The riots ravaging the country are likely to cause economic damage for many years to come, compounding the damages from the pandemic.
“Social unrest issues with no permanent solution — 30 years later we’re still talking about the same problem — make entrepreneurs and businesses worried about investing,” said Victor Matheson, an economist at the College of the Holy Cross.
Matheson said large-scale riots make businesses ask themselves, “Why would I build in underserved and minority neighborhoods when this could happen again? What’s going to happen next time the police chokes a man to death?”
Riots erupted following George Floyd’s controversial death in police custody in Minneapolis, and many of them took a violent turn over the weekend, leading to an estimated 4,100 arrests. Leaders in 23 states and the District of Columbia have activated 17,000 National Guardsmen to help local and state law enforcement.
Matheson, who studied the economic effects of the Rodney King riots in Los Angeles in the early 1990s, said damages from the civil unrest would disproportionately hurt poor and minority communities.
Los Angeles suffered economic hardships even 10 years after the Rodney King incident, said Matheson. The long-term reduction in economic output was almost $4 billion, on top of the $1 billion in physical destruction that happened at the time.
The current protests will also likely create an added level of complexity and confusion to the economic recovery efforts underway as states slowly reopen from the coronavirus lockdowns.
“There’s added uncertainty, and maybe people will take a ‘wait and see’ approach to consumption and investment,” said William Collins, an economic historian at Vanderbilt University whose research concentrates on labor markets and cities.
Cities in which people have turned out in the streets in large numbers could also see an increase in coronavirus cases that would require economic activity to be pulled back again, said Collins.
Already, a number of large corporations, such as Target, Walmart, and Nike, and a number of small local businesses have collectively closed hundreds of establishments or are recovering from looting and physical damage related to the riots.
“What’s disturbing over the last 24 hours is it isn’t just at night,” a Walmart spokesman told the Wall Street Journal on Sunday. “We’ve even had issues this morning in broad daylight. We want to make sure our associates are safe,” the spokesman said.
After many small businesses faced massive declines in customer demand and trouble keeping workers on payroll over the past three months, now “are facing the physical destruction of their business with untold costs, and they need our support now more than ever,” the National Small Business Association said in a statement on Monday.
Lake Forest College economist Robert Baade, who co-wrote the study on the economic impact of the Rodney King riots with Matheson, said that he was not confident that states would have the funding to deal with the riots and their economic aftermath due to the severe budget shortfalls many states are already facing due to the coronavirus pandemic.
“I wonder if there will be enough funding for states to deal with riots as needed. The timing is unprecedented because they’re also combating the COVID-19 crisis, which makes things far more problematic,” Baade said.
Some economists argue that the costs of over-policing can be severe on the economy. Floyd’s encounter with police last week in Minneapolis began with a counterfeit $20 bill that he allegedly tried to use to buy cigarettes. Matheson said that in an attempt to stop society from being robbed of $20, the police officers have likely caused hundreds of millions of dollars in economic damage.
“There’s huge economic damage associated with crime, and there’s huge damage economically associated with the over-policing,” said Matheson.
