Some Reflections on Reparations for Slavery

In any liberal-libertarian conception of justice, there is no doubt that a liberated slave had a moral right to compensation from his master. From an economic viewpoint (what is possible and at what cost), the problem is more complex, especially across generations. In response to an article in The Economist, I would propose two arguments against reparation payments to today’s descendants of the slaves of several generations ago. These arguments suggest a new approach for effective and moral reparation.

The first argument is an economic argument: measuring the compensation due to the slaves’ descendants is impossible. Academic estimates of the harm done to American slaves range from 0.7% to 37% of today’s GDP (that is, of what American residents produce and earn in one year). But the problem is more serious than this range suggests.

Assuming we know for sure that a certain individual is a descendant of an American slave, we still face radical uncertainty as to whether or not the descendant himself was actually harmed. What is the counterfactual? His first slave ancestor brought to America would likely not have come here otherwise. There is a good chance that today’s slave descendant would have been born in Africa if he had been born at all. As late as 1950, life expectancy at birth in Africa was 37 years, compared to 68 (at that time) in the United States. We don’t know and have no way to know if today’s slave descendant would be alive and better off if his first ancestor had not been kidnapped and brought to America as a slave.

I sidestep the difficult philosophical question of whether an individual counterfactually born elsewhere—or even conceived in slightly different circumstances in the same bed—can be said to be the same individual. From a purely naturalistic viewpoint, it would seem that the answer is negative, which would refute my counterfactual argument. But we would still don’t know how to calculate meaningful figures for the reparations—nor, by the way, whether they should be paid in some sort of affirmative-action services or in cash.

The second argument is a moral argument, which is not surprising as welfare economics has shown that any government policy must ultimately rely on a value judgment about distribution. The argument is that there is no moral justification for forcing an individual living today to pay for his ancestors’ crimes. Collective guilt is indefensible. A cogent moral argument could be made for reparations from an identifiable individual of today only if it could be proven that he owes part of his wealth to an identifiable ancestor who exploited an identifiable slave whose current descendant will be the recipient of the reparation payment. Such a calculation is impossible.

The moral case would of course have been different when slaves were liberated in 1865 as their masters could be immediately identified. As time passes, the claims become unprovable and moot.

This being said, one may argue that some of the slaves’ descendants are currently being exploited by some of the descendants of slave owners (and perhaps by some slave descendants too). From a moral viewpoint, this current injustice by current perpetrators should of course be corrected. This leads to an indirect reparation path very different and more practical than what is currently being proposed.

It is possible that the slavery heritage of black Americans has helped keep them in (relative) poverty, if only because of the legal discrimination they have suffered until just a few generations ago. It is quite clear that the individuals responsible for maintaining laws that continue restraining economic opportunities for Blacks should cease doing so. There are at least four regulatory areas where the poor, including descendants of former slaves, are being continuously exploited by currently living Americans.

1) Zoning regulations.—Zoning regulation started in NYC in 1916 to prevent Blacks and immigrants from moving into white neighborhoods as the free market allowed them to do with their dollars and the beneficial greed of property owners. In his recent book A Republic of Equals (Princeton University Press, 2019, p. 196), Jonathan Rothwell illustrates “the tension between market forces and racism” with a quote from a New York real estate agent, found in the New York Times of August 4, 1898:

I assure you there is no sentiment about the property owners bringing colored people here. It is purely a matter of dollars and cents and self-interest. The negroes pay their rent regularly, and many of the white people do not.

Although zoning regulations are not explicitly racist anymore, they have a similar effect by artificially increasing house prices and apartment rents. (See my Regulation review of Rothwell’s book.) Terminating zoning bylaws would substitute partly for impossible and unethical reparation payments.

2) Licensure laws.—Occupational licensure now forces one-fourth of Americans to obtain a costly (in time or money) licenses before they can offer their services. They curb the ability of the poorest individuals to compete on the market—not to mention the increased prices they have to pay for the services of licensed professionals. Terminating licensure laws would indirectly provide compensation to individuals, including descendants of former slaves, who are victims of a kind of government discrimination on the entrepreneurial market.

3) Minimum wage laws.—Minimum wage laws prevent the employment of those whose productivity is lower than the fixed minimum. These people pushed out of employment include the poorest and, no doubt within them, many slave descendants. (The unemployment rate of Blacks is typically above that of Whites, Asians, and Hispanic.)

4) Drug prohibitions for adults and other victimless crimes.—Laws that create victimless crimes—such as those banning some drugs—have two effects for our purposes: first, they create underground markets that are tempting for the poorest workers; second, they give police more opportunities to discriminate against some minorities.

Since most of these discriminatory laws exist at the local or state level, the reforms would be difficult, slow, and perhaps always incomplete. But instead of confiscating money from current taxpayers as a punishment for something they never did themselves, the federal government could play a useful role in promoting these economically and morally justifiable policies.

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Flesh & Soul, Economics & Liberal Arts

On our sister website Law & Liberty, Jennifer Frey (U. of South Carolina) has a remarkable review of what seems to be a remarkable book by Zena Hitz. With Hitz, Frey defends the “monkish virtues”—and liberal arts—that David Hume attacked in the name of utility and economics. Monks, however, should also learn some economics.

The reviewed book (which I have not read) is Zena Hitz’s Lost in Thought: The Hidden Pleasures of an Intellectual Life (Princeton University Press, 2020). Every economist should read Frey’s article, a vibrant defense of the “solitude of contemplative life.” A couple of excerpts from her review:

… the compelling case that the cultivation of our inner lives, which requires many of the monkish virtues that Hume dismissed, is fundamental to authentic human flourishing.

Hitz found herself increasingly alienated from academic life, which had trained her to fear rejection and prize prestige and status far more than it had cultivated her thrill for learning or her love for truth.

It is central to Hitz’s argument that love of learning is intrinsically, rather than instrumentally, valuable.

But leisure and contemplation are not, on Hitz’s vision, reserved for an elite, leisured class with a special kind of elite training or pedigree.

[Hitz] writes of Malcolm X, who discovered a love of learning while imprisoned as a young man.

We can either stay skimming along the surfaces of our lives, lost in the thrall of spectacles, the ambitious drive for status and prestige, and the satisfactions of the flesh, or we can choose to be serious and plunge ourselves into the depths of reality, an activity which calls us out of ourselves and demands a kind of faithful obedience to the task of understanding it more completely.

Her discussion of Dorothy Day—one of the highlights of the book—underscores the deep and important connections between solitude, silence, and solidarity.

I would argue that the flesh should be celebrated too and reconciled with monkish virtues, although I am not totally sure how the reconciliation can be done.

I would also challenge Dorothy Day‘s simplistic social and political thought—like Catholic “social” teaching in general—which would strongly benefit from some economics. Individuals have different preferences, resources are scarce relative to human desires, incentives matter, the “common good” is not easy to define, the philosophers’ “highest good” is even more ambiguous, the “we” is a collection of “I”‘s, and Day’s anarchist ideal cannot abolish these realities.

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Closing or Reopening the Economy

That the expressions “closing the economy” or “reopening the economy” are widely and unthinkingly used suggests a deep problem: the state—governments at all level—has become so incredibly powerful that it can open or close large parts the complex and multifaceted network of exchanges between millions of individuals. It’s like if the government were a store owner and we were its store employees.

As I pointed out in an earlier post on this blog, even the Wall Street Journal writes unblinkingly that “countries,” by which it means national governments, can “reopen their societies.” If the state is so powerful as to open and close “its” society, perhaps it’s time for society to close its government—or, certainly, big chunks of it?

This language acknowledging Leviathan- or Hydra-like power of the state should worry even those who think that there was some justification for government measures to combat an epidemic such as Covid-19.

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Should we trust elite opinion?

Bryan Caplan did a recent post discussing Garett Jones’s new book, which advocates “10% less democracy”. I have not read the book, but this caught my eye:

7. Garett’s chapter on the EU greatly surprised me.  Given his vocal skepticism about low-skill immigration in general and refugees in particular, I expected him to concede that the EU needs at least 10% more democracy.  Instead, he argues that the EU is underrated.  The European Central Bank works well, and “while the EU may get press for making it illegal to put little unmarked bottles of olive oil on your restaurant table, it’s reasonable to believe that joining the EU helps your nation’s economy overall.”  The EU, in Garett’s phrase, is a “pro-market club.”  While he concedes that fear of immigration partially motivated Brexit, the untold story is that the UK didn’t benefit much from the EU because the UK is one of the most pro-market members of the club.

Not only does the ECB not “work well”, it’s been an almost unmitigated disaster.  It is an almost perfect example of project that reflected the wishes of elite technocratic opinion, but which turned out very badly.  ECB policy largely explains the Eurozone depression of 2008-13.

Sam Bowman directed me to another example.  Elite opinion discouraged mask use in the early stages of the epidemic, while uninformed people (like me) asked why masks were effective for medical workers but not average people.  We now know that the common sense view was correct and the elite view was wrong:

It is plausible that elite opinion is better, on average, than the average view.  But that does not necessarily imply that we’d be better off with less democracy, as there is no guarantee that the reduction in democracy would be filled with the right sort elite opinion.  After all, dictatorships have close to 100% less democracy, and most certainly don’t rely on elite opinion.  So I remain agnostic but a bit skeptical of the claim that less democracy would be better.

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Cooking Official Statistics Is Not Easy, for Now

After the Bureau of Labor Statistics announced a drop in the unemployment rate—from 14.7% in April to “only” 13.3% in May—a friend emailed me to share his suspicion that the unexpectedly low figure was a propagandist lie. The probability of that is not zero, I explained to him, but it is extremely low.

These data are gathered (through a monthly survey of 70,000 households), assembled, analyzed, and summarized by bureaucrats from the Census Bureau and the BLS, many of whom are professional statisticians. Bureaucrats could of course be co-opted or corrupted by political leaders, as they were in Argentina and Greece not so long ago. But there are reasons why this is less likely to happen in America.

Any attempt at political interference in official statistical data (which would probably be a crime under federal law) could be resisted or blocked at many points in the process. Successful conspiracies involving a large number of people are rare because, like in the Prisoner Dilemma game, anyone has an incentive to defect before anyone else does. A political manipulation at the last stage would be visible to many who have participated in the process. (The BLS Commissioner apparently only sees the report once it is completed.) Any success at political manipulation would quite certainly be followed by some resignations. High-level bureaucrats have an incentive to preserve the value of their personal brands. A professional statistician suspected of having acquiesced to data fraud may be unable to find another job in his field. Moreover, a political manipulation would be interpreted as meaning that US statistical agencies having become of the Greek or Argentine sort. The credibility of all federal statistical agencies would suffer—and may take decades to recover. Treasury yields would probably increase as creditors would suspect that the federal deficit and debt numbers, for example, are cooked too.

Another part of the difficulty would be to reconcile false unemployment statistics with other numbers calculated by other federal statistical agencies, like the Bureau of Economic Analysis (at the Commerce Department), which will, at the end of July, provide a first estimate of second-quarter GDP. And note that cooking a number one month may require cooking it again the following month and so forth, increasing the probability of the fraud being discovered.

Think also of the Department of Labor’s Inspector General, who may investigate any suspicion of statistical manipulation. It is true that federal Inspectors General may now be scared of investigating political malversations after President Trump removed five of them in different agencies over the past few months. But who knows, the Department of Labor Inspector General may still investigate out of personal integrity or because his legal responsibilities require it.

Fortunately, then, lying is not always easy in a government limited by the rule of law and constrained by numerous centers of power. We could say that, like in Rudyard’s delicious novel The Man Who Would Be King (1888), even the king cannot do everything he wants.

The intriguing error in employment data made by the BLS over the past three months does not change my opinion. As my co-blogger David Henderson explained, an error by interviewers led to misclassify the workers furloughed due to the coronavirus as employed instead of “unemployed on temporary layoff” as they should have been. Without this error, the correct unemployment rate would have been closer to 20% in April and to 16% in May, as opposed to the published figures of 14.7 and 13.3%. This big error blunts the impact of the pandemic and especially of government measures to combat it.

The notification of this error in the BLS’s June 5 report covering May (available at https://www.bls.gov/bls/news-release/empsit.htm#2020) reads as follows:

However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue.

If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

(The constraint of maintaining data integrity exists to prevent intentional manipulation.)

A notice similar to the one above appeared in the report for April (published May 8) as well as in the report for March (published April 3); see also https://www.bls.gov/bls/news-release/empsit.htm#2020 for these reports. The same data collection error was committed three months in a row.

Let’s hope the BLS and the Census Bureau continue investigating until they find how the error happened. And let’s hope that their Inspectors General are (still) ready to do their own investigations if necessary.

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Bloody Tulsa: Trump, History, and the Absurdity of Voter Choice

Election cycle maneuvering seems to be in full swing, and so the political silly season has descended upon us once again. With all of the unrest surrounding us this year – COVID curfews, demonstrations over police violence, and a nascent recession that can only be exacerbated by these other factors – this promises to be quite the interesting cycle. It is not simply that 2020 has presented a duo of major party candidates, Trump vs. Biden, that may just be worse than 2016’s historically bad contest between Mr. Trump and Hillary Clinton. Current events may presage ballot initiatives regarding police funding, qualified immunity, the proper level of prosecution for rogue officers, and other similar matters that fall under the aegis of social justice. Indeed, for certain voters, the Downs paradox (the concept that for rational, self-interested voters, the benefits of voting are generally exceeded by the costs) just might be turned on its head. 

I realize that for many, the notion of “social justice” is a pejorative of the highest magnitude, but as my friend and fellow EconLog contributor Steve Horwitz has observed over at Libertarianism.org, the foundational classical liberal precepts regarding a just society require vigilance to ensure that our institutions remain just:

With the George Floyd killing and associated protests raising a number of issues involving race, the police, and state power that have long interested libertarians, the relationship between libertarian thought and calls for “social justice,” coming almost exclusively from the left, has found its way into the spotlight.

Justice, by nature, is social, as it invariably involves the redress of grievances between counterparties with different interests. This, however, is an argument for a different day. What interests me in the backdrop of these happenings is the choice of date and venue made by President Trump to officially kick off his reelection campaign.

 

Ninety-nine years ago, the Greenwood community in the city of Tulsa, Oklahoma was the victim of one of the most devastating instances of interracial violence in American history. Driven by a false report of an assault by a Black teenager, Dick Rowland,  on a White teenager, Sarah Page, White residents of Tulsa descended upon Greenwood in an orgy of fire and blood. Prior to the incident, Greenwood had been a successful, if segregated, community of some 10,000 African Americans comprising roughly thirty-five blocks of the city and known colloquially as the Negro Wall Street. After a lawless night of looting on March 31, 1921 by an angry white mob, several of whom had even been deputized by local law enforcement, Greenwood lay in ashes, with hundreds dead and some $25.8 million of property damage in today’s dollars.

The economic success of the residents of Greenwood, who lived in the area precisely because it was the only place in Tulsa where they were allowed to live, had long been a sore spot for the other residents of Tulsa. The fear was that with rapidly growing wealth the blacks of Greenwood would begin to demand greater political power, and they would have the economic wherewithal to achieve it, As such, they were a threat to the status quo, and in the absurdity that often comes with group threat theory, what was in fact an innocent encounter between Rowland and Page served as a pretext to eliminate that perceived threat. To further illustrate this point, despite numerous investigations, there were few convictions in the aftermath of the Tulsa massacre, nor was there any attempt on the part of either the city of Tulsa or the state of Oklahoma to provide remuneration to the dispossessed victims. Many of the suddenly impoverished residents of Greenwood simply left, their abandoned properties acquired at a discount by those who had burned them out.

 

That this is where President Trump has decided to begin his campaign for reelection is made even more interesting by the date on which he will appear in the city. June 19 is a day celebrated by many African Americans as Juneteenth, or Jubilee: the day in 1865 on which the Emancipation Proclamation was signed. Although the extractive, exploitative economy of slavery was not really ended until the passage of the Thirteenth Amendment, the Emancipation Proclamation was still a powerful symbol to former slaves. Thus, in the sort of absurd timing that can only occur during an election cycle, we have a President restarting his campaign cycle in the city with the worst racial incident in American history on a day celebrated as a day of freedom by many African Americans during a period of heightened racial tension. 

I doubt that Mr. Trump did such a thing purposefully, or was even aware of the strange symbolism that his choice of date and location would evoke, but in this strange cycle, in this strange year of instability, the underlying notion of structure-induced equilibria – that majority rule in complex societies is inherently unstable – becomes ever more apparent.

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The American Economy Just Before Covid-19

The determination by the National Bureau of Economic Research that the American economy entered into recession in February 2020 was a surprise for many. The recession started before the World Health Organization declared a pandemic and a full month before President Trump declared a state of emergency. But is this early recession really surprising?

In a feature article to appear in the forthcoming (Summer) issue of Regulation, which will hit the newsstands before the end of this month and the web earlier, I tried to see what diagnosis of the “Trump economy” (if such a label can be used) could be made on December 31, 2019.

My article contains 9 figures that give a good idea of the evolution of the American economy during these three years. Some of the data may surprise you. My main question was: To which was the American economy prepared for an economic shock? I don’t want to spoil the suspense, but I think that the subtitle of my article is not badly chosen: “Three Years of Volatile Continuity.” But wait to see the charts.

 

 

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Nationalism and tech

Over recent decades, the technology sector has gained relative to other sectors of the economy.  This partly reflects public policy decisions in areas such as intellectual property rights and antitrust laws, but mostly reflects fundamental innovations that move economic activity from “brick and mortar” firms to internet companies.

The recent pandemic has accelerated this trend, as tech companies have done much better than more traditional sectors.  So why hasn’t there been more of a backlash?

Nationalists face a dilemma.  Many nationalists favor the brick and mortar sectors of the economy over tech, for a variety of reasons. Blue collar workers are an important part of the nationalist political movement.  Tech companies tend to be located in blue states, and are often owned by relatively liberal entrepreneurs.

But nationalists are also strong defenders of what they see (not always correctly) as America’s national interest.  This creates a dilemma, as  American tech firms are not just increasingly dominant at the national level, they are also increasingly dominant at the global level.  I don’t have the precise figures, but US tech companies comprise a rapidly growing share of global equity market capitalization.

I predict that nationalists will favor public policies that make it more difficult for US tech companies to extract wealth from average Americans, and oppose policies that make it more difficult to extract wealth from Chinese and European consumers.  But this is a difficult needle to thread, which leads me to believe that the tech backlash won’t begin until there is a political change in Washington.

And even if the Democrats take power, they will face the dilemma that tech firms are a key contributor to the budgets of blue state governments, and also donate money to liberal candidates.

PS.  Mark Zuckerberg should stand up to Facebook employees that are trying to pressure him to censor President Trump’s statements.  As a private firm, Facebook is free to censor Trump. But it would be unwise.

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A Humble State with No Motorcade

In many ways, the modern world, including economic freedom, was born from the fear of tyranny and the institutions (not always successful) to prevent it. In Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (Basic Books, 2000), famous economist Mancur Olson had interesting historical remarks about Italian city-states in early modern times:

Sometimes, when leading families or merchants organized a government for their city, they not only provided for some power sharing through voting but took pains to reduce the probability that the government’s chief executive could assume autocratic power. For a time in Genoa, for example, the chief administrator of the government had to be an outsider—and thus someone with no membership in any of the powerful families in the city. Moreover, he was constrained to a fixed term of office, forced to leave the city after the end of his term, and forbidden from marrying into any of the local families. In Venice, after a doge who attempted to make himself autocrat was beheaded for his offense, subsequent doges were followed in official processions by a sword-bearing symbolic executioner as a reminder of the punishment intended for any leader who attempted to assume dictatorial power. As the theory predicts, the same city-states also tended to have more elaborate courts, contracts, and property rights than most of the European kingdoms of the time. As is well known, these city-states also created the most advanced economies in Europe, not to mention the culture of the Renaissance.

This quote is from pp. 39-40 of Olson’s book. Part of it is reproduced at Liberty Tree quotes.

Instead of a bully state, we are in urgent need of a humble state where political leaders and bureaucrats know their place. I especially like Venice’s symbolic executioner, who could beneficially replace the motorcade or, at the very least, occupy the last limousine. (For more discussion of related issues, see my Econlog post “Praetorian Guards from Ancient Greece to Palm Beach or the Hamptons,” January 14, 2019.)

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A Humble State with No Motocarde

In many ways, the modern world, including economic freedom, was born from the fear of tyranny and the institutions (not always successful) to prevent it. In Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (Basic Books, 2000), famous economist Mancur Olson had interesting historical remarks about Italian city-states in early modern times:

Sometimes, when leading families or merchants organized a government for their city, they not only provided for some power sharing through voting but took pains to reduce the probability that the government’s chief executive could assume autocratic power. For a time in Genoa, for example, the chief administrator of the government had to be an outsider—and thus someone with no membership in any of the powerful families in the city. Moreover, he was constrained to a fixed term of office, forced to leave the city after the end of his term, and forbidden from marrying into any of the local families. In Venice, after a doge who attempted to make himself autocrat was beheaded for his offense, subsequent doges were followed in official processions by a sword-bearing symbolic executioner as a reminder of the punishment intended for any leader who attempted to assume dictatorial power. As the theory predicts, the same city-states also tended to have more elaborate courts, contracts, and property rights than most of the European kingdoms of the time. As is well known, these city-states also created the most advanced economies in Europe, not to mention the culture of the Renaissance.

This quote is from pp. 39-40 of Olson’s book. Part of it is reproduced at Liberty Tree quotes.

Instead of a bully state, we are in urgent need of a humble state where political leaders and bureaucrats know their place. I especially like Venice’s symbolic executioner, who could beneficially replace the motocarde or, at the very least, occupy the last limousine. (For more discussion of related issues, see my Econlog post “Praetorian Guards from Ancient Greece to Palm Beach or the Hamptons,” January 14, 2019.)

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