On June 5, 2017, Raphael Bostic became the 15th president of the Federal Reserve Bank of Atlanta. This also made him the first African American president of any regional Fed in the US central bank’s 100-year history.
The Atlanta Fed is the main seat of the Federal Reserve’s sixth district, which covers all of Alabama, Florida, and Georgia, as well as parts of Tennessee, Louisiana, and Mississippi. Bostic’s role is to study trends in the economy, and oversee monetary policy activities and bank regulation in the region. This year he also became a voting member of the Fed’s main interest rate-setting body in Washington DC, the Federal Open Market Committee (FOMC).
The symbolism is stark. The states of the sixth district were at the heart of the country’s civil rights movement, culminating a little over half a century ago, in the Civil Rights Act affording black Americans the same rights as their white peers.
Progress since has been achingly slow. The gulf between the economic lives of black and white Americans is still staggeringly wide. For example, average household wealth for a black family is about $17,000, one-tenth of white household wealth. In some respects, racial inequality has gotten worse.
Bostic isn’t the first black person to be a member of the powerful FOMC, which sets US interest rates thereby influencing everything from government borrowing costs to mortgages rates. The first was Andrew Brimmer, a sharecropper’s son from Louisiana, who was educated in racially segregated schools. In 1966, Brimmer was appointed by president Lyndon Johnson to an eight-year term on the Fed’s board of governors.
In the intervening 43 years, just two other black people have served on the FOMC, both men—Emmett J. Rice and Roger W. Ferguson Jr. Two other men of color, Narayana Kocherlakota and Neel Kashkari, both of Indian descent, have served as heads of the Minneapolis Fed. That makes six non-whites out of a total of 235 people who have served on the Fed’s Board of Governors or been president of a regional Fed since it first met in 1914. It’s worth adding that just 16 women have ever been on the rate-setting committee, which is made up of the members of the board and a rotating schedule of regional Fed presidents.
This is part of Remaking Economics, a series exploring foundational changes to a field that shapes how we understand the world. Read the other parts about the re-education of Economics 101 and the reinvention of macroeconomics after the crash.
This lack of diversity at the very highest echelons of economic policymaking reflects a similar lack of diversity across the economics profession as a whole. It’s one that leads to a lack of attention to issues that specifically affect minorities in everything from economic research to the macroeconomic models used to understand the world to public policy decisions. But it also deprives economics, in general, of its best chance to serve the public most effectively. A narrow pipeline of economists has created a profession vulnerable to groupthink. Lacking the widest possible range of perspectives, life experiences, and expertise, the profession stands to miss crucial information, and make poor decisions. This is a charge that was laid on the Federal Reserve after the 2008 financial crisis.
How different would US economic policy be if people from ethnic minorities more consistently took part in policymaking? How different would policies be if the macroeconomic models they were founded on more fully reflected people’s lived experiences? A black man living in the US doesn’t need a research study to tell him his chances of good employment and decent credit are worse than for his white peers. But maybe a policymaker does.
The Fed’s blindspot
Bostic is an expert in housing and unfair lending practices. In the late 1990s, he worked at the Federal Reserve, where he won an award for his work on the Community Reinvestment Act. The CRA was introduced to reduce the discriminatory lending practices that resulted from redlining, a 1930s federal policy that marked areas that housed minorities as hazardous and restricted their access to mortgages. The CRA made banks lend money to the low- and moderate-income communities in which they were based. Bostic produced a major report on the CRA for Congress, based on a national survey that showed that these loans weren’t unduly high risk and were often also profitable.
Bostic spent most of his career after that at the University of Southern California honing his expertise on real estate and on how government policy affects access to mortgages. In 2009, in the aftermath of the bursting of the US housing bubble and the loss of 10 million homes to foreclosure, Bostic was appointed assistant secretary for policy development and research at the Department of Housing and Urban Development to help the Obama administration respond to the crisis. In his own words, he says he’s spent his career “focused on issues of getting access to capital, credit, and services to communities that haven’t had them.”
Limited access to credit is an issue that resonates amongst black people in the US. Decades of official discriminatory practices have forced many into the arms of opportunists and predators, who target black people with unsuitable and high-interest loans. Subprime mortgages were a recent catastrophic example. Even today, black-owned businesses find it harder to access credit than their white-owned counterparts.
The 1913 act that created the Federal Reserve system was keenly aware of the need to be representative. That’s why there are 12 regional Feds and why people on their boards had to represent the interests of agriculture, commerce, industry, services, labor, and consumers. Legislators understood that the experience and needs of different states and different facets of the economy required varied insights and policies to steer their future growth and development.
About a century later, that focus on diversity hasn’t extended to racial diversity. Kocherlakota, the former president of the Minneapolis Fed, said in 2016 that the Fed’s structure is designed to enforce diversity but doesn’t achieve this goal. Race, which is a major source of disparity in US economic life, was often missing from conversations. In 2010, when the unemployment rate of black Americans was several percentage points higher than white Americans during the recession, Fed meeting transcripts showed no evidence that this particular problem was discussed, Kocherlakota wrote in a blog post.
The lack of diversity among Fed officials might have been part of the reason the central bank didn’t spot the financial crisis brewing, according to William Spriggs, an economics professor at Howard University. “If the Fed had noticed in the latter half of 2007 that Latino and African American unemployment rates were rising, it might have understood a significant problem was on the horizon,” Spriggs said in a statement to a congressional committee (pdf) in late 2016. Subprime mortgage lenders targeted the black community and later the collapse in home values, consumption, and employment among this group, who were hit hardest and fastest, should have served as a warning of what was to come.
After the financial crisis, a clause of the Dodd-Frank financial reform law attempted to enforce more diversity by requiring certain institutions—including the Federal Reserve—to set up offices for minority and women inclusion. More recently, Janet Yellen, the Fed’s first female chair, regularly spoke about the issue and introduced the central bank’s first diversity and inclusion plan in 2016. Her successor, Jerome Powell, affirmed the importance of diversity during his Senate confirmation hearings in November last year. But a subsequent wave of appointments to senior Fed positions have all been white.
Donald Trump appointed Richard Clarida as vice-chairman and Michelle Bowman to another open position on the board. Powell approved the appointment of central bank insider John Williams to lead the New York Fed, the most powerful of the regional central banks, continuing a 108-year tradition of white male leadership.
Regional Fed presidents are chosen by search committees made up of board members, but their recent choices have focused minds on the opaque recruiting process for these top roles. These important positions have to be filled from the top of the economics profession where the pool of non-white people is sparse. A Freedom of Information request by Bloomberg to the Richmond Fed found that when they were looking for a new president they reached out to 70 community groups focused on diversity and inclusion but it delivered “minimal direct results.”
The culture of economics
Half a century ago, the American Economic Association, a prestigious 133-year-old society dedicated to encouraging the careers and research of economists, set up the Committee on the Status of Minority Groups in the Economics Profession in response to concerns that minorities were underrepresented. These concerns are just as relevant today. Estimates suggest that less than 8% of full-time faculty in university economics departments come from ethnic minorities. The numbers go on in this manner, persisting across all academic stages of economics from undergraduates to doctorates. About 15% of economic bachelor’s and master’s degrees awarded in 2016 went to minorities, and just 10% of doctorates.
Over the past 20 years, the proportion of Hispanics earning degrees in the US, and specifically economics degrees, has risen as their population has increased. Not so for African Americans. The black proportion of the US population has remained relatively stable over the past two decades, at about 13%, but the proportion of black students studying economics has fallen over this time, from 6.4% to 5.1%, even as it increased for other subjects. (The proportion of black students taking STEM subjects has stagnated at about 7%.) Of the 539 economics doctorates awarded in 2017 to US citizens or permanent residents, just 18 went to African Americans, according to data from the National Science Foundation. Though the economics profession is bigger than just the ranks of PhDs, it is a good measure of trends in the field.
Cecilia Elena Rouse is the Dean of the Woodrow Wilson School of Public and International Affairs at Princeton University and served as chair of the AEA’s committee on minority groups for nine of the past 13 years. She said the profession is finally waking up to the fact that women and minority groups are making gains in other fields, but not in economics. And it shows that the problem can’t be because they don’t have the right math or technical skills. “There’s something about the culture of economics,” she said.
As a prominent black female economist, Rouse is not one of many—just 52 black women earned economics doctorates between 2006 and 2015, according to the New York Times citing data from the National Economics Association. This is barely more than the 46 black women who earned them in the previous decade, according to the same research. In the past 15 years, more than twice as many people have visited the International Space Station.
The trickle of black people in America earning doctorates in economics is precisely why Raphael Bostic and Cecilia Rouse are in such small company. This problem can be traced back to Econ 101, the popular introductory economics class in college, according to Ebonya Washington, an economics professor at Yale and currently co-chair of the AEA’s minority committee. “Our problem in economics is the perception of what economists do and are,” Washington said. “For undergraduates, they are thinking Wall Street, they are thinking stocks and bonds. They are not thinking if I’m interested in education policy actually a background in economics would be a very good thing.”
Economics’ image problem spilled into wider public view last summer when the senior thesis of Alice Wu, then an undergraduate student at UC Berkeley, laid out the rampant sexism in the economics profession. It sparked countless columns on why there aren’t more women in economics and testimonies from female economists who have persevered in the profession, despite facing routine humiliation, harassment, and aggression. Mary Daly, the new head of the San Francisco Fed, recently told an audience in London about one of her first major presentations at the central bank. Daly, who despite dropping out of college at 15 went on to earn a doctorate and joined the San Francisco Fed’s research team in 1996, said that after the presentation a senior male leader at the bank said to her: “That was amazing—I didn’t expect that. You’re such a little, tiny woman. Who knew?”
Far from just building up a pipeline of diverse economists, there also needs to be a fundamental change to the culture of economics, Daly said. So far, it has failed to be inclusive. Since the very public PR disaster Wu’s thesis created for economics there have been some high-level changes. In April, the AEA set up a new Committee on Equity, Diversity, and Professional Conduct. Daly said the Fed’s board of governors hired an outside consultancy to teach them how to run “safer” meetings and policy discussions so that all voices can be heard.
Changing the narrative
Andre Perry, a fellow at the Brookings Institute in Washington, DC and an expert in education policy, is exploring a different approach to research about race and economics. Right now, too much of the research he sees within the broader economics profession on race embodies what he describes as a “deficit narrative,” which focuses on the disparities between white people and people of color. This approach can create assumptions that somehow black people are to blame for their lack of equality, he argues.
The prevailing narrative about inequality doesn’t inspire much hope or aspiration because the aggregate numbers are so bleak. In addition to the disparities in household wealth, the median household income for whites is almost double that of blacks, while the homeownership rate is 30 percentage points higher. Perry believes the deficit narrative can portray black communities as in need of being saved or not worthy of investment. His latest research aims to encourage investment in black communities for the simple reason that they are assets worth investing in. “There are aspects in these communities that investors need to build upon, for all the other reasons why people invest,” he said.
Perry’s research discards comparisons to white people and focuses on what’s happening in majority-black cities in the US. He found there are 1,200 places in the US with a majority African American population. About 700 of these are small rural locations but the rest are larger cities and almost all of them are on the east coast or in the south. In 124 of these places, the median household income for a black family is higher than the national average for all races. He’s also mapped out the areas with a high proportion of black residents with STEM degrees, for example in Atlanta, around Washington, DC, Maryland, and Virginia, and the areas surrounding New York City.
There is evidence that racial bias has deterred investment in majority black areas. While the federal policy that led to the segregation has officially ended, in reality segregation still persists. Perry’s latest research with other colleagues from Brookings found that owner-occupied homes in black neighborhoods are undervalued by $48,000 per home, on average. Homes in neighborhoods where the population is 50% black are valued at roughly half the price as homes in neighborhoods with no black residents. A white woman in a town just south of Atlanta has been so distressed by the lack of business investment into her majority black town that she’s been leading a movement to create a breakaway municipality of whiter wealth (she says it’s because she wants a Cheesecake Factory to open there).
The areas aren’t worthy of investment simply because they are majority black, but being majority black is part of the reason why they have been starved of investment. Perry’s approach is a win for companies looking for people and places to invest in. And it’s a win for underserved black communities that can use the investments to revitalize and grow their cities. “While we have a greater ability to look at differences across racial lines, we haven’t advanced our ability to see assets in black communities,” Perry said.
Perry grew up in Wilkinsburg, a small city adjacent to Pittsburgh in Pennsylvania. More than 60% of the population is black and less than 40% of the households in Wilkinsburg own the houses they live in. “I want to make a case for Wilkinsburg,” Perry said. “There are a lot of positive things in it. This city does not get the capital investment of other cities, quite frankly, because it’s majority black.”
Even though the research Perry is undertaking is rare, we can occasionally catch glimpses of a future of economics that is more diverse and gives more consideration to inclusive ways to sustain economic growth and global well-being. Many students are demanding to learn more about the real economy and less about abstract theories. Raj Chetty, an economics professor and expert in economic mobility, offered a course at Stanford called “Using Big Data to Solve Economic and Social Problems” and drew more women and minority students to his global, socially minded approach than the total number of students who signed up for Stanford’s introductory economics class.
But before this promising future is reached there’s still the present to contend with. As Bostic of the Atlanta Fed noted in a speech in September, there are fewer than 25 African American economics doctoral students on the market for junior academic economic positions in the US this year. Twenty five. In the whole country. This obviously cannot make even a dent in the longstanding shortfall, he said. A lot still has to change.