What empirical microeconomics tells us about reparations

Ta-Nehisi Coates argues that the United States government should pay reparations to African-Americans for slavery and institutionalized racism. The essay is long and full of supporting evidence, and generally makes a strong case that the US government bears responsibility for oppressing blacks for hundreds of years. While Coates digresses occasionally¬† – into claims of broader guilt by all Americans, or all whites, or into arguments that America’s current prosperity depends on its history of oppressing blacks – those claims are not necessary for his main point to hold water. That point is fairly straightforward: the US government was complicit in a moral evil, and it should take steps to make right for that evil, as it did, for example, for the internment of Japanese Americans during World War II.

Leaving aside the merits of the underlying idea, and the tasking of pinning down what the value of the reparations would be and how to allocate them, I wanted to discuss the practical aspect: what would providing reparations accomplish? Could transferring money to blacks help close the yawning gaps between them and whites that exist across a broad range of social indicators? Reparations need not be cash transfers – Coates cites Charles Ogletree’s idea of reparations in the form of job training programs – but usually the term is associated with the payment of cash to the afflicted group. This fixes a key economic question: what would happen if the US government made a massive financial transfer to every black person in America?

In some sense the right answer to this is “we don’t know”. We have never tried doing this, let alone in an experimental framework that would allow us to measure its effects. Coates does list one empirical example – the German payment of Holocaust reparations to the Israeli government, which is credited with funding the country through a tough spell and contributing to substantial economic growth. But most of those payments went to the government, not to individuals, so it is unclear how those effects would translate to the context of reparations to blacks in the US.

Even though no one has ever run this experiment, we do have evidence on what happens when people receive large cash transfers. The best evidence comes from a paper by Hoyt Bleakley (who is joining Michigan’s economics faculty in the fall) and Joseph Ferrie, about a lottery that distributed land at random to adult white males in Georgia.* The winners of this lottery received land worth approximately as much as the entire wealth holdings of the median person at the time. Given that the average black family has one sixth the wealth of the average white family, this is actually pretty close to the magnitude of the transfer we’d be talking about.

wealth-urban
This image (from Wonkblog) shows that the black-white wealth divide has widened rather than narrowing over time

Large cash transfers help: they make the recipients richer. But they don’t have the long-term social ramifications that you might hope for. The children and grandchildren of lottery winners end up no wealthier and no better-educated than non-winners. The big caveat with this comparison is that the Bleakley and Ferrie paper studies people from the 19th century, so the sample and context are quite different than they are today. However, I’d actually expect those differences to lead to larger effects than we’d see from targeting a poorer, more disadvantaged group. Overall, this suggests that wealth transfers – even massive ones – will not have transformational effects on socioeconomic status that last across generations.

On the other hand, a wide range of evidence suggests that, contrary to stereotypes, people (even poor people) do not “waste” cash transfers on alcohol, cigarettes, or other vices.** Those results are for transfers on a scale much smaller than reparations would operate on, and are for much poorer populations than the typical black American. But implicit in the the stereotype that money will go toward alcohol is notion that poorer people should have bigger problems with this.*** Since even very poor people seem to have no problem refraining from potentially-problematic spending, it is unlikely that this would be an issue for a reparations program.

Taken together, the evidence from empirical economics tells us that reparations, if done as pure financial transfers, would make blacks richer and with few downsides – but that they would not have transformative effects on the long-run gaps in outcomes between whites and blacks. While wealth is inherited, wealthy people also propagate success through their family lines by passing down other attributes – from education to behaviors to social connections to their race – that end up washing out the effects of wealth alone. To fix the black-white gap in a permanent way, we need to address all sorts of other differences as well; addressing wealth alone is not enough.

What about other ways of providing reparations? The literature on job training programs for marginalized groups is fairly discouraging, so I’m not convinced that Ogletree’s proposal would work well (although maybe we need to work on developing better job training). Another possibility is to work through the education system. Roland Fryer’s research has shown that improving middle-school educational outcomes for blacks helps them close gaps in other social outcomes. At the college level, there is robust, although not necessarily causal, evidence that high-quality colleges help blacks quite a bit (and matter much less for whites). One policy that might work is to replace affirmative action with an official reparations program, funded by the federal government, that creates additional slots at all universities to accommodate black students. This would reduce the racial tension that is stirred up by the current system, where people perceive that they are being denied admission based on their race, and where the moral and legal justification for the scheme is not made clear. It might reduce opposition to the program as well.

More broadly, we still need more evidence about what kinds of programs help generate permanent reductions in the black-white social divide. If reparations end up being taken seriously, then the government should fund and promote experimental and regression-discontinuity research into a wide range of possible programs in order to see which ones work. Financial transfers alone may not work – but we have the empirical tools needed to figure out what does.

*In a dark irony, this land came from one of the worst crimes against humanity the US government has ever committed.
**As I’ve discussed on this blog in the past, it is not obvious that these purchases are wasteful; we need to take seriously the idea that people have agency – that they can be trusted to make their own decisions.
***Basic economic theory actually suggests the opposite, since poorer people have a tighter budget constraint. But it also tells us that people’s unaltered choices maximize their own welfare, so this is a non-problem. Chris Blattman believes that the homeless in the US are fundamentally different from similar-looking populations in Africa, but that would only apply to the poorest black people who received reparations.

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