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Civil unrest puts U.S. economy in a vicious circle

One lesson from Covid-19 is that a pandemic can exacerbate existing trends. For the United States, one of those is income inequality, and its connection to race. Civil unrest broke out in Minneapolis after George Floyd, a 46-year-old African American man, died in police custody. Violence has the potential to make the country’s already large wealth and income gaps even worse, and push the American economy into a vicious circle.

This comes as minorities are disproportionately represented in coronavirus deaths, and lower-income communities are being hit hard economically – as jobless claims in the country top 40 million.

Protests and riots have complex causes, but inequality is clearly a catalyst. From Detroit in 1967 to Los Angeles in 1992, political outrage is often mixed with concerns about economic injustice. Anger in Minneapolis was sparked by long-time concerns about the police’s relationship with the African American community, but the stark economic divide laid bare by the pandemic may also be playing a role.

The average white household had almost 10 times more wealth than the average black family as of 2016, according to the Brookings Institution, and it’s hard to see this getting better. The industries that were the most impacted by the crisis – like food services, retail, healthcare – are also those where the percentage of minority-owned small businesses and employment is the highest, according to a McKinsey study of small businesses this month. That’s especially bitter since the unemployment rate among black and Hispanic Americans had reached a record low before the virus hit.

The irony is that while mass shutdowns have raised tensions and hit the vulnerable hardest, violence will make reopening – which is needed to spur rehiring – a lot tougher. If low-income communities are disproportionately affected by such violence, then these areas could also be those that have the hardest time recovering. Economic inequality and unrest could feed on each other. That’s a good reason for tackling inequality to be at the center of the post-pandemic economic revival.
Source: Reuters Breakingviews

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