Racial discrimination hinders economic growth. When employers refuse to hire or promote certain employees because of their ethnicity, they are not only depriving their business of valuable human capital, but by denying the employee the needed income, they are denying their community of much needed consumer spending. In economics, especially in capitalist societies like ours, the strength of any community’s economy chiefly depends not on how many rich people live there, but on how much consumer spending is occurring. All businesses need revenue to survive, which can only occur if consumers in their area have disposable income. Such available income comes from employment. When businesses have more revenue, they can get more loans from the banks to hire more people, invest in more projects, even buy from other businesses. Plus, when individuals have more income, they can build equity by obtaining more assets, like buying a house, or by starting their own business. More cash flowing around a system could mean more opportunities for economic growth. I should mention that this is not in any way an endorsement of “trickle down economics” just a demonstration of how cash flows through a community. When a barrier of racial discrimination is implemented, this limits opportunities for economic growth by reducing the flow of cash around a system. Think of it like a pipe contracting, which reduces the flow of water through it. Throughout American history, racism has had profound effects on our nation’s economy.
The marginalization of non-White racial groups in America has led to a wide disparity in economic standing. While racism has existed in America for centuries, and has led to economic disparities at every point, I would like to focus on a more modern incident. During the 1940s and 1950s, the suburbs grew tremendously, but these new neighborhoods were primarily for White residents. This period was quite unique in that lower-middle class families were able to buy houses with yards and move out of dingy urban conditions, partly through low-interest loans provided by the government. In previous generations, buying a house with a yard was a great privilege reserved for families in the upper-middle class or above. This whole process of shifting lower-middle class White families from urban conditions to the suburbs cemented their position in the middle class for generations to come. When you buy a house, you are not just buying a house; instead, you are building an estate. Houses are almost guaranteed to increase in value over the long term, which means that you can build equity that you can use to obtain more loans from the bank. For example, a lot of middle class White families nowadays refinance their homes to pay for the extremely high cost of attending college. Tying this all together, this generation of White families was able to build an estate by buying a suburban house that they could refinance and pass onto their children, which kept their families firmly seated in the middle class for generations. Unfortunately, most of this prosperity was not open to minority families. In a process known as “redlining,” the Federal Housing Administration strongly discouraged appraisers from insuring mortgages in and around minority neighborhoods, particularly African-American ones, which excluded minority families from being able to enjoy the suburbs. This had a long-term effect of segregating White families from minority ones, which was only exacerbated later on in the 1960s with the notorious “white flight.” All of this could serve as one of the factors that has contributed to the troubling disparity we see today between different racial groups in America.
We should not think of this discrimination and its economic effects as memories of a bygone era but realities we are still living with. The more recent employment statistics showed that Asian-Americans, who once had one of the lowest unemployment rates in the country before COVID-19, now have one of the highest, according to NPR. A number of plausible explanations exist for this phenomenon, including the fact that Asian-Americans are largely concentrated in urban areas like New York that were hit hardest by the pandemic, but one of them is that people are avoiding Asian-Americans because of the myth they are somehow connected with the spread of the virus. Outside of this, Reuters reported back in August, the unemployment gap between African-Americans and White Americans significantly widened during the pandemic. It is plausible that the unemployment gaps between White Americans and non-White Americans became exacerbated during the pandemic as a result of pre-existing economic insecurities.
Going forward, we not only need to be conscious of the role racial discrimination plays in our economy, but we need to take active measures to counteract it. For example, we can require employers to be made aware of racial discrimination in the hiring process by taking a course on the subject. Doing so could make employers more aware of old habits they may not have realized they had. Moreover, we can provide low-interest loans to businesses in formerly redlined neighborhoods, especially in times of crisis like our current recession, which can allow these businesses to thrive and support their community. Another way we can combat this is by reforming the criminal justice system to stop practices that unfairly target minority groups because systemic racism in the criminal justice system inevitably leaks out to affect the overall economy of the surrounding community. Adding onto this, we can also reform the housing system in the US to provide down-payment assistance to first-time homebuyers living in formerly redlined neighborhoods, which would have the long-term effect of creating a more equitable system by allowing more people to enter the middle class. There are a myriad of ways we can combat systemic inequality, and all of them start by recognizing the problems that racial discrimination plays in our economy.
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