Why slavery reparations could help the economy

In the May 21 issue of The Atlantic, Ta-Nehisi Coates re-opened the question of whether the United States government should pay reparations to African-Americans for the crimes of two and a half centuries of slavery, 60 years of Jim Crow-style segregation and decades more of racist housing policies, zoning and community development. His conclusion - that a great accounting of wrongs must take place, as well as a decision about how to make amends for them - has inevitably sparked disagreement. But set that aside. Imagine we have decided yes, as a society we must pay a price for these injustices, and it must be large. Those payments could well constitute the stimulus that the U.S. economy needs to take it into the next century.

To the economy, stimulus is stimulus, as long as it's done right. Whether it is paid to a group of people based on where they live, their ethnicity or their religion might matter to politics, but to the economy, it doesn't matter - as long as the money is put to work through either consumption or investment. The reparations-as-stimulus idea gets a short mention from Coates, who writes that:

"In the 20th century, the cause of reparations was taken up by a diverse cast that included the Confederate veteran Walter R. Vaughan, who believed that reparations would be a stimulus for the South."

Vaughan, a former confederate soldier turned Idaho politician, recognized that "pensions would financially benefit former slaves and would indeed be a semblance of justice for their years of forced labor," according to an article in the summer 2010 issue of Prolog magazine, a publication of the National Archives. But the outcome Vaughan looked for involved "ex-slaves spending their pensions in the South in order to give the devastated southern economy a financial boost."

Vaughan's vision is too simplistic to apply to modern times. Today reparations would affect 44.5 million Americans, most of whom are in a position, or could eventually be in a position, to do far more than spend. The stimulus would lead to both entrepreneurship and investment and potential direct poverty alleviation for 3.2 percent of the total population, assuming that cash-based reparations payments would be large enough to lift even the poorest recipient above the poverty line. This would affect the roughly 27 percent of African-Americans who were below the poverty line in 2012.

Put those elements together and there is a prime case for stimulus that would both alleviate poverty directly, and provide payments to people who can either grow their investments or start or expand businesses.

Any reasonable program would start with direct cash payments of sufficient largess that it should be able to eliminate any reasonable consumer debts and allow the recipient access to retail banking services (the poor are notoriously under-served by financial institutions). This assistance could immediately affect more than 30 percent of the participants in the Temporary Assistance for Needy Families program, boosting them in such a way that they no longer need to receive benefits, according to figures from the Urban Institute. The payments would be a huge boon for the states who administer the block grants behind these programs. Imagine similar reductions in the number of users of food stamps and medical programs.

The drawback is that one-time payments are temporary and we do not want to find ourselves, one or two years down the line, back where we started. Coates spends a good part of his essay talking about the development of major cities and how African-American communities developed within them. This is where reparations can have a more lasting effect. All of these historically blighted neighborhoods need to be modernized. Universal broadband and Wi-Fi Internet access is a great start, and should be combined with transferable tax credits to encourage new business formation, particularly if new businesses start with local ownership. By making the tax credits transferable, with some limitations, these programs would encourage outside investment so that these new businesses can expand and more easily access capital markets.

Coates has given us a lot to think about. The temptation is to argue about what is ethically "right." But in doing so, we shouldn't ignore the also interesting possibility that we could be looking at a pilot program for a new America.

Michael Maiello worked for ten years at Forbes as a writer, columnist and editor. The opinions expressed are his own.