How to Do Reparations the Right Way

– June 26, 2019 Reading Time: 4 minutes

Like Modern Monetary Theory (MMT), the reparations movement has more lives than Thomas Jefferson, my youngest son’s cat. Unlike MMT, however, reparations do contain the germ of an important idea, the need to repair the damage caused by slavery, in all its sundry forms. The roadmap for doing so was drawn out in the eighteenth-century by an underappreciated Scottish moral philosopher named Adam Smith.

As I explained in Poverty of Slavery, slavery is best viewed as the absence of liberty and can be measured in various ways, including my 20-point freedom scale. At the top end dwell CEOs and tenured college professors (~19-20) and at the bottom chattel slaves worked in the gang system in the antebellum Deep South (~0). In betwixt dwell everyone else, from modern forced laborers (~3-4) to tech company employees (~17-18). (For details, read the darn book!)

Even after freed from chattel slavery, however, many African-Americans remained very low on my freedom scale. Some, like those caught up in the convict labor system for committing heinous crimes like loitering, were arguably worse off than chattel slaves because they were much cheaper, and hence “disposable” in the terms of modern antislavery researcher Kevin Bales. Such Slavery By Another Name lasted, arguably, until World War II.

Thanks to the Civil Rights Movement, conditions improved in the postwar period until, that is, President Lyndon B. Johnson’s Great Society programs kicked into gear in the latter half of the 1960s. Although not generally regarded as such, the Great Society was in large measure cash and in-kind reparations to America’s poor of all races. Instead of helping the poor, though, the Great Society dramatically changed their incentives, causing African-Americans to lose the ground that they had made up as Jim Crow croaked his last. Giving money to poor people did not render them slaves per se, but it did infantilize them by making them dependent on the state.

To be absolutely clear, the backward result of the Great Society was due to disincentives to work, not race. The same results occurred throughout Appalachia and Indian Country, two areas largely inhabited by the descendants of European bound laborers and native chattel slaves. As I reveal in Financial Exclusion, my new book from AIER, my own “trashy” white family was a victim of the Great Society’s work disincentives. (For the scandalous details, read the book!)

Another problem with the current reparations movement is that its cost, like that of the failed Great Society, will fall on taxpayers, not the federal government per se. In fact, the Great Society helped the government to balloon in size and this round of reparations will almost certainly have a similar effect. Two wrongs don’t make a right, except in government accounting.

What African-Americans, poor whites, and Native Americans want, and what they need, is what Adam Smith called “a tolerable administration of justice.” If the federal government would concentrate on supplying that, along with enough military spending to ensure peace, then the third part of Smith’s triad of prosperity, “easy Taxes,” soon would also be at hand.

What steps could state and federal governments take, tomorrow, to repair the damage it has caused the victims of slavery and infantilization?

Freer entry into financial services. The poor need affordable ways of transferring, storing, and borrowing money, and of insuring the property they already own, or aspire to own. As I argue in Financial Exclusion, open competition will produce the best results here, as it does in almost every other economic venue. The failure of a few financial start ups may occur but the cost will be nothing compared to the bailouts of 2009.
Rollback unnecessary occupational licensing. While some licensing is arguably necessary, most of it is patently absurd.
Decriminalize marijuana and stop jailing people for non-violent, drug-related offenses. The carceral state costs a fortune, both out-of-pocket and in terms of the opportunity cost of millions of lives destroyed for no purpose.
Assign a public defender to tail every law enforcement officer 24/7. If the recent barbie doll incident in Phoenix is any indication, taking videos of officers behaving badly is apparently an insufficient deterrent. Having a human witness, trained in law, on the shoulder of every cop will help, especially if care is taken to rotate the defenders so that they do not get too friendly with the officers. As an added incentive, they should be able to profit from civil suits filed against bad cops, too.
Dismantle the BIA. It is essentially a government planner for Indian Country that, like all central planners, impoverishes those it claims to help.

If we are careful about the net fiscal effects of such reforms, real reparations can be made without hurting innocent taxpayers, present or future. Calling a retreat in the war on drugs, lost long ago, will generate pot taxes while slicing criminal justice system expenditures and thus cover the cost of additional public defenders. Freeing entry will cost little, easily covered from the savings of dismantling the BIA’s bureaucracy.

Bigger picture, protecting the lives, liberty, and property of African-Americans, Indians, Hispanics, “white trash,” and so forth will not only reduce public expenditures on prisons and redistribution programs, it will increase tax revenues as the formerly oppressed become more productive members of society. And that will happen, pretty much automatically, as their incentives change as they come to believe that they will not be killed during a traffic stop, stripped of their land or business by some planner in faraway Washington, or denied a small business loan because they do not maintain a fixed residence.

My plan for real reparations is, of course, no panacea. Life will still suck because opportunity costs and asymmetric information will persist, as will inconveniences like gravity. And the federal government will still be much too large. But life would suck quite a bit less for lots of people, if only we paid a little more attention to Adam Smith.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.