Bad decisions are color blind

Pax Arcana

Last week we wrote about how many star athletes go broke despite the inordinate compensation they receive for being born all jumpy and strong and stuff. What we didn’t cover are the racial subtexts to that discussion.

We didn’t write about that because this is a blog — and not a particularly good one — and blogs are not the place to develop a sophisticated exegesis of race and culture.

That said, we can point you to this article in the Atlantic Monthly, by former Reason editor Virginia Postrel, which sheds some light on that discussion. Postrel traces the work of a few economists who studied variations in spending by white people and black people. The economists found that black people spend far more as a percentage of income on things like cars, jewelry, and clothes, while white people of the same means spent a greater percentage on higher education, health care, and their homes.

So that means there’s some pervasive element of black culture that makes them spend stupidly, right?

Wrong.

Once factors like housing costs and geography were statistically factored out, racial differences in spending trends disappeared:

To test this idea, the economists compared the spending patterns of people of the same race in different states—say, blacks in Alabama versus blacks in Massachusetts, or whites in South Carolina versus whites in California. Sure enough, all else being equal (including one’s own income), an individual spent more of his income on visible goods as his racial group’s income went down. African Americans don’t necessarily have different tastes from whites. They’re just poorer, on average. In places where blacks in general have more money, individual black people feel less pressure to prove their wealth.

The same is true for whites. Controlling for differences in housing costs, an increase of $10,000 in the mean income for white households—about like going from South Carolina to California—leads to a 13 percent decrease in spending on visible goods. “Take a $100,000-a-year person in Alabama and a $100,000 person in Boston,” says Hurst. “The $100,000 person in Alabama does more visible consumption than the $100,000 person in Massachusetts.” That’s why a diamond-crusted Rolex screams “nouveau riche.” It signals that the owner came from a poor group and has something to prove.

Now back to your regularly-scheduled blog content, in which we recognize that the differences between black and white are nothing compared to the difference between smart people and most of us:

Inconspicuous Consumption [The Atlantic]

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