Ideas

Rethinking Reparations

To address America’s race-based wealth disparity, the government should remove regulations that prevent Blacks and other marginalized communities from accumulating wealth

Published by
Rachel S. Ferguson

For decades, the rate of poverty for Black Americans has hovered around 20%—about twice the rate for whites. This wealth disparity is largely the result of the historical oppression of Black Americans, and many believe that justice demands some kind of reparation.

Some argue for direct payments to descendants of slaves from the federal coffers, but this proposal is not the fairest, most practical or most effective method of reparation. A better solution would be to focus on helping Black Americans and other marginalized communities create and accumulate wealth. The government can help achieve this goal by removing restrictions, such as banking regulations, that prevent these communities from accessing capital and starting businesses.

What Harms Should Be Redressed?

In our book “Black Liberation Through the Marketplace,” Marcus Witcher and I argue that the government should make reparation to Black Americans and other communities harmed by social engineering programs such as Fair Housing Administration redlining, federal highway construction and “urban renewal.” One group that would certainly benefit from such reparations is actual descendants of slaves—the communities affected by Jim Crow and the cities that absorbed the Great Migration often include the descendants of freedmen.

But the reparations would not be for slavery per se. The harms the government should redress are those that have been committed in living memory; otherwise, it is too difficult to determine who exactly was harmed at whose hands.

As a reminder of just how recent many of these events were, this June researchers discovered an as-yet-unknown arrest warrant for Carolyn Bryant, who falsely accused Emmett Till in 1955. The warrant was for the kidnapping that led to Till’s brutal murder by Bryant’s husband and his brother, but it was never served because police at the time felt that a mother of two shouldn’t be disturbed.

Bryant is now 88, so some might dismiss the crime as being too far in the past. But in the very same month that her arrest warrant was discovered, a 101-year-old former concentration camp guard was tried and found guilty of 3,500 counts of accessory to murder in Germany, for crimes committed more than 10 years before the Emmett Till murder. If Till had lived, he would have been 81 this year.

Now consider that the widespread eminent domain abuse and neighborhood destruction that occurred as part of federal highway construction and urban renewal programs actually occurred in the 1960s—and the consequences, of course, extend to today. These are crimes committed by people still living today, against people still living today, that squandered the inheritance of many children who are now middle-aged or even younger.

What Should the Government Do?

In “Black Liberation Through the Marketplace,” my co-author and I argue that reparations would be just if they were drawn from the sale of federal assets, such as some of the $2 trillion in land owned by the federal government. This approach acknowledges the legal and economic violations experienced by Black Americans (and many poor Latinos, whites and Asians) without burdening current citizens who did not participate in those violations.

Philosophically, it’s important to note that while people tend to assume that oppression benefits the non-oppressed class, current citizens also did not generally benefit from these violations: Making our neighbors poorer only makes the whole economy poorer. But it’s not unusual for people to favor policies that harm themselves economically, whether out of ignorance or mere stubborn prejudice.

While we were compelled by the case for the justice of reparations, however, neither my co-author nor I felt very enthusiastic about their effectiveness. The most effective—and in a way also the most just—form of reparations would be whatever did the best job of building wealth in the affected communities. After all, it was their tenuous hold on the bottom rungs of the economic ladder that was ripped out of their hands by the destruction these massive federal programs caused. These programs attacked not only their personal property rights, but their right of association in the main streets, churches, schools and fraternal associations they’d built up in their neighborhoods. These are the associations that make business success possible, or at least far more probable.

Wealth accumulation for these communities is not a pipe dream; it’s already happened, to some extent, throughout the 20th century. The Black poverty rate was cut in half between 1948 and 1966, from 89% to 42%. The Black American economy was booming, and working-class but upwardly mobile urban neighborhoods were on the verge of breaking through all over the country.

The Black poverty rate continued to fall throughout the 1960s (but at a slower pace), and it plateaued at 30% in the 1970s as the (ironically) perverse incentives of the welfare state and the general economic malaise of that decade took hold. It fell again in the ’80s and ’90s but has hovered stubbornly at 20% in the decades since—a fact that must certainly be traced to the economic isolation of federally ghettoized inner-city neighborhoods.

Lessons Learned from the 2008 Financial Crisis

Craig Richardson, who runs the Center for the Study of Economic Mobility at Winston-Salem University, maintains that after the 2008 financial crisis, the added regulations from the Dodd-Frank Act resulted in high processing fees caused by the mountains of new paperwork and discouraged banks from offering small loans.

Big banks were buying single-family homes as investment properties and renting them out, with many on the social justice left arguing that lower-income buyers were getting shut out of homeownership. Richardson’s observation explained why: When the people who want to buy a small home can’t get a mortgage—not because they don’t qualify but because it’s not worth anyone’s time to process, and therefore to sell, a mortgage that small—then the only eligible buyer for these homes is someone with cash. And who’s got cash? Big, established banks, of course!

Richardson expressed deep frustration with the situation and thought that perhaps banks could be encouraged to use their required Community Reinvestment Act funds to cover the processing fees, but this government effort has already resulted in some banks simply pulling out of areas where they don’t want to lend so that they don’t have to deal with the requirement.

Not long after my illuminating conversation with Richardson, Robert E. Wright of the American Institute for Economic Research reviewed our book. Amid a generally positive review, he had one criticism: The reparations money shouldn’t be spent on low-interest loans for recipients’ business endeavors, as we had suggested. I had actually used Wright’s “The Poverty of Slavery: How Unfree Labor Pollutes the Economy” quite extensively in my argument against the Matthew Desmond essay from the 1619 Project. But I had somehow missed Wright’s 2019 book “Financial Exclusion,” a compendium of the relationships of various marginalized groups with finance throughout America’s history.

So I spoke with Wright about how funding for reparations could be better spent. He complained that, historically, the federal government has been terrible at assessing risk in the business environment or distinguishing between viable and nonviable projects, not least because of its lack of local information. In contrast, even when Black Americans, immigrants and women were legally (or just customarily) denied access to financing, they were able to create banks and insurance companies of their own, sometimes incredibly successful ones.

These institutions existed in the communities they served and employed people who knew their neighbors and the local economic environment well. Therefore, their ability to assess the risk and reward for a new business loan, for instance, went far beyond that of a distant bureaucrat. Wright argues that the U.S. abandonment of this local, traditional kind of banking in the 1990s is part of the story of the financial crisis that followed.

Solutions That Help Build Wealth

There are many possible actions that the federal government could take to benefit Black Americans and other marginalized communities. For example, it could create exemptions from Dodd-Frank for small community banks, remove rules against lending to anyone who has been convicted of a felony, incentivize the creation of community credit unions or capitalize the corporate credit unions upon which community credit unions rely. Some of these ideas might draw on mechanisms similar to what the Fed uses now to provide liquidity to large institutions.

The logic of reparations, as presented in “Black Liberation Through the Marketplace,” could go far to make the moral case for some of the changes we’re considering here, many of which may not even require infusions of cash from the sale of federal assets. It’s time for the liberty movement to join with other movements that have been hurt by the darker aspects of U.S. history and are concerned about wealth accumulation in communities that experienced government oppression. By empowering poor entrepreneurs through their own local financial institutions, policymakers and activists can support and build up these communities that have been harmed.

Rachel S. Ferguson

Rachel S. Ferguson is a professor at Concordia University Chicago in River Forest, Illinois. She is assistant dean of the College of Business and director of the Free Enterprise Center. She is also an affiliate scholar at the Acton Institute. Her research interests include Hume’s classical liberalism, the philosophy of economics and Aristotelian virtue theory. Her new book (co-authored with Marcus M. Witcher), "Black Liberation Through the Marketplace: Hope, Heartbreak, and the Promise of America," will be published on May 10, 2022.

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