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Interview with Glenn Loury

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Interview with Glenn Loury Glenn Loury Glenn Loury is an exceptional scholar, with important work in income inequality, public finance, discrimination, game theory, natural resource economics and other areas. He is also African American, a rarity in economics. While race has neither defined nor limited Loury’s scholarship, there is no question that it has influenced his path. His doctoral dissertation examined the dynamics of income inequality and argued that “continued racial economic disparities … reflect the social and economic consequences of historical inequity.” His model of income distribution included “social capital,” a notion that skills and earning potential are highly dependent on family and community background. “An individual’s social origin,” he wrote in 1976, “has an obvious and important effect on the amount of resources which are ultimately invested in his development.” That background, in turn, is shaped by history, which—in the United States—includes the enduring legacy of slavery and segregation. Income distribution is thus determined in part by factors with long residual impact well beyond individual ef- fort and innate ability. “The eradication of racial income differences [therefore requires] compensatory efforts,” wrote Loury, “within both the educational sphere and the world of work.” It was a powerful argument, and his skill in making it led to positions at Northwestern, then at the University of Michigan and, in 1982, at Harvard, its first African American economist with tenure. After a decade, Loury moved to Boston University, and since 2005, he has held a chair at Brown University in economics and social sciences. His research over these years has deepened within economics, earning him honors and wide recogni- tion in the field; it has also broadened far outside economics. That divergence was predictable, suggests Nobel laureate Robert Solow, his MIT thesis adviser. “It was clear to me [in the mid-‘70s] that he would be an outstanding economic theorist. But I think it was equally clear to both of us that there would be enormous pressures on him, as an eminent black in a highly technical, uniformly white field, to spend energy on other roles.” Indeed, Loury writes and speaks widely on topics as diverse as spirituality, U.S. incarceration, slavery repara- tions and self-censorship in political discourse. Despite this passionate participation in ongoing social debates, Solow observes, he continues “to produce cool analytical economics.” In the following interview, Loury covers a mere sliver of his wide-ranging scholarship. JUNE 2013 12 PHOTOGRAPH BY PETER TENZER JUNE 2013 The Region Region: You’re best known, of course, and benefits of acquiring human capital the way. Also things like, what do the for your work on income distribution, are marketable, traded commodities. In- peer groups hold in esteem? What do racial inequality and discrimination, so deed, many of these are not “commodi- people derive social benefits from ac- I’ll want to focus much of our conversa- ties” at all. Some of these external effects, complishing? tion on that research. But I hope we can I argued at that time, come about as a In short, I felt that the Beckerian char- also cover your research on why Pigou- consequence of the preexisting social re- acterization of employment discrimina- vian taxes alone can’t deal efficiently with lationships between people within fami- tion as merely an impediment in the externalities, on game theory and on ex- lies, social groups of various kinds, iden- marketplace because some people have a haustible resources. And I’d be remiss tity groups and racial “communities.” (I taste for discrimination was a somewhat as a Fed employee if I didn’t ask about put that word in inverted commas be- limited framework, on both the supply rotating savings and credit associations. cause I don’t mean only a geographically and demand side of the labor market. extended space. I mean a set of social On the demand side (employers, say), Loury: OK, this is going to be fun. networks.) those tastes don’t just come out of the air. My idea was that these networks They need to be accounted for in some SOCIAL CAPITAL AND EMPLOYMENT mediate the spillovers from the human way, so they’re really a product of their DISCRIMINATION capital investment one individual makes history, which in the United States in- onto the costs and benefits of similar in- cludes a history of slavery. Likewise, on Region: I suspect we won’t get to all that vestments of other individuals within the the supply side, the nature of the social material, but let’s begin with your re- same network. And that effect was not networks in which people are embedded search on labor market discrimination well-represented in the classical Becke- that influence their costs and benefits and social capital, if we could. rian framework. It was not only Becker, from human capital acquisition also de- Eminent economists before you— of course, who wrote about human capi- pend on history, identity, geography and Gary Becker and Ken Arrow, for ex- tal; it was [Theodore] Schultz, [Jacob] so forth. ample—had studied employment dis- Mincer and others as well. This school In the United States, race has a very crimination, of course. Becker, I believe, of thought simply posited—and I mean particular valence in that history. It’s not considered discrimination based on this not as criticism, but as observa- the same as gender or sexual orientation. employer tastes; Arrow based his theory tion—that, in effect, these human capital I’m not saying that racial discrimina- on the impact of limited information re- investments affecting their productivity tion is better; I’m not saying it’s worse. garding worker productivity. were based on inputs that people could I’m just saying that race is different from In your dissertation, you proposed a buy at a price if the returns justified their some of these other variables, in the con- new approach that focused on the im- acquisition. text of American history. portance of “social capital”—the term What I was after in my dissertation When European immigrant groups you used for family and community was to explain why it is that the African were fighting over the bottom rungs of background—for skill acquisition and Americans might lag behind, in an ex- the ladder with the black American mi- future earnings potential. Could you tended way, even after the equal oppor- grant groups coming into U.S. industrial describe that approach and what it sug- tunity regime of the Civil Rights bill was cities in the early part of the 20th cen- gested about economic policy to alleviate put into place. I was trying to say, “That’s tury, that was a historically specific kind racial discrimination in the workplace not enough. Equal opportunity of that of contestation. I just thought that an and improve income distribution? And, sort, while welcome and long overdue, abstract specification of an employer’s specifically, what it implied for policies is not enough to remedy the long-term disutility from hiring blacks, as Becker to ensure equality of opportunity. inequality problem.” had argued in his influential bookThe You could get stuck with the rem- Economics of Discrimination, didn’t get Loury: My principal point of departure nants of history because people are em- to the core of what was going on. when writing that dissertation in 1975 bedded in social networks, the nature of That’s the demand side of the la- and 1976, building on the work of Gary which reflects to some degree the effects bor market. On the supply side, I also Becker, was to “socialize” the human of past discrimination. Some commu- thought that standard theory—human capital investment decision. That is, I nities, because of their historical treat- capital theory—didn’t capture the full wanted to take explicit recognition of the ment, are impoverished with respect to impact of discrimination because one fact that the acquisition of human capital the human development resources that consequence of discrimination was to occurred in a social context. people must have access to if they are deprive individuals in the maltreated The insight there was that not all of to succeed in the labor market. I speak group of an opportunity fully to develop these external influences on the costs here not only of material resources, by their human potential. JUNE 2014 14 The Region African Americans might lag behind, in an extended way, even after the Civil Rights bill. Equal opportunity of that sort, while welcome and long overdue, is not enough to remedy long-term inequality. People are embedded in social networks, which reflect the effects of past discrimination. Region: What does that imply for policy ent variables on the right-hand side of group accountable for the fact that they to alleviate employment discrimination such a wage regression. have bad family structure? Is a failure based on race, in particular? Well, many of those right-hand-side to complete high school, or a history of variables are determined within the involvement in a drug-selling gang that Loury: Well, I’m not sure, in terms of very system of social interactions that led to a criminal record, part of what the what particular bill should Congress one wants to understand if one is to analyst should control for when explain- pass. But in terms of how to think about effectively explain large and persistent ing the racial wage gap—so that the un- policy, maybe the first thing it would earnings differences between groups. controlled gap is no longer taken as an say is, if I do see those deficits on the That is, on the average, schooling, work indication of the extent of unfair treat- supply side, which I do, then do a prop- experience, family structure or abil- ment of the group? er accounting.
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