By: Preeti Vissa
December 20, 2013
How would you feel if Santa left $1.9 trillion in your Christmas stocking?
Don't worry -- I wouldn't know how to spend that much money either. But a $1.9 trillion boost to our economy could do amazing things, and it could actually happen. The catch is that it won't come from Santa. We have to do it ourselves.
The good news is that we can, although it won't be easy.
That's the message from a new study funded by the W.K. Kellogg Foundation and conducted by the Altarum Institute. Altarum researchers found that racial inequity costs the U.S. economy massively, and that eliminating this inequity would boost our gross domestic product by $1.9 trillion.
Altarum found that, after adjusting for age and sex, per capita earnings for people of color in the U.S. are now 30 percent below those of non-Hispanic whites. I'll let the researchers lay out the full economic implications of that finding:
We found that, if the average incomes of minorities were raised to the average incomes of whites, total U.S. earnings would increase by 12%, representing nearly $1 trillion today. By closing the earnings gap through higher productivity, gross domestic product (GDP) would increase by a comparable percentage, for an increase of $1.9 trillion today. The earnings gain would translate into $180 billion in additional corporate profits, $290 billion in additional federal tax revenues, and a potential reduction in the federal deficit of $350 billion, or 2.3% of GDP.
Projecting farther out into the future (when Americans of color will move closer to being the new American majority), closing the earnings gap would increase U.S. GDP by 16 percent, a staggering $5 trillion per year.
The good news is that this income gap, and the accompanying racial wealth gap, did not happen by accident. They resulted from deliberate choices our society made and in many cases continues to make. We can close the wealth and earnings gaps if we make different choices.
As I said, this won't be easy, and it's not simple. Altarum's report focuses on a web of intersecting, interlocking factors that I can't help but oversimplify a bit in the space I have here. The essential point is that policies to close our racial wealth and income gaps not only don't take anything away from anyone, they will lift the whole economy.
The study points out a number of areas where policy choices have led to inequity that better policies can change. One obvious one that I've discussed before is homeownership. The researchers note that in 2012, 74 percent of white families owned their own homes, compared to 57 percent of Asian/Pacific Islander families, 51 percent of Native American families, 46 percent of Latino families and 44 percent of African American families.
This difference is a major driver of the racial wealth gap. It can be traced directly to discriminatory policies that once were quite extreme (from African Americans being excluded from the 1862 Homestead Act because they weren't considered citizens to the FHA officially promoting redlining and discriminatory lending in the 1930s and '40s) to the more under-the-table housing discrimination that occurs today. The researchers point to a 2012 study that found continuing discrimination against Asians, blacks and Latinos seeking to rent or buy, as well as the well-documented marketing of predatory subprime loans in communities of color during the housing bubble.
Those policies promoted residential segregation, which continues today with severe negative impacts on health, education, and many other essentials for economic success. Some efforts to address these issues -- such as creation of the Consumer Financial Protection Bureau to curb predatory practices -- have been undertaken, but the authors note that more can and should be done.
There are many other factors that more sensible policies could change, far more than I can list here. But another that has to be mentioned is the criminal justice system. Having a criminal record can hobble your chances for getting a good job that pays a living wage.
African American and Latino males have massively higher incarceration rates than whites, and the difference cannot be explained by the rates of crimes committed by different groups. For example, official surveys consistently show African Americans using illicit drugs at the same or lower rates than whites, yet the researchers note that African American youth are a staggering ten times more likely to be arrested for drug offenses than white youth.
Please read the full study to learn the specifics that space does not allow me to list here. But the bottom line is really quite simple: Racial inequity didn't just happen; it was a result of deliberate choices. We can reduce and eventually end this inequity by making different choices.
And in a nation where people of color are projected to be the majority by 2043, we literally can't afford to continue on the wasteful and unfair path we've been on.