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Why Chicago's rebound is in such deep trouble

Bloomberg logoBloomberg 2017-11-10 Noah Smith

Editor's note: The opinions in this article are the author’s, as published by our content partner, and do not necessarily represent the views of MSN or Microsoft.

By many measures, the city of Chicago -- the third most populous in the U.S. -- is doing well. The city's well-diversified economy has bounced back from the lost decade of the Great Recession, in terms of both output and employment levels:

a close up of a map: Chicagoland Rebound© Bloomberg Chicagoland Rebound a close up of a map: Job-Market Resurgence© Bloomberg Job-Market Resurgence

Meanwhile, the city hasn't seen the kind of dramatic rise in housing costs suffered in many other cities -- average rent is lower even than in sprawling Los Angeles, and housing is still a buyer's market. Perhaps partly for that reason, companies are moving to Chicago: Caterpillar Inc., for example, is shifting its headquarters from Peoria in central Illinois, to Chicago and tech companies are more interested in the city as well. Big downtown redevelopment plans are in the works. Chicago's boosters certainly have much to crow about.

But beneath this glitzy corporate surface, the city is a troubled place. The most well-known of Chicago's problems, of course, is violent crime. In the past three years, the city's homicide rate has exploded, almost doubling from about 15 per 100,000 to 28. The current rate is about 85 percent of the peak achieved in the bad old days of the early 1990s. Even as cities such as New York have become progressively safer, Chicago seems to be headed rapidly in the wrong direction.

Meanwhile, not everyone is sharing in Chicago's prosperity. The middle class is decreasing in size as inequality increases. If that trend were a result of more Chicagoans moving into the upper class, it wouldn't be a problem. But it isn't. Chicago's real median household income has fallen since the late 1990s:

a close up of a map: Losing Ground© Bloomberg Losing Ground

Perhaps for this reason, people are leaving Chicago. In 2015 and 2016, decades of population growth went into reverse -- so many residents moved out that the decrease overwhelmed both natural population growth and immigration from overseas. This stands in contrast to cities such as New York, where people tend to move out to sunnier and less crowded places, but where the population keeps growing because of natural increase and arriving foreigners.

So while Chicago's downtown flourishes, its masses are reeling, both economically and in terms of their physical security. This doesn't make the city a basket case, but it also doesn't put it in the same category as flourishing peers like New York, Los Angeles and Houston. 

The city's defenders like to point out that both the homicide wave and income declines are confined to certain areas of the city. But maybe that's exactly the problem. By some measures, Chicago is the most segregated city in the nation (although it has become slightly less so in recent years). A 2016 study by the Chicago Urban League found that Chicago's black residents have seen their poverty rates rise, even as the city provides fewer social services for black neighborhoods. No wonder, then, that black Chicagoans are heavily overrepresented among those moving away from the city.

Chicago, in other words, is failing its poor residents, and especially its poor black residents. This is probably not a recent thing, either -- Chicago has a long and sordid history of racial segregation. But if the city is going to fix its problems, it's going to have to reverse that legacy.

Related video: Watch Chance the Rapper took on Chicago's City Council (provided by NowThis News)

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A recent study by the Metropolitan Planning Council, a Chicago-based think tank, and Washington's Urban Institute found that if the city were to reduce its segregation to a more typical level -- perhaps by mobility vouchers for poor Chicagoans, or stricter enforcement of laws against housing discrimination -- its economy would gain billions of dollars, and much of that benefit would flow to the embattled African-American population. The report also suggests desegregation would result in a substantial drop in crime.

Beyond relocating people, the city can invest more to improve the quality of life in its poor neighborhoods. Health clinics and other social services, which have been cut in recent years, should be reinstated. Public transit in poor areas should be upgraded. Pollution, especially lead contamination, should be reduced by crucial investments in public-health infrastructure.

Then there's the issue of policing. A series of high-profile policeshootings of black Chicagoans, as well as allegations of brutality against black suspects, have raised tensions between the Chicago Police Department and the city's black community. Efforts to root out corruption, racist attitudes, and brutal practices among the city's law enforcement officers would help not just to improve the quality of life for black Chicagoans, but would probably reduce crime as well, as citizens came to trust the cops more.

So there are many things Chicago can do in order to make its prosperity work for a greater percent of its population. The goal should be not just shiny new office buildings, but more inclusive growth.

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.


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