“Equitable Growth in Conversation” is a recurring series where we talk with economists and other social scientists to help us better understand whether and how economic inequality affects economic growth and stability.

In this installment, Equitable Growth’s Research Director John Schmitt talks with economist William A. Darity Jr. (“Sandy”), the Samuel DuBois Cook Professor of Public Policy at Duke University’s Sanford School of Public Policy, about the importance of stratification economics in understanding U.S. economic growth and inequality. Read their conversation below.

John Schmitt: I have not too many questions, but hopefully we’ll have a good conversation. You are the founder of stratification economics, which you pioneered with a group that includes Darrick Hamilton, James Stewart, Gregory Price, and others. How would you describe the main features of stratification economics? And how would you differentiate them from the kind of standard, neoclassical economics that most of us were taught in graduate school or in undergraduate economics classes?

Sandy Darity: So, I think the core of stratification economics offers a structural rather than a behavioral explanation for economic inequality between socially identified groups—whether they’re racial groups, ethnic groups, gender groups, or groups that are differentiated on some other basis such as religious affiliation, for that matter. Stratification economics goes against the grain of trying to argue that the kinds of differences that we observe and economic outcomes are attributable to cultural practices or some forms of dysfunctional behavior on the part of the group that’s in the relatively inferior position.

We argue instead that economists and other social scientists have to look at social structures and policies to really explain why those differences exist. What might be unique about stratification economics is the particular way in which it offers the structural analysis of these kinds of inequalities, and that particular way is by focusing on the importance of relative group position from the standpoint of participants in our social world.

That persons compare themselves against others is based on research on happiness, which suggests that the major factor in determining whether a person reports feeling happy is actually their perception of their position in comparison with others—not their absolute position, but their relative position. What stratification economics brings on the scene is a specific view of exactly with whom individuals are comparing themselves.

Not only are folks making comparisons with individuals who they perceive as being part of their own social group, but they also are making comparisons about their group’s position.

The cross-group comparisons are made against the social groups that are “the other” for them. It’s those two sets of comparisons that drive behavior and drive people to actually act in ways that are supportive of the status of their relevant social group. I think traditional economics doesn’t pay much attention to the comparative dimension, and it certainly doesn’t pay much attention to the comparative dimension in terms of an individual’s sense of group identity or group affiliation.

I do want to add that a lot of this work is deeply collaborative. And I think it’s important that my collaborators be recognized, particularly [associate professor of economics and urban policy] Darrick Hamilton at the New School, Mark Paul, who is a postdoctoral fellow here at the Cook Center at Duke, and Khai Zaw, who is a statistical researcher at the Cook Center, who all have worked very closely with me.

And there’s a string of folks who have been involved in various dimensions of the development of stratification economics as a field, among them economists Greg Price [Morehouse College], James Stewart [Pennsylvania State University], Patrick Mason [Florida State University], Marie Mora [University of Texas at Rio Grande Valley], Alberto Dávila [University of Texas at Rio Grande Valley], Sue Stockly [Eastern New Mexico University], and Stephanie Seguino [University of Vermont].

So even though I don’t think stratification economics is sweeping the economics profession, there’s actually a significant core of folks who are embracing the approach, and, hopefully, the numbers will grow.

Schmitt: So, you make the comment about where conventional economics falls short. Can you give an example or two of a social or economic problem where you think that the tools developed in stratification economics give a better explanation for an economic or social phenomenon than the standard economics view?

Darity: One example would be the persistence of discrimination under competitive conditions. In standard economics, there’s very little room or terrain for trying to explain why we might observe sustained discriminatory practices by one group toward the other, particularly discriminatory practices that have economic content.

In stratification economics, it’s fairly straightforward to try to come up with an explanation that makes some sense. Because of the emphasis in stratification economics on what we might call tribal affiliation—or team affiliation or group affiliation—to the extent that people value those kinds of affiliations and the position of their team, group, or tribe, then they will engage in collaborative ways, whether those collaborative ways are fully conscious or whether they are implicit.

They’ll engage in collaborative ways to preserve the position of their group. And so discrimination can be something that’s sustained. And even more strongly than that, stratification economics would suggest that if the difference between the two groups narrows, the group on top will intensify its discriminatory practices. If it becomes harder to exclude the out-group because the out-group is becoming better educated or has other kinds of indicators that suggest that it is comparably productive to members of the in-group, then the in-group will intensify the degree of discrimination that it practices toward the out-group. I think that conventional economics would never actually see that phenomenon.

Schmitt: You’ve described stratification economics as combining influences from economics, sociology, and social psychology, and it’s obvious in a lot of what you just described about the persistence of discrimination. What led you to blend those things together? What are the influences or the ways that brought you to piece the various parts of this together?

Darity: You said at the outset that I was the founder of stratification economics—I think it’s maybe more accurate to say that I’m the person who gave this set of ideas a label. But I don’t think that these ideas originated with me, and I think that to a large extent, I’ve synthesized ideas from others. But I do think that these ideas from others are extremely powerful and influenced the way in which I began to think about this. I’ve long been wanting to bypass arguments for intergroup inequality that are predicated on the notion that there’s something fundamentally inferior about one of the two groups.

So from economics, for example, you could draw upon the work of the idiosyncratic early 20th century economist Thorstein Veblen, who, for example, in The Theory of the Leisure Class, talks about the significance of comparisons within your group versus comparisons vis-a-vis the group that is supposed to be outside of yours. And that translated into the forgotten theory of consumption—aggregate consumption in economics—that the late economist James Duesenberry developed, called the relative income hypothesis. People frequently discard that one when they think about theories of aggregate consumption, but that’s a body of work that influenced my way of thinking about some of these issues.

From sociology, I think that the most important contribution probably is Herbert Blumer’s 1958 essay on prejudice as a function of relative group position. He challenged the view that prejudice is something that we can identify as some sort of individual defect, arguing instead that prejudice is really something that’s functional for preserving or extending the relative position of an advantaged social group. That, to me, is very much stratification economics, without the label.

Then there’s a whole body of work about notions of individual productivity being influenced by the context in which people are performing tasks. This might include employment in a hostile workplace environment for an individual from a group that is subjected to stigma, which will affect the individual’s capacity to perform. And it’s not just the question of what educational credentials they have, or what kind of training they have, or what kind of motivation they have. It’s also a question of the atmosphere in which they are functioning. And so from social psychology, I took the phenomenon that has been developed by researchers such as Claude Steele [emeritus professor at Stanford and former vice chancellor and provost at the University of California, Berkeley] of stereotype threat as another dimension, or angle, for thinking about how individual productivity can be distorted or reduced as a consequence of the social climate that they face. In short, in the jargon we frequently use in economics, individual productivity is endogenous.

Schmitt: In a lot of your recent work, you’ve turned your attention to the issue of wealth inequality. What led you to make that a focus? And what do you think are the most important findings from that research?

Darity: My turn to the focus on wealth inequality came about for two reasons. One is because of an increasing recognition that these types of disparities are the most important indicator of differences in economic well-being. The second reason is because the work that I have begun to do on reparations kept pointing me back to the racial wealth gap as the most important manifestation of the effects of racism and discrimination over time in the United States.

Those two considerations kept directing me toward an emphasis on wealth inequality. But it is also my sense that all economic inequalities—particularly group-based economic inequalities unfortunately—have been assigned to be the purview of labor economists.

Of course, the work that labor economists do can point us toward some explanations for disparities that are associated with earnings and occupational status, but their perspective doesn’t take us very far in explaining wealth inequalities.

Stratification economics offered a relatively simple but, I think, much more powerful explanation for why we observe wealth inequality in general but also wealth inequality by race. One of the big findings that has emerged from our work, which is now being replicated in other people’s research, is a very simple but important conclusion that education in and of itself does not eliminate racial economic disparity.

There are tons of people who focus on education as the answer. I certainly think improving education for everyone is a great idea, but it’s not going to close the racial wealth gap. Thus far, it has not eliminated discriminatory differences in wages or in unemployment rates. Simply put, education is far from enough to solve the kinds of disparities that we are concerned about.

Schmitt: You did your Ph.D. at the Massachusetts Institute of Technology in the late 1970s, so you’ve been in the business for a little while. What’s your take on how the economics profession has developed, say over the past 30 years or so? Do you think that it is moving in a good direction, bad direction, indifferent? Do you think it is more or less open to some of the ideas that we’ve been talking about right now?

Darity: That’s a tough one. I don’t know that in my experience it’s been particularly open to any of these ideas. I think that there’s been a greater receptiveness or interest in these ideas from scholars in other disciplines. To be frank, I think that the economics profession has a certain anti-intellectualism. That’s a pretty strong statement, but I mean that in the sense that if you think about intellectual activity as involving wide-ranging curiosity and also wide-ranging interests in research unbounded by disciplinary lines, I think the economists are very, very inclined to be somewhat incurious and to treat every problem from the standpoint of a fixed package of ideas.

In that sense, I think there’s a certain anti-intellectualism, and therefore, very little receptiveness to ideas that go outside of the standard box. I’m not sure the conditions are a lot different now in the economics profession; I mean, there’s a sense in which I think it’s long been that way, particularly ever since the quantification revolution in economics that largely was spearheaded by one of my mentors, [the late Nobel Laureate] Paul Samuelson. The process of making economics appear to be more of a mathematical science was accompanied by driving out some of the more interesting ideas and approaches, rather than incorporating them into the process of making it a mathematical science.

Schmitt: Do you take any comfort from the rise of informational economics, or search models, or the rise of the importance of behavioral economics?

Darity: If you are talking about search models that are associated with search and employment, I’m not a real enthusiast for imperfectionism. Because the implication is that if we did not have those frictions, if we did not have those imperfections, then everything would be glorious. But it is my view that a smoothly functioning market economy would still generate high degrees of inequality, and certain kinds of inequities, because those processes pay very little attention to inherited advantages and disadvantages. I don’t necessarily see imperfectionist approaches as providing a solution. I particularly don’t like search theories of unemployment because I think what they say is people are out of work because they are looking for work, rather than people are looking for work because they are out of work.

Stratification economics actually attempts to be somewhat of a departure from behavioral economics. Behavioral economics, to my way of understanding it, suggests that people actually behave irrationally, and so it’s trying to explore and understand irrational behavior, whereas the whole historical thrust of much of economics has been oriented toward suggesting that there is rationality to people’s behavior. Stratification economics accepts the premise that there’s a rationality to behavior, but it also presumes that there is rationality to the behavior of social groups, as well as individuals. It’s a rationality that’s predicated on the notion that these groups frequently, or typically, act as if they view themselves as being in competition with one another.

Schmitt: One of the things that’s important for us at the Washington Center for Equitable Growth is to look at the rise of inequality from a high level, beginning at the end of the 1970s to an extremely high level now, based on almost any metric you want to use. Do you have a working model in your mind for what explains that big increase in inequality over this period? And do you have any guidance as to what policymakers could do to turn things around?

Darity: One of the things that I mentioned at the start of our conversation was the importance of social structures and policies. And I think that the run-up in inequality that we’ve observed in recent years is closely tied to a set of social policies that have produced virtually unlimited capacity to generate extraordinary levels of wealth. One is a form of profit sharing, which is what we call super salaries for high-level executives at the nation’s most highly resourced corporations. Another is the deregulation of the financial markets, while maintaining a moral hazard problem, in the sense that the investment bankers can anticipate that they’ll be bailed out in the event of a crisis. And a third is the reform of the tax system, where we’ve moved from having marginal tax rates for folks at the upper end of the income distribution, in the vicinity of 90 percent to less than 30 percent today. The Great Recession also contributed to a greater explosion or extension of inequality, both in wealth and in income.

In short, I think we can look directly at a set of policies and, more recently, at the advent of the Great Recession to understand the rise in economic inequality.

Schmitt: So my last question: Do you have any advice for a young person who wants to get a Ph.D. in economics? Or a Ph.D. in a social science? In particular, do you recommend studying economics?

Darity: I definitely don’t want to forsake the economics profession. I still have hope that there will be other, younger economists who will try to bring very fresh perspectives to the way in which we conduct economic research. I would encourage folks to go into the field, but I’d want them to have their eyes open. I think that they need to be very selective about which institutions they choose to attend to try to do their work.

If graduate students have ideas that are not conventional or are unorthodox, then they need to have their eyes set on trying to identify departments that have the flexibility and open-mindedness to allow them to pursue the kind of approaches that they want to undertake. There are some, and it’s not just departments that we view as being explicitly heterodox. I think that there are some departments that are more conventional, where there are faculty members who are extremely open-minded, in comparison with other places.

A new graduate student really has to make a very careful choice about which department to go to, and once there, who they should work with in that department. I would say that’s the research that needs to be done carefully, rather than telling people they shouldn’t go into economics.

Schmitt: Thank you so much, Sandy, for your time.

Darity: Thanks for inviting me to do this. Take care.