Sowell Basic Economics A Citizen's Guide to the Economy
.pdfthat but the banking system as a whole does something more. It creates credits which, in effect, add to the money supply through what is called "fractional reserve banking." A brief history of how this practice arose may make the process clearer.
Goldsmiths have for centuries had to have some safe place to store the precious metal that they use to make jewelry and other items. Once they had established a vault or other secure storage place, other people often stored their own gold with the goldsmith, rather than take on the cost of creating their own secure storage facilities. In other words, there were economies of scale in storing gold in a vault or other stronghold, so goldsmiths ended up storing other people's gold, as well as their own.
Naturally, the goldsmiths gave out receipts entitling the owners to reclaim their gold whenever they wished to. Since these receipts were redeemable in gold, they were in effect "as good as gold" and circulated as if they were money, buying goods and services as they were passed on from one person to another. From experience, goldsmiths learned that they seldom had to redeem all the gold that was stored with them at any given time. If a goldsmith felt confident that he would never have to redeem more than one-third of the gold that he held for other people at any given time, then he could lend Out the other two-thirds and earn interest on it. Since the receipts for gold and two-thirds of the gold itself were both in circulation at the same time, the goldsmiths were, in effect, adding to the total money supply.
In this way, there arose two of the major features of modern banking--(1) holding only a fraction of the reserves needed to cover deposits and (2) adding to the total money supply. Since all the depositors are not going to Want their money at one time, the bank lends most of it to other people, in . Order to earn interest on those loans. Some of this interest they share with the depositors by paying interest on their bank accounts. Again, with the depositors writing checks on their accounts while part of the money in those accounts is also circulating as loans to other people, the banking system is in effect adding to the national money supply, over and above the money printed by the government.
One of the reasons this system worked was that the whole banking system has never been called upon to actually supply cash to cover all the checks written by depositors. Instead, if the Acme Bank receives a million dollars worth of checks from its depositors, who received these checks from people whose accounts are with the Zebra Bank, the Acme bank does not ask the Zebra Bank for the million dollars. Instead, the Acme Bank balances these checks off against whatever checks were written by its own depositors and ended up in the hands of the Zebra Bank. For example, if Acme bank depositors had written $1,200,000 worth of checks to businesses and individuals who then deposited those checks in the Zebra Bank, then Acme Bank would just pay the difference. This way, only $200,000 is needed to secure more than two millions dollars' worth of checks that had been written on accounts in the two banks.
Both banks could keep just a fraction of their deposits in cash because all the checks written on all the banks required just a fraction of the total amounts on those checks to settle the differences between banks. Moreover, since all depositors would not want their money in cash at the same time, a relatively small amount of hard cash would permit a much larger amount of credits created by the banking system to function as money in the economy, expanding the aggregate demand beyond the money issued by the government.
This system, called "fractional reserve banking," worked fine in normal times. But it was very vulnerable when many depositors wanted hard cash at the same time. While most depositors are not going to ask for their money at the same time under normal conditions, there are special situations where more depositors will ask for their money than the bank can supply from the cash
it has kept on hand. Usually, this would be when the depositors fear that they will not be able to get their money back. At one time, a bank robbery could cause depositors to fear that the bank would have to close and therefore they would all run to the bank at the same time, trying to withdraw their money before the bank collapsed. If the bank had only one-third as much money available as the total depositors were entitled to and one-half of the depositors asked for their money, then the bank ran out of money and collapsed, with the remaining depositors losing everything. The money taken by the bank robbers was often far less damaging than the run on the bank that followed.
The bank may be perfectly sound in the sense of having enough assets to cover its liabilities, but these assets cannot be instantly sold to get money to payoff the depositors. A building owned by a bank is unlikely to find a buyer instantly when the bank's depositors start lining up at the teller's window, asking for their money. Nor can a bank instantly collect all the money due them on 30-year mortgages. Such assets are not considered to be "liquid" because they cannot be readily turned into cash.
More than time is involved when evaluating the liquidity of assets. You can always sell a diamond for a dime-and pretty quickly. It is the degree to which an asset can be converted to money without losing its value that makes it liquid or not. American Express traveler's checks are liquid because they can be converted to money at their face value at any American Express office. A Treasury bond that is due to mature next month is almost as liquid, but not quite, even though you may be able to sell it as quickly as you can, cash a traveler's check, but no one will pay the full face value of that Treasury bond today.
Because a bank's assets cannot all be liquidated at a moment's notice, anything that could set off a run on a bank could cause that bank to collapse. Not only would many depositors lose their savings, the nation's total money supply could suddenly decline, if this happened to enough banks at the same time. After all, part of the monetary demand consists of credits created by the banking system during the process of lending out money. When that credit disappears, there is no longer enough demand to buy everything that was being produced-at least not at the prices that had been set when the money supply was larger. This is what happened during the Great Depression of the 1930s, when thousands of banks in the United States collapsed and the total money supply of the country contracted by one-third.
In order to prevent a repetition of this catastrophe, the Federal Deposit Insurance Corporation was created, guaranteeing that the government would reimburse depositors whose money was in an insured bank when it collapsed. Now there was no longer a reason for depositors to start a run on a bank, so very few banks collapsed, and there was less likelihood of a sudden and disastrous reduction of the nation's total money supply.
While the Federal Deposit Insurance Corporation is a sort of firewall to prevent bank failures from spreading throughout the system, a more fine tuned way of trying to control the national supply of money and credit is through the Federal Reserve System. The Federal Reserve is a central bank run by the government to control all the private banks. It has the power to . tell the banks what fraction of their deposits must be kept in reserve, with only the remainder being allowed to be lent out. It also lends money to the banks, which the banks can then relend to the general public. By setting the interest rate on the money that it lends to the banks, the Federal Reserve System indirectly controls the interest rate that the banks will charge the general public. All of this has the net effect of allowing the Federal Reserve to control the total amount of money and credit in the economy as a whole, to one degree or another.
Because of the powerful leverage of the Federal Reserve System, public statements by the
chairman of the Federal Reserve Board are scrutinized by bankers and investors for clues as to whether "the Fed" is likely to tighten the money supply or ease up. An unguarded statement by the chairman of the Federal Reserve Board, or a statement that is misconstrued by financiers, can set off a panic in Wall Street that causes stock prices to plummet. Or, if the Federal Reserve Board chairman sounds upbeat, stock prices may soar-to unsustainable levels that will ruin many people when the prices come back down. Given such drastic repercussions, which can affect financial markets around the world, Federal Reserve Board chairmen over the years have learned to speak in highly guarded and Delphic terms that often leave listeners puzzled as to what they really mean. What Business Week magazine said of Federal Reserve chairman Alan Greenspan could have been said of many of his predecessors in that position: "Wall Street and Washington expend megawatts of energy trying to decipher the Delphic pronouncements of Alan Greenspan." In assessing the role of' the Federal Reserve, as well as any other organs of government, a sharp distinction must be made between their stated goals and their actual performance or effect. The Federal Reserve System was established in 1914 as a result of fears of such economic consequences as deflation and bank failures. Yet the worst deflation and the worst bank failures in the country's history occurred after the Federal Reserve was established. The financial crises of 1907, which helped spur the creation of the Federal Reserve System, was dwarfed by the financial crises associated with the stock market crash of 1929 and the Great Depression of the 1930s.
Chapter 17
The Role of Government
You know, doing what is right is easy. The problem is knowing what is right. -PRESIDENT LYNDON B. JOHNSON
A modern market economy cannot exist in a vacuum. Market transactions take place within a framework of rules and require someone with the authority to enforce those rules. Government not only enforces its own rules but also enforces contracts and other agreements and understandings among the numerous parties in the economy. Sometimes government also sets standards, defining what is a pound, a mile, or a bushel. And to support itself, governments must also collect taxes, which in turn affect economic decision-making by those affected by those taxes.
Beyond these basic functions, which virtually everyone can agree on, governments can play more expansive roles, all the way up to directly owning and operating all the farms and industries in a nation. Controversies have raged around the world, for more than a century, on the role that government should play in the economy. For much of the twentieth century, those who favored a larger role for government were clearly in the ascendancy.
Russia, China, and others in the Communist bloc of nations were at one extreme, but democratic countries like Britain, India, and France also had their governments take over ownership of various industries and tightly control the decisions made in other industries that were allowed to remain privately owned. Wide sections of the political, intellectual and even business communities have often been in favor of this expansive role of government.
During the 1980s, however, the tide began to turn the other way, toward reducing the role of government. This happened first in Britain and the United States, and then such trends spread rapidly through the democratic countries and were climaxed by the collapse of Communism in the Soviet bloc. As a 1998 study put it:
All around the globe, socialists are embracing capitalism, governments are selling off companies they had previously nationalized, and countries are seeking to entice back multinational corporations that they had expelled just two decades earlier.
Experience-often bitter experience-had more to do with such changes than any new theory or analysis. However, in order to understand basic economics, it is not necessary to enter into these controversies. Here we can examine the basic functions of government that virtually everyone can agree on and explain why those functions are important for the allocation of scarce resources which have alternative uses.
The most basic function of government is to provide a framework of law and order, within which the people can engage in whatever economic and other activities they choose, making such mutual accommodations and agreements among themselves as they choose. There are also certain activities which generate significant costs and benefits that extend beyond those individuals who engage in these activities. Here government can take account of these costs and benefits when the marketplace does not.
The individuals who work for government in various capacities tend to respond to the
incentives facing them, just as people do in corporations, in families, and in other human institutions and activities. Government is neither a monolith nor simply the public interest personified. To understand what it does, its incentives and constraints must be taken into account, just as the incentives and constraints of the marketplace must be for those who engage in market transactions.
LAW AND ORDER
Where government restricts its economic role to that of an enforcer of laws and contracts, some people say that such a policy amounts to "doing nothing." However, what is called "nothing" has often taken centuries to achieve-namely, a reliable framework of laws, within which economic activity can flourish, and without which even vast riches in natural resources may go unused and the people remain much poorer than they need to be.
Like the role of prices, the role of a reliable framework of laws may be easier to understand by observing what happens in places where that framework does not exist. Countries whose governments are ineffectual, arbitrary, or corrupt can remain poor despite an abundance of natural resources, because neither foreign nor domestic entrepreneurs want to risk the kinds of large investments needed to develop natural resources into products that bring increased prosperity.
A classic example is the African nation of Congo, rich in minerals but poor in every other way. Here is the scene encountered at the airport in its capital city of Kinshasa:
Kinshasa is one of the world's poorest cities, so unsafe for arriving crews that they get shuttled elsewhere for overnight stays. Taxiing down the scarred tarmac feels like driving over railroad ties. Managers charge extra to turn on the runway lights at night, and departing passengers can encounter several layers of bribes before boarding.
Bolivia is another Third World country where law and order has broken down:
The media are full of revelations about police links to drug trafficking and stolen vehicles, nepotism in the force, and the charging of illegal fees for services. Officers on meager salaries have been found to live in mansions. .
In poor countries where middle class or wealthy people are targets of widespread violence by criminals or ideologues, costly and extraordinary precautions are necessary for personal safety. Thus fenced and gated private developments with their own security guards are widespread in Brazil, where there is also a large market for armor-plated cars. Private spending on security in Brazil is estimated to substantially exceed public spending on police, and private security guards outnumber policemen by three to one.
Whatever the merits or demerits of particular laws, someone must administer those laws-and how efficiently or how honestly that is done can make a huge economic difference. The phrase "the law's delay" goes back at least as far as Shakespeare's time. Such delay imposes costs on those whose investments are idled, whose shipments are held up, and whose ability to plan their economic activities is crippled by red tape and slow-moving bureaucrats.
Moreover, bureaucrats' ability to create delay often means an opportunity for them to collect bribes to speed things up-all of which adds up to higher costs of doing business. That in turn means higher prices to consumers, and correspondingly lower standards of living for the
country as a whole.
A study by the World Bank concluded that "across countries there is evidence that higher levels of corruption are associated with lower growth and lower levels of per capita income." In India, for example, as an Indian business executive put it, the entrepreneur there "has to bribe from twenty to forty functionaries if he is serious about doing business." During czarist Russia's industrialization in the late nineteenth and early twentieth centuries, one of the country's biggest handicaps was the widespread corruption in the general population, in addition to the corruption that was rampant within the Russian government. Foreign firms which hired Russian workers and even Russian executives made it a point not to hire Russian accountants. This corruption continued under the Communists and has become an international scandal in the post-Communist era. One study pointed out that the stock of a Russian oil company sold for about one percent of what the stock of a similar oil company would sell for in the United States because "the market assumes that Russian oil companies will be systematically looted by insiders." Nor is this corruption confined to the industrial or commercial sector. According to a report from The Chronicle of Higher Education's Moscow correspondent in 2002:
It costs between $10,000 and $15,000 in bribes merely to gain acceptance into well-regarded institutions of higher learning in Moscow, the daily newspaper Izvestia has reported. . . At Astrakhan State Technical University, about 700 miles south of Moscow, three professors were arrested after allegedly inducing students to pay cash to ensure good grades on exams. . . . Over all, Russian students and their parents annually spend at least $2 billion-and possibly up to $5 billion-in such "unofficial" educational outlays, the deputy prime minister, Valentina Matviyenko, said last year in an interview.
In a country's economy, bribes are not simply a cost to companies doing business in that particular country. They are a deterrent to other companies that are deciding where to invest and where to avoid-and the loss of those investments can be a much bigger cost to the economy than the bribes themselves. As The Economist magazine put it: "For sound economic reasons, investors and international aid agencies are increasingly taking the level of bribery and corruption into account in their investment and lending."
It is not just corruption but also sheer bureaucracy which can stifle economic activity. Even one of India's most spectacularly successful industrialists, Aditya Birla, found himself forced to look to other countries in which to expand his investments, because of India's slow-moving bureaucrats:
With all his successes, there were heartbreaks galore. One of them was the Mangalore refinery, which Delhi's bureaucrats took eleven years to clear-a record even by the standards of the Indian bureaucracy. While both of us were waiting for a court to open up at the Bombay Gymkhana one day, I asked Aditya Birla what had led him to invest abroad. He had no choice, he said, in his deep, unaffected voice. There were too many obstacles in India. To begin with, he needed a license, which the government would not give because the Birlas were classified as "a large house" under the MRTP [Monopolies and Restrictive Trade Practices] Act. Even if he did get one miraculously, the government would decide where he should invest, what technology he must use, what was to be the size of the plant, how it was to be financed-even the size and structure of his public issue. Then he would have to battle the bureaucracy to get licenses for the import of capital goods and raw materials. After that, he faced dozens of clearances at the state level-for power, land, sales tax, excise, labor, among others. "All this takes years, and frankly, I get exhausted just thinking about it."
This head of 37 companies with combined sales in the billions of dollars-someone capable
of creating many much-needed jobs in India-ended up producing fiber in Thailand, which he converted to yarn in his factory in Indonesia, exporting the yarn to Belgium, where it was woven into carpets which were then exported to Canada. All the jobs, incomes, business opportunities, and taxes from which India could have benefited were lost because of the country's own bureaucracies.
The Framework of Laws
For fostering economic activities and the prosperity resulting from them, laws must be reliable, above all. If the application of the law varies with the whims of kings or dictators, with changes in democratically elected governments, or with the caprices or corruption of appointed officials, then the risks surrounding investments rise, and consequently the amount of investing is likely to be less than purely economic considerations would produce in . a market economy under a reliable framework of laws.
One of the major advantages that enabled nineteenth-century Britain to become the first industrialized nation was the dependability of its laws. Not only could Britons feel confident when investing in their country's economy, without fear that their earnings would be confiscated, or dissipated in bribes, or the contracts they made voided for political reasons, so could foreigners doing business or making investments in Britain. For centuries, the reputation of British law for dependability and impartiality attracted investments and entrepreneurs from continental Europe, as well as skilled immigrants and refugees, who helped create whole new industries in Britain. In short, both the physical capital and the human capital of foreigners contributed to the development of the British economy from the medieval era, when it was one of the more backward economies in Western Europe, to a later era, when it became one of the most advanced, setting the stage for Britain's industrial revolution that led the world into the industrial age.
In other parts of the world as well, a framework of dependable laws encouraged both domestic and foreign investment, as well as attracting immigrants with skills lacking locally. In Southeast Asia, for example, the imposition of European laws under the colonial regimes of the eighteenth and nineteenth centuries replaced the powers of local rulers and tribes. Under these new frameworks of laws-often uniform across larger geographical areas than before, as well as being more dependable at a given place-a massive immigration from China and a smaller immigration from India brought in people whose skills and entrepreneurship created whole industries and transformed the economies of countries throughout the region.
European investors also sent capital to Southeast Asia, financing many of the giant ventures in mining and shipping that were often beyond the resources of the Chinese and Indian immigrants, as well as beyond the resources of the indigenous peoples. In colonial Malaya, for example, the tin mines and rubber plantations which provided much of the country's export earnings were financed by European capital and worked by laborers from China and India, while most local commerce and industry were in the hands of the Chinese, leaving the indigenous Malays largely spectators at the modern development of their own economy.
While impartiality is a desirable quality in laws, even laws which are discriminatory can still promote economic development, if the nature of the discrimination is spelled out in advance,
rather than taking the form of biased, unpredictable, and corrupt decisions by judges, juries, and officials. The Chinese and Indians who settled in the European colonial empires of Southeast Asia never had the same legal rights as Europeans there, nor the same rights as the indigenous population. Yet whatever rights they did have could be relied upon and therefore served as a basis for the creation of Chinese and Indian businesses in the region.
Similarly in the Ottoman Empire, Christians and Jews never had the same rights as Moslems. Yet, during the flourishing centuries of that empire, the rights which Christians and Jews did have were sufficiently dependable to enable them to prosper in commerce, industry, and banking to a greater extent than the Moslem majority. Moreover, their economic activities contributed to the prosperity of the Ottoman Empire as a whole. Similar stories could be told of the Lebanese minority in colonial West Africa, Indians in colonial Fiji, German immigrants in Brazil, and other minority groups in other countries who prospered under laws that were dependable, even if not impartial.
Dependability is not simply a matter of the government's own treatment of people. It must also prevent some people from interfering with other people, so that criminals and mobs do not make economic life risky and thereby stifle the economic development required for prosperity. Governments differ in the effectiveness with which they can enforce their laws in general, and even a given government may be able to enforce its laws more effectively in some places than in others. For centuries during the Middle Ages, the borderlands between English and Scottish kingdoms were not effectively controlled by either country and so remained lawless and economically backward. Mountainous regions have often been difficult to police, whether in the Balkans, the Appalachian region of the United States, or elsewhere. Such places have likewise tended to lag in economic development and to attract few outsiders and little outside capital.
Today, high-crime neighborhoods and neighborhoods subject to higher than normal rates of vandalism or riots similarly suffer economically from a lack of law and order. Some businesses simply will not locate there. Those that do may be less efficient or less pleasant than businesses in other neighborhoods, where such substandard businesses would be unable to compete.
The costs of additional security devices inside and outside of stores, as well as security guards in some places, all add to the costs of doing business and are reflected in the higher prices of goods and services purchased by people in high-crime areas, even though most people in such areas are not criminals.
Property Rights
One of the most misunderstood aspects of law and order are property rights.
While these rights are cherished as personal benefits by those fortunate enough to own a substantial amount of property, what matters from the standpoint of economics is how property rights affect the allocation of scarce resources which have alternative uses. Property rights need to be assessed in terms of their economic effects on the well-being of the population at large. This is ultimately an empirical question which cannot be settled on the basis of assumptions or rhetoric.
What is different with and without property rights? One small but telling example was the experience of a delegation of American farmers who visited the Soviet Union. They were
appalled at the way various agricultural produce was shipped, carelessly packed and with spoiled fruit or vegetables left to spread the spoilage to other fruits and vegetables in the same sacks or boxes. I Coming from a country where individuals owned agricultural produce as their private property, American farmers had no experience with such gross carelessness and waste, which would have caused somebody to lose much money needlessly in the United States, and perhaps go bankrupt. In the Soviet Union, the loss was even more painful, since the country often had trouble feeding itself, but there were no property rights to convey these losses directly to the produce handlers and shippers who caused it.
In a country without property rights, or with the food being owned "by the people," there was no given individual with sufficient incentives to ensure that this food did not spoil needlessly before it reached the consumers. Those who handled the food in transit were paid salaries, which were fixed independently of how well they did or did not safeguard the food. In theory at least, closer monitoring of produce handlers could have reduced the spoilage.
But monitoring is not free. The human resources which go into monitoring are themselves among the scarce resources which have alternative uses.
Moreover, monitoring raises the further question: Who will monitor the monitors? The Soviets tried to deal with this problem by having Communist Party members honeycombed throughout the society to report on derelictions of duty and violations of law. However, the widespread corruption and inefficiency found even under Stalinist totalitarianism suggest the (1) Similar practices were followed at a Soviet factory which produced metal pipes. Ordinary pipes were coated with oil to prevent corrosion, while stainless steel pipes were supposed to be kept away from oil because it ruined them. But the workers not only packed both kinds of pipes together, they even walked on top of stainless steel pipes with their oil-covered boots.
The reason was that the authorities measured output in terms of railroad carloads of pipes that were shipped. Since there were not enough stainless steel pipes to fill a railroad car, they were lumped in with the ordinary pipes that were coated with oil. limitations of official monitoring, as compared to automatic self-monitoring by property owners.
No one has to stand over an American farmer and tell him to take the rotten peaches out of a basket before they spoil the others, because those peaches are his private property and he is not about to lose money if he doesn't have to. Property rights create self-monitoring, which tends to be both more effective and less costly than third-party monitoring. Most Americans do not own any agricultural land or agricultural crops, but they have more and better food available at lower prices than in countries where there are no property rights in agricultural land or its produce, and where much food may spoil needlessly as a result.
The only animals threatened with extinction are animals not owned by anybody. Colonel Sanders was not about to let chickens become extinct. Nor will McDonald's stand idly by and let cows become extinct. Likewise, it is things not owned by anybody (air and water, for example) which are polluted. In centuries past, sheep were allowed to graze on unowned 1and-"the commons," as it was called-with the net result that land on the commons was so heavily grazed that it had little left but patchy ground and the shepherds had hungry and scrawny sheep. But privately owned land adjacent to the commons was usually in far better condition. Similar neglect of unowned land occurred in the Soviet Union. According to Soviet economists, "forest areas that are cut down are not re seeded," though it would be financial suicide for a lumbering company to let that happen on their own property in a capitalist economy.
All these things, in different ways, illustrate the value of private property to the society as a whole, including people who own no private property, but who benefit from the greater
economic efficiency it creates, which translates into a higher standard of living for the country as a whole.
Despite a tendency to think of property rights as special privileges for the rich, many property rights are actually more valuable to people who are not rich-and such property rights have often been infringed or violated for the benefit of the rich. Although the average rich person, by definition, has more money than the average person who is not rich, in the aggregate the non-rich population often has far more money. This means, among other things, that many properties owned by the rich would be bid away from them by the greater purchasing power of the non-rich, if unrestricted property rights prevailed in a free market. Thus land occupied by mansions located on huge estates would pass through the market to entrepreneurs who would build smaller and more numerous homes or apartment buildings-all for the use of people with more modest incomes, but with more money in the aggregate.
Someone once said, "It doesn't matter whether you are rich or poor, so long as you have money."This was meant as a joke but it has very serious implications. In a free market, the money of ordinary people is just as good as the money of the rich-and in the aggregate, there is more of it. The individually less affluent need not directly bid against the more affluent. Entrepreneurs or their companies, using their own money or money borrowed from banks and other financial institutions, can acquire mansions and estates, and replace them with middle-class homes and apartment buildings for people of modest incomes. This would of course change the communities in ways the rich might not like, however much others might like to live in the resulting newly developed communities. Wealthy people have often forestalled such transfers of property by getting laws passed to restrict property rights in a variety of ways. For example, various affluent northern California communities have required land to be sold only in lots of one acre or more per house, thereby pricing such land and homes beyond the reach of most people and thus neutralizing the greater aggregate purchasing power of less affluent people. Zoning boards, "open space" laws, historical preservation agencies and other organizations and devices have also been used to severely limit the sale of private property for use in ways not approved by those who wish to keep things the way they are in their communities.
The effectiveness of these laws infringing or negating property rights has been shown, not only by the maintenance of existing communities in their existing character, often with negligible population growth despite rising employment in the area, but also by the rapid increase in home prices as more people bid for a relatively unchanged number of homes, leaving those who lose out in this local competition to have to live farther away from their jobs.
Using many political and legal devices to prevent the unfettered sale of property rights from transferring land and transforming communities, Palo Alto, California-adjacent to Stanford University-had its home prices increase approximately four-fold in one decade, while its population actually declined in the face of increasing employment around them in Silicon Valley. In San Mateo County, another affluent area in northern California, more than half the land is legally off-limits as "open space," likewise causing home prices to skyrocket and keeping the less affluent from being able to live in the area.
One symptom of this is that the number of blacks living in San Mateo County actually declined by 10,000 people between the 1990 census and the
2000 census, even though the overall population of the county increased by 50,000 people. Similar patterns of a declining black population while the total population increased also appeared in nearby San Francisco County and Marin County, both similarly affluent counties with similar restrictive land use policies.