Tuesday, January 16, 2018
Business

PunditFact: Can't compare black America's buying power to countries' GDP

The statement

"If black America were a country, it'd be the 15th-wealthiest nation in the world."

Larry Elder, conservative commentator, Aug. 20 on CNN

The ruling

Out of 196 countries, 15th-wealthiest? Sounds impressive and worth checking out.

Elder referred us to an annual report by Target Market News called "The Buying Power of Black America," which publishes the only estimate we could find of the total earned income of African-Americans. In 2011, the report he provided us, Target Market News put the income spent by African-Americans at $836 billion.

Elder got his talking point by comparing that figure to the World Bank's list of each country's Gross Domestic Product (GDP), which is the monetary value of all the finished goods and services produced.

In 2011, "black America's" $836 billion would have put it in 16th, above Indonesia and below South Korea. (The Target Market News report is behind a paywall, so we can't see precisely how it reached its figure. We asked if Target Market News would provide us a copy, but we didn't hear back.)

Target Market News hasn't published another estimate on African-Americans' earned income since 2011, but a 2013 report by the Selig Center for Economic Growth pegs the contribution to the market at $1 trillion. That would also rank 16th — above Indonesia and below Mexico.

Case closed?

Not really. Experts told us that there are two major problems with Elder's methodology.

First, earned income and GDP aren't quite the same thing. Comparing them isn't fair, said NYU economics professor Gian Luca Clementi, "because GDP is a concept that applies to a jurisdiction, not a group of people living in a jurisdiction." GDP is "a measure of the total income produced in a country," Clementi said, and factors like government expenditure and private investment mean that buying power and GDP aren't comparable.

Second, Clementi said, "a country's total GDP only gives a measure of the total income produced in the country. Anyone having the ambition of using GDP as a measure of average economic well-being should start dividing by the number of residents."

Clementi used China as an example to better explain. While China has the world's second-highest GDP, "its inhabitants are still a lot poorer than any Western country's residents."

We took Clementi's suggestion and divided the most recent estimate of black earned income, $1 trillion, by the Census Bureau estimate of 44.5 million African-Americans. That would create a per-capita buying power of about $23,000 a year, which would translate to about 34th around the world on the International Monetary Fund's list of countries by GDP per capita (between the Bahamas and Malta).

But $23,000 doesn't go as far in the United States as, say, in Lithuania. Economists multiply GDP per capita by a conversion factor called purchasing power parity to account for the different values of goods and services in different countries. If you apply these factors, the African-American population's $23,000 a year ranks 44th (between Portugal and Lithuania).

The United States as a whole, for comparison, ranks seventh.

We rate this claim False.

Derek Tsang, Times staff writer

Edited for print. Read the full version at PundiFact.com.

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