There is no such thing as economic equality

“Who is creating equal. I’m trying to find the equation.” — Louie Bagz

Byron Allen, a black billionaire media business owner, appeared on Fox Business News today sharing his insights on economic equality.  Economic equality has been one of the major topics during the last five or six weeks since the death of George Floyd last May.  At first glance, you could argue that Mr Floyd’s death had nothing to do with economics and that the media’s highlighting of the plight of black people in the American economy is another angle to either drive up ratings by keeping the story hot or to keep the American public distracted from other undercurrents.  Frankly I think it’s a bit of both.  Conflating an economic argument with an act of horrific brutality gives Emmy and Pulitzer chasing journalists something more to talk about.

On the flip side, you can make an argument that Mr Floyd’s death was related to economics based on an economic decision he made that tragically led to his death.  Mr Floyd was trying to make a purchase with a counterfeit twenty-dollar bill.  Somewhere in his decision matrix he concluded that his optimal currency for use in exchange for some other good or service was a dollar bill not recognized as legal tender in the United States.

But currency connotes more than just money in circulation.  The amount of currency one is in possession of transmits a message about the value that an individual brings to market.  Is this individual willing and able to pay for goods and services that I have in my inventory such that I am willing and able to supply such goods and services?  In Mr Floyd’s case that value, at that moment in time, may have been zero.  But did that necessarily mean he was not economically equal to the merchant he wanted to trade with or anyone else for that matter?  I would argue no for the simple reason that there is no such thing as economic equality.

Let’s first define “economic.”  Economic, which is derived from “economy”, entails the management of income and production.  To be economic is to derive and apply certain rules regarding the management of resources in order to achieve some targeted income or production goal.  An economy is a system of rules or decision-making matrices that determine how wealth and income are to be distributed and how production is to be managed.

“Equality” is to do or to make something equal.  Two or more items are said to be equal when they are of the same quantity, size, or value.  Two or more individuals may be considered equal where they have the same abilities, rights, or rank.  But can Mr Floyd’s decision-making matrix be equal to mine?  Would his approach to deciding between producing more bread versus producing more wine equally reflect mine? For the simple reason that no two people are alike I would conclude that economic equality does not exist because no two economic decision-making systems for income, output, and wealth are alike or can be alike.

Can we find economic equality on a macro or national level?  Specifically, can we find economic equality between Anglo-Americans and Afro-Americans?  Again, just like on the individual level, you won’t find the non-existent.  Anglo-Americans, as a collective, follow the rules of income, wealth, and production as determined by a minority made up of political, banking, and religious elites for the benefit of the masses to the extent sharing those benefits with the masses protects the interests of the elite.  After acquiring by force land, minerals, and waterways, Anglo-Americans were able to apply technology and free labor to build an economy and refine a political economy that applied rules of wealth distribution for its people.

Afro-Americans were not at the table when the rules of acquisition and distribution were made.  You cannot enjoy economic equality when you were never the author of the economy’s rules.

But even if Afro-Americans had garnered a sufficient amount of land and other resources such that they could design their own economy, would there be “economic equality”?  I would argue no because differences in lineage, history, environment, and values, to name a few characteristics, would likely create a decision matrix different to those of Anglo-America.  Even if per capita production and quality of goods and services were on par, I would argue that because of the difference in decision rules, both economies would not be equal.

And would it necessarily be a bad thing if both groups were not economically equal where each group decided via its own standards how best to distribute income and wealth?

Of banks and the politics of coronavirus support …

Politics of banking

Earlier today, the chairman of the U.S. House of Representatives Select Sub-committee on the Coronavirus Crisis, James Clyburn, Democrat of South Carolina, sent a letter to Steven Mnuchin, Secretary of the United States Department of the Treasury, and Jovita Carranza, Administrator of the Small Business Administration, requesting that Treasury and the SBA take steps to ensure that $130 billion remaining under the Paycheck Protection Program and Health Care Enhancement Act (PPP) are allocated to businesses truly in need and that both agencies increase the level of transparency about the recipients of funds that have already been expended.

According to the letter sent by Chairman Clyburn, Congress is concerned that with no clear guidance issued by either the Treasury Department or the SBA, larger businesses that already had lending relationships with banks that distributed the funding, would be first in line for the lion share of funds.  It was partly due to this fear that Congress followed up the Coronavirus Aid, Relief and Economic Security Act (CARES Act) with the Paycheck Protection Program and Health Care Enhancement Act, which provided an additional $310 billion in funding and set aside $60 billion to be distributed by community lenders with a track record for lending money to smaller borrowers.

The political controversy surrounding the support program is spawned by Chairman Clyburn’s that banks release the names of all recipients of paycheck protection program funding.  Republicans apparently have not signed off on this request given the lack of Republican signatures on Chairman Clyburn’s letter.  In addition, Secretary Mnuchin has referred to the requested information as proprietary, a description that Chairman Clyburn does not agree with.

The issue appears more a political one than a market one.  Neither demand or supply for these funds are the result of economic interaction between the seeker of loanable funds and provider but more the result of government imposed shutdowns, and the resulting slowdown in the economy as social distancing and quarantines have reduced foot traffic in restaurants, stores, and automobile showrooms to a halt and in a number of cases has caused businesses to seek bankruptcy protection.

The big banks, including J.P. Morgan Chase, Bank of America, Truist, Citibank, and Wells Fargo have been called out by critics for hooking up larger businesses with more established relationships versus the mom and pop with ten employees on the verge of shut down.

But as Paul Miller of Miller & Co. LLP shared in a post on BloombergTax.com, there are alternative sources of funding for small businesses out there.  They include:

  • The Employee Retention Credit;
  • Local and state coronavirus resources (see http://www.fundera.com);
  • Crowd-funding;
  • Venture capital; and
  • Traditional lines of credit.