I’ve been working on collecting some longer thoughts on Piketty’s book now that I’ve finished it (so yes, keep your eyes open for that) and in the meantime I’ve been having fun/getting distracted by playing around with his data, and especially the data from his paper with Gabriel Zucman, which, you know, read, then play too.
One thing I realized as I was going through is that Piketty and Zucman may have incidentally provided a new route to answer an old question – were America to at last make reparations for the vast and terrible evil of slavery, how much would or should the total be?
What is that route? Well, they provide certain annual estimates of the aggregate market value of all slaves in the United States from 1770 through abolition:
As you can see, the amount was persistently and stunningly high right through abolition.
Now, without wading too much into heck who am I kidding diving headfirst into the endlessly-resurrected Cambridge Capital Controversy, the price of capital is determined in large part by the income it generates; so the market value of an enslaved person was an implicit statement about the expected income that slaveholders receive from the forced labor of their prisoners. So we can (by imputing the intervening annual values in their time-series, which I did linearly, which may not be a great assumption but it’s what I did so there it is) compute the real aggregate dollar market value of slaves from 1776-1860, then impute the annual income produced by, and stolen from, America’s slaves. For that, I used 4%, being conservative with Piketty’s 4-5% range.
Then you have two more steps: firstly, you have to select a discount rate in order to compute the present value of the total of that income on the eve of the Civil War in 1860; then you have to select a discount rate to compound that through 2014.
Well, that’s where things get interesting. For now, let’s pick 1% for both of those discount rates (which I am doing for a reason, as you will see). That makes the value in 1860 of all the income stolen by the Slave Power since the Declaration of Independence said liberty was inalienable roughly $378 billion*. That $378 billion, compounded at 1% annually for 154 years, is worth just about $1.75 trillion.
But those discount rates are both low – really, really low, in fact. Lower than the rate of economic growth, the rate of return on capital, and lower than the discount rate used by the government. When you increase those discount rates, though, you start to get some very, very, very large numbers. If you increase just the pre-1860 discount rate to 4%, for example, the 1860 figure leaps to over a trillion dollars, which even at a discount rate of 1% thereafter still comes to well over four-and-a-half trillion dollars today. Even vaster is the increase that comes from increasing the post-1860 rate, even if you leave the pre-1860 rate at 1%. At 2%, today’s bill comes due at just under $8 trillion; at 3%, $35 trillion; at the government’s rate of 7%, it comes to over $12.5 quadrillion. That’s over six times the entire income of the planet since 1950, a number that even if we concluded it was just – and given the incalculable and incomparable horror of slavery as practiced in the antebellum United States, it’s difficult to say any amount of material reparation is adequately just – is in practice impossible to pay.
There are three conclusions I think are worth considering from the above analysis:
1) First and foremost, slavery was a crime beyond comparison or comprehension, since compounded by our collective failure to not only to make right the crime as best we are able but to not even make the attempt (not to mention Jim Crow and all the related evils it encompasses).
2) Compound interest is a powerful force. Mathematically, obviously; but also morally. These large numbers my spreadsheet is producing are not neutral exercises – they are telling us something not only about the magnitude of the grave injustice of slavery but also the injustice of failing, year after year, to begin to pay down our massive debt to those whose exploitation and suffering was our economic backbone. And that only refers to our material debt; our moral debt, although never fully repayable, grows in the absence of substantive recognition (or the presence of regressive anti-recognition).
3) Discount rates tell us a lot about how we we see our relation to our past and our future. The Stern Review, the widely-discussed report that recommended relatively large and rapid reductions in carbon emissions, became notable in good part because it triggered a debate about the proper discount rate we should use in assessing the costs and benefits of climate change policy. Bill Nordhaus, hardly a squish on the issue, notably took the report for task for using a very low discount rate – effectively, just over 1% on average.
It is hard to crystallize precisely the panoply of philosophical implications of how discount rates interact differently with different kinds of problems. In the case of climate change, a low discount rate implies that we today should place a relatively higher value on the costs future generations will suffer as a consequence of our activity, sufficiently high that we should be willing to bear large costs to forestall them. Commensurately, however, a low discount rate also implies a lower sensitivity to the costs borne by past generations, relative to the benefits received today. High discount rates, of course, imply the inverse in both situations – a greater sensitivity to the burden of present costs on future generations and the burden of past costs on present generations.
There is no consensus – and that is putting it lightly – over what discount rates are appropriate for what situations and analysis, and whether discount rates are even appropriate at all. And when we decide on how to approach policies whose hands stretch deeply into our past or future, it is worth considering what these choices, superficially dry and mathematical, say not just about inputs and outputs, but also the nature of our relationship to the generations that preceded us and those that will follow.
*2010 dollars throughout.