The economic cost of racial inequality

Jul 21, 2022

By Kate Davidson and Aubree Eliza Weaver

Editor's note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day's biggest stories. Act on the news with POLITICO Pro .

An economic pitch for equity — The Treasury Department is launching a renewed push for policies that help narrow racial inequality, pointing to decades of economic research to support a simple argument: It's good for the economy.

In the first of a series of blog posts released this morning, Treasury's top economist and first counselor for racial equity detailed the economic barriers that people of color and other marginalized communities have faced in the U.S. in areas such as housing, the labor market and infrastructure.

"The economic cost of racial inequality is borne not just by the individuals directly faced with limited opportunities, but also has spillovers to the entire U.S. economy," wrote Ben Harris, Treasury's assistant secretary for economic policy, and Janice Bowdler, Treasury counselor for racial equity. "Especially as the country becomes more racially diverse, inequality poses an ongoing threat to our individual and collective economic welfare."

Making the case — Advancing racial equity has been a key plank of President Joe Biden's economic agenda, and the blog posts are meant to lay the groundwork for potential policy changes in areas where persistent racial disparities are driving different outcomes and holding back growth.

Some data they cited:

In 2019, 40 percent of white adults earned a Bachelor's degree, compared to just 26, 19 and 17 percent of Black, Hispanic and American Indian or Alaska Native adults.

In 2020, the median household income for Black and Hispanic adults was roughly $46,000 and $55,500, respectively, compared with $75,000 and $95,000 for white and Asian workers. Those earnings differences have changed little since the 1970s, and are one of the main factors behind the persistent racial wealth gap, they wrote.

Nearly a quarter of Native Americans, 21 percent of non-Hispanic Black people and 17 percent of Hispanic people lived in neighborhoods with a poverty rate above 30 percent in 2019, compared with just 4 and 6 percent for White and Asian people.

A mother and daughter wait for food assistance at Universe City, a decentralized food hub in the Brownsville neighborhood in Brooklyn.

A mother and daughter wait for food assistance at Universe City, a food hub in the Brownsville neighborhood in Brooklyn. | Spencer Platt/Getty Images

Macro impact — They also pointed to a 2019 paper that found up to 40 percent of growth in U.S. GDP per capita between 1960 and 2010 can be attributed to increases in the share of women and Black men working in highly skilled occupations.

"This research suggests that sexist and racist social norms prevented the U.S. economy from reaching its full potential and that working to ensure that every American has an equal opportunity to pursue the career he or she chooses should improve economic outcomes for all," they said.

GOP pushback — Republicans have bristled at potential policy changes — or even economic research and federal programs — aimed at narrowing racial inequities. Just yesterday, Senate Republicans released a letter to the Biden administration's top housing regulator calling on her to scrap Fannie Mae and Freddie Mac's new racial equity plans , our Katy O'Donnell reported. They warned that the policies would saddle taxpayers and Black borrowers with risky loans while increasing the chances of another financial crisis.

IT'S THURSDAY — Have a tip, story idea or feedback? Let us know: kdavidson@politico.com or aweaver@politico.com . You can also find us on Twitter @katedavidson or @aubreeeweaver .

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president's ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today .

Driving the Day

Senate Banking hearing on the state of housing at 10 a.m.

WATERS, MCHENRY CRAFT STABLECOIN BILL — Bloomberg's Allyson Versprille and Evan Weinberger: "Leaders of the House Financial Services Committee are eyeing July 27 to advance a bipartisan bill focused on the digital tokens, according to three people with knowledge of the proposal."

MM sidebar: The committee will need to release the text of the bill today or tomorrow if it intends to schedule a markup next week. It would be the third major bipartisan bill around stablecoin regulation this Congress, following a measure from Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) released earlier this year. House Agriculture Committee ranking member G.T. Thompson (R-Pa.) linked up with Democratic Reps. Ro Khanna (D-Calif.) and Darren Soto (D-Fla.) on legislation that would set new rules for the popular tokens as well.

One source tells MM that Treasury and Fed officials are on board with the general contours of the bill, which hews closely to the recommendations issued by the President's Working Group , though some details were still being finalized as of Wednesday afternoon.

HOW CONGRESS' DREAM OF A CHINA CONFRONTATION GOT GUTTED — Our Andrew Desiderio: "Congress' big swing at China's economic and geopolitical ambitions turned out to be mostly a whiff. The Senate is poised to abandon months of work on legislation overhauling U.S. policy toward Beijing when, as soon as this week, it approves a drastically slimmed-down bill to boost domestic semiconductor manufacturing."

HOUSE PASSES $405B FUNDING PACKAGE — The House passed a six-bill spending bundle Wednesday to fund the government next year, our Jennifer Scholtes reported. But in the Senate, the top Republican appropriator predicted Congress will need to clear a stopgap spending patch in September as a government shutdown deadline nears. "It would be nice to avoid it," Sen. Richard Shelby (R-Ala.) said this week. "But I think we're headed in that direction — have been."

YELLEN WELCOMES UKRAINE DEBT FREEZE, CALLS ON CREDITORS TO JOIN — Reuters' David Lawder: "U.S. Treasury Secretary Janet Yellen on Wednesday said she welcomed a decision to suspend Ukraine's debt service obligations by a group of six creditor countries, including the United States, and urged other official and private creditors to join the effort."

HOUSING MARKET RAPIDLY COOLING — WSJ's David Harrison and Nicole Friedman: "Slower activity in the housing market, halting a torrid stretch of sales induced by the pandemic, is another sign of a slowing economy , economists said, adding to risks of a recession. The median sales price of an existing home climbed to $416,000 in June, the National Association of Realtors said Wednesday .... At the same time, sales of previously owned homes fell for a fifth straight month, dropping 5.4% in June."

Economy

THE BENDABLE U.S. CONSUMER — FT: "Hopes have grown for a softer landing in recent days as second-quarter bank earnings reports and government data releases suggested US consumers are bending but not breaking under the weight of rising interest rates and higher prices for food, petrol and shelter. … But the signs of resilience are being taken with a grain of salt, even on Wall Street …"

INTEREST RATE PAIN FROM HIGHER INFLATION HAS BARELY BEGUN — WSJ's Greg Ip: "Inflation hurts for many reasons, but one of the most important is that it usually means higher interest rates . Yet in the past year, while inflation has jumped 7 percentage points, the Fed's short-term interest-rate target has gone up just 1.5 points and the 10-year Treasury note yield just 1.9 points."

GOOGLE, LYFT HIT BRAKES ON HIRING — Bloomberg's Martine Paris: "With recession fears mounting—and inflation, the war in Ukraine and the lingering pandemic taking a toll—many tech companies are rethinking their staffing needs , with some of them instituting hiring freezes, rescinding offers and even starting layoffs."

Markets

BANKS ARE FLOODING THE MARKET WITH BONDS MANY HADN'T EXPECTED — Bloomberg's David Caleb Mutua: "Wall Street banks were supposed to be done with much of their borrowing in bond markets for the year. Then this week, they sold another $27.5 billion of notes. About $10 billion came from Bank of America Corp. on Tuesday. JPMorgan Chase & Co., Wells Fargo & Co. and Morgan Stanley sold a combined $17.5 billion on Monday. And Goldman Sachs Group Inc., which hasn't announced an offering, may bring the total still higher."

Fly Around

Tightening financial conditions are being felt acutely in Italy , the eurozone's third-largest economy and a frequent source of political and economic headaches for the region. — NYT's Eshe Nelson and Emma Bubola

During the current winter for crypto firms and their investors, leverage is exposing crypto lenders' risk-management failures and exposing many of their customers to significant losses and stressful uncertainty. — WSJ's Justin Baer and Orla McCaffrey

Consumer prices in Britain rose 9.4 percent in June from a year earlier, intensifying the squeeze on household budgets as inflation continued to run at its fastest pace in 40 years. — NYT's Eshe Nelson

INTRODUCING POWER SWITCH: The energy landscape is profoundly transforming. Power Switch is a daily newsletter that unlocks the most important stories driving the energy sector and the political forces shaping critical decisions about your energy future, from production to storage, distribution to consumption. Don't miss out on Power Switch, your guide to the politics of energy transformation in America and around the world. SUBSCRIBE TODAY .