Joakim Book

Freelance writer and globetrotter with an unhealthy addiction to financial history and all things money. #future #optimism #monpol #climate

Oct. 8, 2020
Published on: Medium: Joakim Book
8 min read

A seriously silly episode was just released by NPR’s Planet Money podcast. It features the Brookings Institute’s Andre Perry and his book from May this year: Know Your Price: Valuing Black Lives and Property in America’s Black Cities.

The episode deals with racial inequality in the U.S., and specifically about what we could call the “house equity gap,” to rival the more well-publicised “gender pay gap.” Controlling, like economists do, for observable differences between houses (size, bedrooms, crime rate or school ratings in the neighbourhood etc), Perry finds that black-majority neighbourhoods see house prices that are 23% below those of equivalent white-majority neighbourhoods.

Sound the alarm bells.

I mean: it worked for the gender-pay-gap crowd for a good few decades, and that myth is now thoroughly entrenched — why not take a successful move out of their playbook?

Perry calls these houses and neighbourhoods “devalued” and “undervalued” in a hopeless confusion of price, value, and individual preferences.

Right off the bat, we should ask ourselves if investors, home-owners, and prospective buyers all fell into a collective bout of madness. Really, they’ll happily pay about one-third more for housing for no reason whatsoever? Like the employers, managers and ruthlessly profit-seeking capitalists in the gender-wage-gap story who suddenly and collectively lost their minds: they could allegedly employ a woman for 79 cents on the dollar (or 84 or 93 or whatever the latest imaginary number is) — right off the bat saving one-quarter on labour costs! — but for some mysterious reason they aren’t? Do they not like money…? How come any man is still employed?

Of course, this is silly. The world of profit-hungry entrepreneurs and home-buyers on the lookout for a great deal didn’t just lose their minds. The thing is that the second clause of the famous claim “equal pay for equal work” usually doesn’t hold. Individuals, or in this case houses, are not homogenous goods that satisfies one and the same want for all prospective buyers. Whatever the reason might be is pretty irrelevant for an empirical economists studying and analysing the world.

Here an interview with Harvard’s Claudia Goldin, one of the foremost experts on gender in labour markets and specifically the gender pay gap:

The rhetoric of politicians, and policy prescriptions meant to close the gender wage gap, assume that pay disparities are created primarily by outright discrimination by employers, or by women’s lack of negotiation skills. Goldin has a less popular idea: that the pay gap arises not because men and women are paid differently for the same work, but because the labor market incentivizes them to work differently.

Or, you knowbiology. Or personal wants and desires.

A recent study of unionised bus operators by two researchers also from Harvard concluded that the observed pay gap in their sample

can be explained entirely by the fact that, while having the same choice sets in the workplace, women and men make different choices. […] Using W-4 filings to ascertain marital status and the presence of dependents, we show that women with dependents — especially single women — value time away from work more than men with dependents.

Shocking stuff, I know.

The issues are the same in both arguments: some third-party observer dislikes the market valuations that others made, and objects to how they and their trading partners go about things. Really.

This has been one of feminism’s many problems: on the one hand objecting to outcomes they perceive as unequal, and on the other hand respect that real-life women make choices that — at least in part — lead to these outcomes. Which is it — women’s choice or your choice? Women’s demonstrated preferences, or your quixotic ideology?

It seems that Perry wants to send us down a déjà vu of this exact “conflict,” substituting gender for ‘race’, but committing the same intellectual and statistical mistakes.

Markets aggregate other people’s values. Values are subjective; that is, they exist in the eye of the beholder and emerge in individuals’ minds. If a large enough share of the market (i.e. all of us buying and selling things) do not like something — for whatever flimsy or silly reason — that thing fetches lower prices, make fewer sales, both, or some combination of them.

Nobody would make this elementary mistake for other goods and services: a high-end bar or café can charge higher prices for the exact same liquid; a well-known tattoo-artist can charge higher prices for making “the same” art; more appreciated singers receive higher payments for their (vastly different) concerts; a sleek-designed iPhone fetches a higher price than an equally-functional Huawei. Things are not the same.

Throw ‘race’ or ‘gender’ into the mix and common sense, or even standard economic thinking, goes out the window.

Let me ridicule this fundamental economic mistake about others’ values with comedy. The stand-up bit is about a decade old and delivers the kind of humour that probably would have been cancelled today: Australian comedian Steve Hughes talking about gays:

I’ll admit: I have some homophobic friends. I know, none of us are supposed to be like that no more, ’cause in the age of political correctness — which is actually intellectual colonialism and psychological fascism for the creation of thought-crime — but… I have some homophobic friends and they’re very funny.

Hughes imitating others’ reaction: “What, they’re homophobic?! Well, they shouldn’t be!”

Hughes, smugly: “Well, they are.”

Others: “Wha… they should stop it!”

Hughes: “Well, they’re not.”

Others: “Well, they should.”

Hughes: “Well, you go and tell ‘em!”

You don’t like the values that others have? You don’t like that (White, Latinos, Asian or people of whatever flavour) Americans place a monetary discount for living in black-majority neighbourhoods? You don’t like the opinions and beliefs that other people hold or the choices, actions and behaviours they engage in? Great. What else is new?

But isn’t this Perry’s way of “telling them”?

No, he’s burying a simple message in a statistically ornamented survey: I don’t like what you value, think, or believe. Like Hughes’ imagined conversation partners object, Perry is saying: “You shouldn’t!”

Yes, Perry, they shouldn’t. But they are. Are you gonna tell ‘em?