Reparations. Is the solution in the bond market?

It is tough to call the discussion on reparations for black American descendants of slaves a debate. It appears to me that any heat from the discussion is generated by the persistent dialogue amongst its supporters and a cool response from blacks who are both sympathetic but resigned to the high probability that the government of the United States will not be shelling out $20 trillion of reparations payments to descendants of blacks held in slavery in the United States anytime soon.

As someone particularly interested in the U.S. banking system and who listens to the arguments predicting its demise or supporting its resiliency, I wonder why leaders of reparations movement have not taken into consideration that pursuing $20 trillion in reparations may not be enough; that investing in a parallel financial infrastructure may be necessary?

Notwithstanding the right to spend $20 trillion in the way that you please, an average of $590 thousand to $1 million per household (my back of the napkin calculation) could generate significant annual income if invested prudently. If, however, the goal is to repair, to somehow put yourself in a position you would have been in sans slavery or to close the wealth gap, then I would think that along with $20 trillion, an amount equal to approximately four years of U.S. government spending, that black recipients of reparations would go the additional step of strengthening their position in the American banking system.

My review of the 20 black-owned banks in America has determined that none of them participate directly in the interdealer/interbank markets. Rather than putting reparations funds into banks not owned by black Americans, funds would go to boost the Federal Reserve accounts of black-owned banks. Black-owned banks could bolster their role in managing community development of black neighborhoods and businesses in need of capital. Black-owned banks could find themselves as the tip of the spear in bolstering America’s productive capacity.

Bolstering the productive capacity of the United States is another way of expanding the jurisdiction of the State. Increasing productive capacity supplies transactions markets with goods and services that when combined with sound monetary policy increases taxable events and tax revenues for the State. Money is energy and taxation diverts some of that energy to the State. 

The power of coercion is at optimal where there is something to coerce.

Right now, reparations proposals are relying primarily on moral and justice arguments. To take a person’s body and abuse it via forced labor is inhumane, abhorrent, cruel. Moral arguments and cries for justice that remind America of the pain and suffering blacks have gone through will not be enough. The State must be incentivized to apply its executive, legislative, and judicial powers to bring about this political solution to the capital problem arising from race. Where the State sees reparations as a tool for expanding its jurisdiction, or at a minimum, not reducing its legitimacy, only then will the State support reparations and craft a narrative that fits and transmits this new wrinkle in its philosophy.

The issue on everyone’s’ minds would be how to pay for $20 trillion of reparations. Can this money be raised in the bond markets? Would domestic and foreign banks be willing to buy, say, $1 trillion of U.S. sovereign debt a year? Would this investment be able to pay for itself where the cash enters the transactions markets and generates tax revenue?

I would advise reparations advocates to start working on a narrative that shows reparations to be an investment and that the investment adds to the expansive needs of the State. Given that there is no serious legislation (beyond the “let’s form a commission to review” law bills) offered for discussion in Congress, this may be the time to start drafting that narrative.

Alton Drew

2 January 2024

For more of my take on the American political economy, purchase my book on amazon.com/author/altondrew.