Analysis: Racial bias and segregation cost billions annually

If communities across America were to become more racially integrated, it would be an "economic game changer," boosting gross domestic product growth by an estimated 0.3 percentage points in the span of a decade, Moody's Analytics has found.

Deeply entrenched racial bias and segregation, however, are limiting the nation's potential and hampering economic growth by billions of dollars annually, the financial research firm's chief economists says.

"Racial segregation and bias is costing all Americans," Mark Zandi, Moody's chief economist told CNN Business. "If we focus on this issue, and try to address that, it benefits everyone."

Earlier this month, Moody's Analytics published a report that teased out the macroeconomic effects of segregation within US communities. In that research, Zandi and fellow economists found that greater long-term economic growth occurred in more integrated communities.

By Moody's estimates, if all US communities' racial geographic makeup matched that of the nation's most-integrated communities, it would likely lift America's GDP growth rate to 2.7% from 2.4% during the next decade.

The Moody's research comes on the heels of recent reports from Citigroup, McKinsey, the Federal Reserve Bank of San Francisco, the International Monetary Fund and others that sought to quantify the effect of the racial wealth gap and disparities in education, housing and investment. By some estimates, those gaps have cost the nation's economy $16 trillion during the past two decades.

Building off these and the University of California, Berkeley's "The Roots of Structural Racism Project," Moody's sought to connect the dots between racial integration on a more local level and economic performance.

Using Census Bureau data, Moody's compared the racial makeup within US counties and their respective census tracts to develop a racial integration score based upon how the population is distributed by race. The economists then analyzed the counties' GDP performance from 2009 to 2019 in addition to other factors, such as home prices, commute times, credit availability, crime and business activity.

Integrated communities generally had better economic gains, higher home price growth, lower commute times, greater credit availability, lower crime, and greater business concentration, according to the report.

"There's a lot to disentangle, questions of causality, correlation," he said. "There's a boatload of things to think about."

For example, noting this research only looks at the data during the decade that ended in 2019, it remains unclear how the "significantly scrambled" migration patterns of the pandemic could affect the integration scores and projections, he said.

Zandi hopes the report will jump start additional research on the topic, especially in light of the pandemic's disproportionate negative effect on people of color and the heightened civil strife the US has experienced in recent years. One area for policymakers to home in on would be the role disparities in home ownership play on the wealth gap.

Some cities are stuck in "stark patterns of segregation," said Sheryll Cashin, a Georgetown University law professor who wrote about housing inequality in "White Space, Black Hood: Opportunity Hoarding and Segregation in the Age of Inequality."

"We intentionally constructed affluent white space and intentionally concentrated poverty elsewhere," she said. "That's a structural problem of intentional policies."

And in those polar extremes, the boundaries have hardened in recent years, she said.

"The so-called American Dream is really only working for those who can afford to buy their way into high-opportunity regions," she said.

Disrupting stubborn, century-old systems is no easy task, but not impossible, she said, giving a nod to Harvard Professor Raj Chetty's research on social mobility. Cashin noted that Montgomery County, Maryland, is an example of how public policies could help create a highly integrated county with high-opportunity characteristics.

The county is home to the oldest inclusionary housing program in the United States, which requires a certain percentage of new units under development be set aside as affordable housing. Cashin credits the program with creating a highly integrated city with strong economic and educational performance markers.

The efforts to help America's communities become more racially integrated likely have to come at the local level, she said, noting that municipal efforts such as extending bus routes, creating denser neighborhoods, encouraging greater diversity in public schools, and recreating the public square.

"Integration is good for economies, but integration is really good for young children," she said, noting multiple studies have shown that "when young children who are in high-poverty settings have the opportunity to move to middle-class or high-opportunity setting either in their schools or their neighborhoods, they do better."

"It's not just about the economy," she said. "It's also about the lives of children, who are our assets.

From CNN