The Economist has an interesting article on Sadie Alexander, who in 1921 became the first African-American to earn a PhD in economics. Her politics were not easy to pin down in today’s terms, as she favored a mix of Keynesian demand-side stimulus and black self-improvement.
Franklin Roosevelt attracted many black votes when he succeeded in boosting the economy after taking office in 1933. However, Alexander did not view his policies as an unmixed blessing:
Some policies designed to relieve the Depression neglected black workers. New pensions and unemployment insurance introduced in 1935 left out both servants and farm labourers. “It is clear that in his years of planning for Social Security of the common man, Mr Roosevelt never had in mind the security of the American Negro,” she said. Other policies made things worse. Many blacks in the South could get only jobs that whites did not want at pay they would not accept. When the National Industrial Recovery Act lifted the wages and prestige of these jobs, blacks lost them. Roosevelt’s national recovery act, she thought, might as well be called the “Negro Reduction Act”.
My research suggests that the National Industrial Recovery Act set back the recovery by several years, after the dollar devaluation of early 1933 had temporarily boosted output sharply.
FDR had two really bad ideas, the NIRA and his court packing proposal. It’s a testament to America’s checks and balances that the NIRA was thrown out by the Supreme Court in 1935 and his court packing proposal was rejected by an overwhelmingly Democratic Senate in 1937. On Wednesday, our system of government will have another opportunity to check a questionable power grab by the executive branch.
READER COMMENTS
David R. Henderson
Jan 4 2021 at 10:06pm
FDR was bad for black people in many other ways too. Here’s only a partial list.
Actually, I won’t give it. That will be one of my next blog posts.
Jeff G.
Jan 5 2021 at 12:03am
What exactly does the comment “When the National Industrial Recovery Act lifted the wages and prestige of these jobs, blacks lost them” mean? Was this essentially a minimum wage that made discrimination possible?
Robert D.
Jan 5 2021 at 1:30am
I’m sure others can speak more authoritatively than myself, but the minimum wage allowed employers to discriminate as I understand it. Before the NIRA, some jobs offered salaries white employees found unacceptable, and therefore the positions were often filled by black employees willing to work for lower pay. When NIRA artificially inflated wages, the pay reached a point sufficient to attract more white employees. This change caused an influx of white employees. Companies could now choose to hire white employees without paying a premium for their work. With the premium for white workers eliminated, racist employers could replace black employees with white employees without having the bear any extra costs.
Jens
Jan 5 2021 at 4:18am
That is interesting. Some Blacks have been deprived of income opportunities by the law. But that also showed that there are racist employers, right?
KevinDC
Jan 5 2021 at 11:05am
It can, but not necessarily. Employment decisions can be made along many margins. Employers who were only mildly racist would still be willing to hire black people if it helped them save on labor costs, which would give them a competitive edge over more racist employers who kept their labor costs unnecessarily high to indulge their racism. Requiring high wages didn’t just stop individual black workers from entering the market, it also took away the mechanism that allowed less racist organizations to hold an advantage over more racist ones.
But like I said, that’s just one margin. Other margins are things like work experience or education level or job skills. Generally, employers want workers with more of these, but those also drive up wages for that worker. An employer might choose to hire a less experienced or lower educated worker for a lower wage. Now, one of the effects of America’s history of slavery, racism, and Jim Crow is that black workers would have lower levels of all of these. Even if someone waved a magic wand and forever banished all racism from the hearts and minds of everyone forever, there would still be a problem. Employers would cease using race as a margin for these decisions, but work experience etc would still be relevant margins, and would still disproportionately disadvantage black people. And as long as the law still bans people from accepting lower wage jobs, this situation can get stuck. That is to say, the effects of these laws can lock in the effects of past racism, even if all racism was to have been completely eliminated.
To be clear, I am not claiming that no racist employers exist or that racism is in fact eliminated or anything of that nature. I am simply saying that even if that was the case, the negative effects of these laws would continue to disproportionately impact black Americans.
Jens
Jan 5 2021 at 2:44pm
Ah, I think I understand. From the employer’s point of view, there were certain non-price criteria that correlated positively with being white. Because of the fixed lower wage threshold, blacks lost the advantage of distinguishing themselves through low wage demands and therefore fell behind compared to whites. That makes sense. Perhaps it was even that especially with racist employers the price regulation had little effect on hiring behavior.
KevinDC
Jan 6 2021 at 12:52pm
Yes. In fact, here’s a simplified model that makes a similar point.
Imagine a society that has two kinds of workers – young workers, and old workers. Young workers tend to have lower levels of education and job experience, and old workers tend to have higher levels of these things. This society also has two kinds of jobs – entry level jobs, and experienced jobs. Entry level jobs are low paying, experienced jobs are high paying. It’s pretty clear that young workers will disproportionately be represented in entry level jobs and old workers will be disproportionally represented in experienced jobs.
What would happen if this society passed a law banning jobs from paying entry level wages? Which of these two groups would be most impacted? Obviously, young workers would be far more impacted. They would be far more likely to be priced out of the market than old workers, for reasons that would have nothing to do with any kind of anti-young ageism. This society could be 100% free of any ageism and the results would still come out the same. Now, if these education/experience factors correlated not with age, but with race, the laws would disproportionately impact whichever race had lower levels of education/experience, for the same reason. This would also be true even if every single person in that society was 100% free of any racial discrimination.
(Again, I’m not claiming that there is no racial discrimination in society – only claiming that even if we could magically eliminate all racism, these laws would continue to disproportionately disadvantage minorities. I wish I didn’t have to keep emphasizing this point but unfortunately there are some people who are determined to deliberately misunderstand what these arguments actually entail.)
Mark Z
Jan 5 2021 at 11:39am
Black employees tended to be less educated and less experienced and thus less skilled, especially in industrial jobs, and wage floors disproportionately rendered it ‘not worth it’ to hire unskilled (disproportionately black) employees. As I understand it, even though the NIRA did not establish a minimum wage, it did allow the president to require industries to pay ‘fair wages,’ so did effectively lead to industry-specific minimum wages. That doesn’t require an employer to be racist to induce him to reduce his employment of black laborers.
KevinDC
Jan 5 2021 at 7:24am
Robert D is pretty much spot on. Economists have long known that the disemployment effects of a minimum wage are not evenly distributed – they most heavily impact any disfavored minority group, such as racial minorities in a racist society. Today, the gap between black and white employment is large and persisting. But it didn’t used to be. Fifty years ago, there was no gap – not because America was less racist fifty years ago, but because in most of the country the minimum wage has been worn down by inflation to be essentially non-binding. (Which is to say, minimum wages were so low that they basically had no effect on employment because even the lowest market wages were still higher than the legal minimum wage.)
For a long time, the fact that the minimum wage had this effect was considered a good thing. Thomas Read, in his book Illiberal Reformers, records how the early Progressive movement explicitly advocated for minimum wages and various worker protection laws precisely because it would increase the cost of labor and drive “undesirables” out of employment. When John F. Kennedy was a Senator, he made the same argument – one of the benefits of raising the minimum wage was that it would give employers and incentive to replace black workers with white workers. Employers were willing to give jobs to black workers if it could lower their labor costs – so, the argument went, if we just make it against the law to work for a lower wage, then the employer, who now has to pay high wages regardless, will just go ahead and hire white people.
KevinDC
Jan 5 2021 at 9:48am
Correcting a typo – the fifth sentence should have read “Fifty years ago, there was no gap – not because America was less racist fifty years ago, but because in most of the country the minimum wage *had* been worn down by inflation to be essentially non-binding.” That is to say, when the minimum wage was low enough to be economically irrelevant, the black-white employment gap was basically nonexistent. As the minimum wage was pushed up, the gap got wider and wider. And to many minimum wage advocates of the time, this was a feature, not a bug.
Scott Sumner
Jan 5 2021 at 12:24pm
The NIRA forced employers to cut weekly hours worked by roughly 20% and to boost hourly pay by 20%.
Alan Goldhammer
Jan 5 2021 at 9:19am
Scott’s post is too simplistic in terms of how or if the NIRA impacted black workers. It is worth considering how ‘the great migration’ of blacks from the South to the industrial Midwest impacted things in terms of employment. While this did lead to improved standards of living and class mobility for those who moved and found employment, it was not all smooth sailing because of ongoing discrimination. It was not until the ground breaking Civil Rights legislation of the 1960s that much of this was corrected.
Sometimes Occam’s Razor does not apply. this is one of those.
Scott Sumner
Jan 5 2021 at 12:26pm
That’s wrong, most of the big economic gains for blacks (such as poverty reduction) occurred during 1940-64, before the 1964 Civil Rights Act took effect. Gains continued for a few more years, then things leveled off after about 1970.
robc
Jan 6 2021 at 6:33am
I have previously said that Branch Rickey had a bigger effect on civil rights than the CRA. Your statement backs me up.
Jon Murphy
Jan 5 2021 at 12:33pm
Thomas Leonard has a very thorough book on the effect of various policies on minorities in the US. I highly recommend it. The book, while published by an academic press (Princeton University Press) is very readable.
nobody.really
Jan 6 2021 at 1:43am
Did the 1964 Civil Rights Act trigger a rise in black welfare–or merely symbolize a rise that had largely already occurred? Though I disagree with Goldhammer with great reluctance…
In 1995, Robert Putnam published his essay (later expanded into a book) called Bowling Alone, noting how American social capital/cohesion had atrophied since roughly the 1950s. In 2020, Putnam followed up with The Upswing: How America Came Together a Century Ago and How We Can Do It Again. In this book, Putnam expands on his earlier thesis, noting how the stock of social capital/cohesion has followed a great wave. In the Gilded Age of the 1900s, America experienced vast economic disparities, along with violent social upheaval and assassinations. Then the Progressive Era began promoting social reforms, economic disparities dissipated, and social capital/cohesion grew until the 1960s. Thereafter the pattern reversed until we arrive at today’s levels of economic disparity and lack of social cohesion.
I mention this because, as part of this latest book, Putnam documents that black incomes, homeownership rates, school attendance, and voter registration rates started rapidly improving in the 1940s, and then slowed in the 1970s and 1980s. Mostly this reflects the fact that may black people left the South during this period. The migrants moved to places with higher living standards. And those who stayed behind benefitted from the labor shortages created by the northern migration, thereby raising black living standards in the South as well.
(Note, also, that throughout the Progressive Era, the US greatly restricted legal immigration. Is it an accident that the beginning of the decline in US social cohesion corresponds with the liberalizing of immigration laws? Calling Dr. Caplan….)
Scott Sumner
Jan 6 2021 at 1:46am
Good comment. I don’t think it’s just immigration, as social cohesion has also fallen in areas that don’t have many immigrants.
Mark Z
Jan 7 2021 at 12:53am
I wouldn’t necessarily expect political rights to correlate very well with economic well-being beyond certain basic rights like property ownership (Jews, Parsis, Overseas Chinese being extreme examples of this). Civil rights can make people much better off without making them financially richer, and poverty can arise and persist for reasons unrelated to civil rights. In fact those three examples all back up the idea that being urban rather than rural is more important to economic success than being equal.
Comments are closed.