Economist who says racism costs the U.S. $16 trillion explains the math

Systemic racism has kept the U.S. from reaching its full economic potential, according to a growing body of research. A recent Citigroup study estimated that financial, educational and other inequities between Black and White Americans cost the U.S. a staggering $16 trillion. CBS MoneyWatch spoke with Dana Peterson — formerly global economist at Citigroup, now chief economist for The Conference Board and the lead researcher behind the study — about its findings. This interview has been edited for length and clarity. 

What led you to do this study, and why now?

Dana Peterson: I felt it was important to discuss the stress factors leading up to current events in economic terms — that's in the language of dollars and cents lost because of racial inequality and the financial and economic benefits of actually closing racial gaps. So, as a Wall Street economist, it made sense to explain these gaps in a language that our clients and colleagues would relate to.

Your team put the economic cost of racism in the U.S. at $16 trillion — that's a startling number given that the nation's total GDP is roughly $21 trillion. Did that figure surprise you?

The figure actually looked about right in our view. It's probably a lower bound of estimates on economic loss, as we didn't try to quantify the racial wealth gap. So adding on the opportunity lost in wealth would have generated an even larger and more sobering figure. 

The figure that we came up with — that $16 trillion — is also consistent with prior work that other researchers have done on racial gaps. What we did was, we looked at several different gaps and added them up. And yeah, $16 trillion, that's a big loss, but it makes sense. 

Unpack that number for us — what does it really mean?

The $16 trillion is the sum of estimated economic losses from home ownership, education, income and business investment gaps between Black and White households and firms. The largest share of the gap is $13 trillion less in business revenue, and accompanying that $13 trillion is the potential for 6 million fewer jobs created per year because you don't have those revenues. 

The next largest share is $2.7 trillion in wages not earned by Black workers. The remaining share of that $16 trillion is from forgone income due to the education gap, plus equity not accrued and reduced spending from homeownership gaps.  

How can, say, lawmakers and policy makers make constructive use of your findings?

I hope policymakers, corporations and individuals can envision the potential gains from closing these gaps. There could be thousands of new homeowners, thousands of new businesses and accompanying jobs, and more people earning wages commensurate with their peers, affording additional dollars for spending on goods and services.

What researchers can continue to do is quantify, not just the social but also the economic, costs of racial injustices and inequality. More importantly, researchers can quantify the benefits of a more civil and just society in terms of dollars and cents, which may be more difficult to ignore. 

How can we as a nation start closing that $16 trillion gap — where do we start?

I think it's best to take a holistic approach as racial gaps appear to link to each other in a complex matrix. How do you eat an elephant? One piece at a time, right? So, if you address each of these areas taking little bits and chunks out of it, then you can eliminate these gaps. It's not the case that you can only focus on one because, again, they're so interrelated.