I spent more than three decades with the Federal Reserve System as an executive and as a widely cited research economist. My training was mainstream. I learned economics from leading scholars at Princeton and Harvard. As director of the research department at the Federal Reserve Bank of Boston, I attended dozens of the Fed’s monetary policymaking meetings—the Federal Open Market Committee meetings—in DC under each of the past five chairs, observing up close how the sausage is made. All of this was rewarding and fascinating.
Then, about 15 years ago, the Fed partnered with a host of institutions in midsized, postindustrial New England cities to figure out how to bring back economic vitality. I was fortunate to be involved in numerous in-person discussions with residents and leaders of these low-income, often majority-minority, communities. The more I learned about their lives, the more I became aware of gaps in mainstream economics.
The problem in these communities was not a lack of industry, perseverance, or innovation. It was structural. Simply put, the economy itself had set them up to fail by denying opportunities for success.
By 2013, I was now responsible for the Fed’s community development area when it embarked on a new project to measure the size of racial wealth disparities in the Boston metro area. This work once again exposed structural problems with our economy. It became clear to all of us that the racial wealth gap was the product of decades of policy design and implementation that boosted white families’ wealth but largely excluded black families. While the troubling outcomes were economic, the sources were political and were intentionally discriminatory. Nowhere had I heard about this in my prior years as an economist.
Finally, in the fall of 2017, our community development group joined several other Reserve Banks in a project on the characteristics of low-wage work. Standard economic theory asserts that markets will efficiently determine the characteristics of jobs, including the compensation they offer, but that seemed far removed from the reality of low-wage jobs. ItOver time, employers had scaled back wages, reduced benefits, contracted out low-wage jobs, and dismantled the unions that had earlier provided voice and bargaining power to workers. While vast amounts of economic research have focused on improving education and skills to solve this problem—and while better training is no doubt part of the solution—it became clear that much of the blame lay with the norms our nation had come to accept for how employers treat their employees in many sectors of the economy.
As I learned about the broken parts of our economy, I felt compelled to speak up. In the course of my career, I had spoken to hundreds of groups about conditions in the national economy. I continued to do so but now devoted the latter half of my presentations to a discussion of the reality of low-income, disproportionately minority workers, along with the history of systemic racism and its impact on wealth accumulation among people of color. In all of those talks, I emphasized the role that corrosive (and ignorant) narratives have played in explaining away and perpetuating gross inequities—especially this narrative: that all you need to do is work hard and let the markets work their magic, and everything will be great.
At each talk, numerous attendees told me that they had never been confronted with the evidence, or that they knew things were wrong but they weren’t sure just how or why.
The widely held narrative that attributes lack of success to lack of effort is an embarrassment. It’s not a lack of diligence or judgment that creates these miseries. We made it this way.
The good news is that we can remake our country so that it more closely resembles the land of opportunity to which we all aspire. And I am proud to be a small part of that mission.
A Note to My Economics Colleagues
I want to emphasize that I am generally in favor of capitalism, and I believe capitalism, broadly construed, is likely the best system for the United States. However, I feel strongly that the way that we have implemented capitalism has been influenced by dominant narratives in a way that has left many behind, unnecessarily. And our brand of capitalism could be much improved through greater attention to the equal provision of opportunity, so that many more of our citizens have the chance to build life-changing human and financial capital.
One can argue with any piece of evidence or any one study, but it would be difficult to dismiss the overall pattern formed by the combination of data and research: our system is broken, we made it that way, and we have the choice to adopt policies and programs that will bring us closer to the ideal that most of us aspire to.
Like Dives before Lazarus
Our economy has been profoundly shaped by a system of beliefs that turns out to be terribly inaccurate. They are beliefs that I and many others held for far too long, beliefs that many still hold. I received key tenets as articles of faith through my mainstream economics training at Princeton and Harvard. Countless others absorb those tenets unconsciously through constant repetition in popular media. Critically, those like me, involved in policymaking at the Federal Reserve and other key public institutions, clung to these beliefs, which for too many years led us to take actions that unwittingly caused unnecessary economic harm to millions.
This set of beliefs—what I will call “The Myth”—is old and, as aspiration, deeply appealing. Its roots are inextricably entwined with those of our republic. In its simplest form, a key element of The Myth is this: success goes to those who work hard. Failure goes to those who do not.
From a policy perspective—and this is critical—because the narrative links success to hard work, the poor are viewed with mistrust and suspicion: What did they do wrong to end up so poor? Why have they not worked harder? How many opportunities have they squandered? Can they be trusted with government-provided aid?
So what role should businesses play, according to our national mythology? A widely held principle for guiding business activity is that “businesses must simply maximize shareholder value” by keeping their stock price as high as possible. “That and nothing else.” Or, similarly, “businesses must maximize profit—full stop.”1 I will return to this particular narrative, proposed and propagated by Milton Friedman, a bit later because it is an important example of a narrative that has been used not only to make sense of our world but also to guide strategic decisions by business and government, and not always for the better.2 Government’s role, according to this narrative, is to make sure that markets operate freely, and to get out of the way of individual attainment—less government is more.
Layered over this narrative are the stories many of us believe, tell, and are told about our tortured racial history. Some hold to the narrative that we are a post-racist nation, that systemic and institutional racism never existed, no longer exist, or no longer these narratives have been used to dismiss or diminish initiatives to address relative shortfalls in incomes, wealth, and employment among families of color. The Myth supports the conclusions that people of color achieve less success because they have not worked as hard as their white counterparts, or because they have made poor savings and investment decisions, or because they have taken advantage of government support programs instead of working.4 In short, they merit the outcomes they receive.
The Myth as Excuser and Creator of Poor Outcomes
The system The Myth has built leaves millions behind. How does The Myth explain that? Lack of individual effort and initiative. Correspondingly, the rising cohort of billionaires in our country is the result of supreme intellect and Herculean effort on their part. For the low-income, the fault is in ourselves, not our stars. For the high-income, success also owes to our (better, more industrious) selves, not to our stars. In both cases, the role of our stars is grossly understated.
This view of the world, The Myth, is corrosive. It is disrespectful to the millions in our country—disproportionately people of color—who are barred from achieving success, and it is grossly inaccurate. Every time we see or hear a news item or documentary that touts the “you can do anything you want—all you have to do is dream big and work hard” meme, The Myth rears its ugly head once more. It’s everywhere.
Apart from the emotional responses they might induce, why do these rationalizations of lopsided outcomes matter so much at the national level? First, The Myth deflects attention from significant truths that provide alternative and factually accurate explanations for the outcomes. The truth of the claim that “all men are created equal” may indeed be self-evident. But after birth, do all people have equal opportunity to succeed? The answer is plainly no. The Myth fosters complacency about truly terrible economic outcomes, which makes it harder to build political will to address them. “It’s just the way capitalism works,” we are told. “Some aren’t cut out to succeed.”
A second reason that justifications of inequality matter is because they have been used systematically to design, build, and refine our system so that it continues to heap money and power on those who already have it and to deny everyone else access to the same. In shaping a host of public policies, programs, and institutions—tax policy, the safety net, labor unions, and critically, the array of policies that were designed to build wealth for white families—The Myth was used to exclude access to millions, while ensuring success for the wealthiest and whitest.
Elements of Truth
Part of the reason for The Myth’s success over the decades is that it contains kernels of truth. Does hard work matter? Of course. But while it is often required to succeed, it is far from sufficient in our economy. Is capitalism a good system? Generally, yes. But our nation has designed a particular flavor of capitalism that distributes success highly unequally, based on initial conditions that include race, ethnicity, place of birth, and socioeconomic class. Do markets do good things? Of course. In tranquil times, they allocate scarce resources pretty efficiently. But they are mute on issues of inequality or structural racism.
Is the economy broken, or doing just what it is supposed to? Ah, there’s the rub. The contention of this book is that it has been designed to produce inequality, so in that sense it is not broken. It’s doing what it was designed to do.
Brokenness
Aren’t we the land of opportunity, a meritocracy in which hard work is sufficient for success, in which free-market capitalism delivers the best outcomes for all, given individual effort?
I believe the answer to that last question is emphatically no. We need to change the narrative held by many about how our economy really works. The narrative that attributes these horrendous outcomes to lack of individual effort or poor decision-making is in my view corrosive, disrespectful, and simply inaccurate. It will likely be impossible to take the significant steps required to improve economic structures if a large swath of the population believes that the current systems are fine, and that a change is unnecessary or even counterproductive. To fix our brokenness, we must reconsider and change our national mythology.
Excerpted from The Myth that Made Us: How False Beliefs about Racism and Meritocracy Broke Our Economy (and How to Fix It) by Jeff Fuhrer. Reprinted with permission from The MIT Press. Copyright 2023.
