Jonathan Swan that different measures of wealth suggest there has been progress — meaning the advice Trump is getting is out of sync with the conclusion of recent studies.

  • "I will not deny there's a significant wealth gap. I will deny that is not closing. I believe it is," Kudlow said.
  • Kudlow also acknowledged he was surprised "to some extent" by the inequities revealed by the coronavirus — including that African-Americans were dying of the coronavirus at twice the rate of white Americans, and that black-owned small businesses have been shuttering at twice the rate of white-owned small businesses.

Between the lines: One of the most influential recent studies, a 2018 paper published by the Federal Reserve Bank of Minneapolis, found that the median black household had only about 12% of the wealth of the median white household in 2016, the most recent data available.

  • The study found that the wealth gap narrowed in the 1990s and early 2000s, but then widened again after the 2008 financial crisis — when wealth plummeted for black households but stayed about the same for white households.
  • The study concluded that "virtually no progress has been made over the past 70 years in reducing the wealth inequality between black and white households."

Kudlow questioned the methodology of the studies, arguing that "you're going to see a much bigger narrowing of that spread" once tax reductions are counted because "we've had a lot of tax cuts." He also argued that "household net worth has soared."

  • The Federal Reserve Bank of Minneapolis paper acknowledged that "housing booms lead to substantial wealth gains for leveraged middle-class households and tend to decrease wealth inequality" — but added that the wealth gap widened when the housing boom of the 1990s and early 2000s ended.

After the interview, Kudlow sent Axios statistics that focused on the years since 2016, since that was the end point of the main study that found a persistent wealth gap.

  • The statistics from the Council of Economic Advisers suggested that real wealth for the bottom half of households — in which African Americans are overrepresented — grew 48% in the first three years of the Trump administration.
  • That's two and a half times the growth rate for real wealth for the top 1 percent of households — which grew 19% during the same period — and faster than real wealth for the bottom 50% of households grew during the Obama administration, per the CEA.
  • Our thought bubble, from Axios' Felix Salmon: Even using those statistics, the wealthy still advanced more — because they were growing from a higher base of wealth. The increase in the wealth of the top 1% was 15 times greater than the increase in the wealth of the bottom 50%.

In the interview, Kudlow also argued that opportunity zones — an initiative in the 2017 tax law that's supposed to attract investors to low-income neighborhoods — will make a difference.

  • "I think these opportunity zones, which have not been fully tried, are going to have a big impact. You got to give me five or 10 years for them to really play out."
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