Carney: History Suggests Economic Pain of Riots Will Last Decades

The protests taking place across many American cities may or may not give rise to reforms in how our county polices itself, but the rioting, looting, and violence that have too often followed are likely to have damaging and long-running economic consequences for the communities afflicted.

Consider the wave of race riots that swept the nation’s cities in the 1960s. Between 1964 and 1971, there were more than 750 riots that left 228 people dead and more than 12,000 injured. Arson was rampant, by some counts amounting to 15,000 incidents.

In a pair of papers published over a decade ago, Vanderbilt University economists William Collins and Robert Margo estimated the impact of the riots on incomes, employment, and property values. They found that the consequences were long-lasting and severe.

The impact of the riots went far beyond the immediate consequences of destroyed homes and businesses. The economic toll was not just the hundreds of millions of dollars of property damage. They also crushed inner-city incomes, employment, and property values for decades.

The economists were aided by looking at the difference between cities with riots and those without. What they found was that the median black family income fell by nine percent from 1960 to 1970 compared with cities without riots. Male employment dropped four to seven percentage points.

Home values were hurt even more by the riots. In the worst-hit cities, the median value of black-owned homes dropped 14 percent to 20 percent The median value of all homes located in the center of cities, regardless of the race of the owner, fell six percent to ten percent.

“They reduced incomes of African Americans’ employment, and they reduced housing values. In the case of housing values, it was broader; it actually affects overall housing values in cities, but the impact is primarily felt by African Americans,” Margo told PBS Newshour in 2015.

In many of the neighborhoods that suffered from arson and looting, local shops never returned. That made the effect on housing values even worse because homes in neighborhoods without amenities fall in value.

“And so, the things that would negatively affect housing values because of local amenities really suffered a lot. And I would also add that these were not transient effects. They persisted. We found no evidence that they got better, so to speak, between 1970 and 1980. We didn’t go beyond that, but I’m quite sure if we went to 1990, they would have still been present. So, they were long-lasting,” Margo said in 2015.

The decline in income and home values derailed decades of progress in closing the racial economic gap. Until 1975, the racial gap in average earnings had been narrowing, with some periods of sharp convergence and some periods of stagnation. But after the 1970s, racial convergence in earnings falls to the wayside.

The blow to property values of urban and especially black-owned homes likely contributed to the racial wealth gap as home values make up a significant portion of household wealth. From 1940 to 1970, the value of black-owned and occupied urban homes climbed 18 percentage points to 69 percent of the value of white-owned city homes. By 1990, however, the ratio was down to a mere 53 percent, undoing decades of progress.

So far at least, the property damage and deadliness of the 2020 riots have not come anywhere near the riots of the 1960s when $50 million of property damage was done in Detroit alone.  But these riots have only gone on for several days so far. And the economic consequences of the last series of nationwide “uprisings” offer a warning to our time.