The Pros and Cons of Reparations (Ep. 427)

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Most Americans agree that racial discrimination has been, and remains, a big problem. But that is where the agreement ends.

Listen and subscribe to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.

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On last week’s episode, we started to pull on two threads that look quite different at first glance but, if you pull hard enough, they can lead you to similar conclusions. The first story began with the rise of women’s soccer in England, back in the 1920s:

Stefan SZYMANSKI: They attracted a crowd of 53,000 people, which was a complete sellout crowd.

And subsequently, a ban on women’s soccer, out of concern it might cut into the men’s game:

SZYMANSKI: I think if they hadn’t been banned, women’s soccer today would be a global phenomenon.

And whether something should be done to address this ancient infraction.

SZYMANSKI: Well, I believe that the right answer here is reparations. I think the soccer authorities that grew rich with men’s soccer should be diverting a significant amount of their resources into women’s soccer.

That was the soccer economist Stefan Szymanski, who teaches at the University of Michigan. Another economist, Darrick Hamilton of Ohio State University, argues in favor of reparations to address a much more complicated and painful economic disparity:

Darrick HAMILTON: The racial wealth gap is such that the typical Black family has about 10 cents on the dollar as a typical white family.

The origins of this Black-white wealth gap in America clearly date back to slavery:

HAMILTON: But that history of racial disparity as it relates to wealth-building certainly didn’t end with slavery. There was the Homestead Act. There was the G.I. Bill. There was a system of sharecropping. There’s a system of Jim Crow. There is a system of redlining. It was government-facilitated.

And because government actions helped create the wealth gap, Hamilton argues it’s up to government to address it. Democrats in Congress have for a few decades wanted to study and develop proposals for some kind of reparations. But what would reparations look like? What form would they take? How much would they cost? Who would be eligible? These are important questions that often get lost in the noise whenever the topic of reparations comes up in the public sphere. The very word has become so loaded as to be reduced to a slogan, or an anti-slogan, depending on your position.

Consider two recent polls that illustrate this friction. The first poll, by Monmouth University, found that 76 percent of Americans agree that racism and discrimination are, “a big problem.” And that included 71 percent of white Americans. This represents a huge increase over just the past few years. Granted, those numbers may be high because there’s been so much related news lately and attention paid lately. And talk is cheap: it’s easy to say you think something is a big problem; does that mean something gets done about it? And if so, what should be done about it?

Let’s look at the second poll, which was conducted by Reuters and Ipsos. It found that 50 percent of Black Americans support cash payouts to the descendants of slaves. And how many white Americans agree? Only 10 percent. So, how will this play out? The city of Asheville, N.C., may have just provided a good clue. Last week, its seven-member city council — with two Black members — unanimously passed a reparations resolution. It has two primary components. The first: a formal apology not only for the city’s role in slavery but for the subsequent decades of segregation and discrimination in housing, education, policing, labor, and so on.

The second component — the reparations — does not, however, include direct cash payments. It is essentially a holistic affirmative-action program, directing money and resources to affordable housing, business and career opportunities, education and health care, neighborhood safety, and more. The Asheville resolution also, “calls on the state of North Carolina and the federal government to initiate policymaking and provide funding for reparations at the state and national levels.” So, today on Freakonomics Radio: how likely is that to happen? What are the pros and cons of reparations? And just how slippery is this slope?

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The Ohio State economist Darrick Hamilton, who is Black, is pro-reparations. But he takes care to not be too prescriptive when it comes to dollar figures or eligibility requirements. At least not yet. He prefers the process be started by a federal commission.

HAMILTON: First, we certainly need to have the commission to do the study to make all the evidence available of the atrocities that have taken place.

But other people have gone ahead and put dollar figures on reparations. The Duke economist William Darity, one of the elder statesmen of reparations research, took a look at what “40 acres and a mule” would be worth today. That was what freed slaves had been promised after the Civil War — a promise that President Andrew Johnson reversed shortly thereafter. Darity ran the numbers, based on the amount of land the freed slaves had stood to inherit, compounded at 6 percent interest since 1865. The total? Just over $3 trillion. And that’s just for the 40 acres and a mule they were never given.

Darity has also calculated what it would cost for a reparations program that would erase the Black-white wealth gap. That estimate comes to $10 to $12 trillion; another estimate, by the University of Connecticut political scientist Thomas Craemer, comes to $14 trillion, by including the cost of the slaves’ unpaid labor. Now, let’s say you agree in theory that Black Americans descended from slaves are entitled to reparations for both the moral injustice of slavery and the financial injustices from slavery onward. Even so, $14 trillion may strike you as an unrealistic amount of money. It represents nearly 70 percent of a full year of U.S. G.D.P.

HAMILTON: The arguments that are typically made are, “Can the government afford it?” The last financial crisis is indicative of our ability to generate resources. It was something in the order of $700 billion that was passed by Congress to address the last Great Recession.

More recently, Congress has been spending trillions of dollars on pandemic relief.

HAMILTON: Our ability to generate resources through public ways, I think has been dispelled by recent actions. So, we can certainly afford it and generate the resources if we desire.

This would require the federal government to take on even more debt than it has lately. That in and of itself will make any sort of large financial reparation proposal unpalatable to some people. Others may find it unpalatable for different reasons. Here’s how Senate Majority Leader Mitch McConnell put it: “I don’t think reparations for something that happened 150 years ago for whom none of us currently living are responsible is a good idea.”

HAMILTON: Other critiques about reparations include, “Well, won’t it be divisive? Won’t you be creating further divisions between Blacks and whites by making the point that you’re giving a handout to Blacks?” Well, if reparations is done correctly, we would have that reconciliation.

For Hamilton, reparations being done “correctly” begins with an acknowledgment of why they are necessary.

HAMILTON: Clear-throated, full acknowledgment of the atrocities that have taken place and the fact that these were atrocities that were committed with the will of the government, the complicity of the government, and sometimes actions of the government.

But also:

HAMILTON: We would need a moral shift in our American ethos in order to enact reparations. The fact that we don’t have it now isn’t reason not to do it. It’s even more reason to do it, because we need to cleanse our soul. We need to have a more perfect union. Not only because it will lead to greater equity, prosperity, and perhaps defuse some of the cleavages that exist in America today between us versus them. It is the right thing to do. It is the just, moral-compass thing to do. That in and of itself should be reason to do it.

Okay, so let’s say the moral shift does happen. And let’s say it leads to a reparations package that does include a cash payment of — just for argument’s sake — $100,000 to every eligible Black American.

Glenn LOURY: Let’s say $100,000, that’s a lot of money. That would make a real difference in people’s lives.

That’s Glenn Loury, an economist at Brown University. A few decades ago, he became the first Black tenured economics professor at Harvard.

LOURY: Every African-American person receiving a six-figure transfer would relieve a lot of people’s problems paying their rent. It would allow them to educate their children more effectively. They might move to different neighborhoods. They might be able to invest in their own education and personal development. They might be able to take better care of their elderly. They might be able to avail themselves of alternative education for their children than what they get from the public schools. They could retire their college debt. I mean, there’s no way around the fact that getting 100 grand is a good thing. You will not hear Glenn Loury say that that is not a good thing.

But you will also not hear Glenn Loury say that he is actually in favor of reparations.

LOURY: The basic fact is that whites have more wealth than Blacks, however you measure. Now, partly that’s a consequence of history and partly that’s a consequence of ongoing dynamics. People inherit wealth from their forebears, from their parents, and so on. So, part of that is a reflection of the past, but part of it is also a reflection of what’s going on in terms of the creation of wealth. A lot of people will have created the wealth that they possess through years of effort and entrepreneurship and so on.

Stephan DUBNER: So, if you have that complication to deal with, right, which is that it’s not all a consequence of history, how do you start thinking about the smartest ways to shave that Black-white gap in America today?

LOURY: First of all, I would question whether or not that’s the right objective, okay? The issues that should concern us, I think, are largely issues that transcend the racial categorization. I would be thinking about people without wealth. I wouldn’t be thinking about people who are Black without wealth. There’s looking backwards and there’s looking forwards. So, we can look backward as many have done and attempt to calculate and calibrate what were the impact of redlining, of Jim Crow segregation, of slavery, of the failure to distribute 40 acres and a mule to the freedmen and so on, and we could try to do an estimate of what would wealth be but for that historical thing.

But the other thing is looking forward. Wealth is a stock. Income is a flow. So, the stock evolves over time under influence from the flow. We can shift wealth around at a point in time. But we may not change the steady-state wealth holdings if we don’t deal with the flow. So, that’s why I want to say the creation of wealth deserves to be a part of this conversation. Because, thinking simplistically, but I think the arithmetic works out, if I don’t change the flows, I’m going to end up back in the same situation after a while, no matter what I do.

Ideologically, Loury is hard to pigeonhole.

LOURY: Well, I have of late been saying I’m a man without a country. I call myself a centrist. I believe in markets. I think capitalism has been a force for good in the world overall. I think that the tendency toward planning and social control is mischievous.

Loury grew up on the South Side of Chicago. His mother was a secretary for the Veterans Administration and his father worked for the I.R.S.

LOURY: I was born in 1948. I can remember getting pulled over by police officers driving on the Dan Ryan Expressway as a kid 17, 18, 19 years old. And all the cops were Irish, mostly. They were belligerent. They were discriminatory. They were contemptuous. I mean, I remember the civil-rights movement and I remember that there were many people who opposed what Martin Luther King Jr. and company were trying to accomplish. You know, there were arguments about stuff that we take for granted right now. If you were to look at the statistics there’s a much bigger African-American middle class and so on. The penetration in occupations and institutions is quite different from what it had been and so on.

Despite this penetration, and progress, Loury has experienced plenty of racism.

LOURY: I’ll just tell you one. The year is 1982. I’m in the faculty club at Harvard University. I’m a newly tenured professor of economics and John Kenneth Galbraith — the great John Kenneth Galbraith — is engaged in a conversation in the faculty club. Do you know that he extends his hand to shake without turning his head to look me in the eye? He continued his conversation and he had his hand out like this for me to shake it. And I couldn’t believe what was happening to me.

DUBNER: So, when you hear someone use the phrase “systemic racism” — a phrase we’ve been hearing much more lately in the U.S. — your response to that phrase is what?

LOURY: I think you’re playing with words and avoiding the hard work of trying to discover complex historical causal chains. It’s a slogan. It’s a bludgeon. You’re saying, “Be for motherhood and apple pie.” Who’s not against “systemic racism”? But if it explains everything, well, then at the end of the day, it doesn’t explain anything at all, does it?

DUBNER: When you say “it dismisses the hard work of trying to understand those complex causal changes,” give me an example of what you mean by that. Give me an example of the difference between a causal explanation or mechanism and sloganeering.

LOURY: Well, let’s take the issue of school discipline. Suppose we were to discover on examination that the racial disparity in the rate of kids being suspended from school disfavored African-Americans, and we were to attribute that fact to systemic racism. But in fact, what might be happening in the schools is that for a variety of complicated social and historical, economic, and political reasons, the African-American kids on average are showing up with patterns of behavior that are disproportionately disruptive and that reflects itself in their being suspended at a higher rate.

Now, of course, it might be racism. It might be that the school discipline system is systemically biased, but it might not be. And the difference between those two states of the world where racism explains everything or where complex social and historical processes are at work is the difference between solving the problem and not solving it.

DUBNER: So, let me ask you this. Not long ago, Glenn, you said, “I think the reason that we’re talking about reparations now is because people are out of ideas. They don’t know what to say about racial disparities other than to point a finger and then try to create a kind of political issue.” Talk to me a little bit more about that, what you think are either economic or educational or tax policy programs that you think really would work better.

LOURY: Well, everything is not policy, and part of what I’m getting at there is that some of the problem has its roots in the dynamics internal to the African-American community, which we are responsible ourselves to address. And this is very difficult territory because it feels like blaming the victim to a lot of people. You know, if I observe that — take the cops and the problem that we have in the cities with order maintenance and profiling. So, this has now become kind of a trope. I mean, it’s now argued without any second thought. “You profiled me. That was racist.” I’m Black. I’ve got a Ph.D. from M.I.T. I’m a middle-class person, but I walk into a department store and I notice that the security person has his eye on me. I feel put upon.

Now, that’s true. It happens. A police officer asked me to open my trunk when I’m stopped and I’ve got a New York Times open on the front seat of a B.M.W. and I’m wearing a suit. What does he think? I’ve got a cache of drugs in my trunk? I’m offended by that. Of course, that happens. On the other hand I’m an economist and we believe in statistical decision theory as a reasonable model of how it is that uninformed individuals act under incomplete information. And one of the things that they do is they correlate unknown things with the known things and they use statistical frequencies. And the bottom line is my race is correlated with the behavior that they can’t observe. And so, they use my race’s information. I don’t know how you stop people from doing that.

I think you can legislate against it. You can administer against it. But at the end of the day, there’s something very cognitively fundamental about that, and it’s something that would affect the behavior of everybody, regardless of their race. Anyway, that’s a digression by way of saying if two-thirds of the kids born to a Black woman are born to a woman without her husband, and if amongst African-American adolescent males, I observe a high frequency of behavioral maladaptation, of aggression, of whatever, am I entitled at all to consider the possibility that the nature of African-American family dynamics might have a role to play in the behavior problems of some male adolescents, which then reflects itself in a lot of this drama that we see between the cops and African-American men on the streets of these cities?

I think there are issues that we African-Americans have to confront so that the underlying causal model, historical violation reflected, for example, in a wealth gap, leaves us with a contemporary problem, the remedy for which relies on public policy. That model is incomplete because the historical violation did not only deprive us of assets. It also created context within which the dynamics of social development and evolution left us with large numbers of violent young men in the cities. That’s a problem in and of itself. Read what’s going on in Chicago on a daily basis. It’s not letting white people off the hook or America off the hook for its historical crimes to observe that some of the stuff that’s holding us back is within our reach to be able to deal with and really can’t be effectively dealt with in any other way.

The indirect argument — “I’ll solve the problem of violence on the South Side of Chicago with more social spending, with more money for the schools, with more social workers, with midnight basketball, with whatever” — I don’t think the evidence is very strong that I can get all the way to where I want to go in that way. That’s the kind of thing that I’ve been feeling the need to call to people’s attention, that we African-Americans have some responsibility for how it is that we raise our children and organize our communities and so forth. I think that should be a part of the discussion.

DUBNER: So, if that’s the part of the discussion you want to raise, that gets me to the next level, which is how do you address that? Because it strikes me as you’re speaking that a lot of the more observable issues that people speak out against, whether it’s overt racism, whether it’s income gap, and so on — there are solutions, I’ll kind of put those in quotes, proposals for solutions that look pretty sensible and pretty mathematical. The problem you’re addressing, however, it’s harder to put it into numbers. And I appreciate that you bring up the fact that it’s difficult to even talk about in certain circles. And in fact, if you weren’t Black, you probably wouldn’t have brought up that point, am I right?

LOURY: Yeah, well, I’m not “not Black.” I am Black. Therefore, I don’t know what I would have done. But I expect that you would not have brought up that point or many others who are not Black, and I don’t blame them because nothing but grief would come of it.

DUBNER: So, considering that you do bring up the point and that it does concern these unobservables, do you have any ideas for how to address those?

LOURY: I do not, to be honest with you. I mean, I can gesture at some things. You know, I can talk about the role that intermediary institutions between the individual or the household and the state. So, this would be voluntary organizations, this would be churches and things of this kind. What about Big Brothers and Big Sisters? What about mentoring? You know, it’s not as if we are completely prostrate here without any capacity for self-actualization. How do we educate our children? So, this woke moment of heightened sensitivity about racism, which manifests itself as much amongst whites, I would reckon, on the left as it does amongst African-Americans, I think that bespeaks what’s actually possible.

I think there’s a lot of room for maneuver, a lot more room for maneuver than people allow. The main thing I’m trying to say is the country is complicated and it’s variegated. And when we get into the racial-redistribution business, we really need to be careful about the business that we’re getting into. Because we are going to create precedents in our law and in our politics that may be difficult to live with. And in particular, this idea of deciding who’s a descendant of slaves entitled to benefit. Think about the West Indian immigrants. They’re Black. I’m talking about people who came from Jamaica, Barbados, and stuff. Think about the West African immigrants. They’re Black. I’m not talking about the guy that got off the boat or the plane. I’m talking about his son or his granddaughter. Now, we’re going to cut them out, you know?

I mean, what about the mixed-parentage person — they have to identify as Black? So, now we leave it up to a subjective? This kind of thing, it is — and I don’t mean this pejoratively, I really don’t — but it smacks of a South Africa kind of classification scheme. We don’t want that in America, I would say. Not only is the 14th Amendment a problem here, believe me, it’s not only going to be Clarence Thomas who objects to this kind of business for the U.S. government. We don’t want it for our politics. We don’t want it for the health of our society, I would say.

DUBNER: So, you want to address poverty instead of race, essentially. Is that right?

LOURY: Yeah. I mean, I address race around the margins because I don’t want to repeal the laws against discrimination. But what would it be? We’ve got 35 million or so African-Americans. And if the number is a — $50,000, $75 we’re into the trillions. We’re Social Security-magnitude social intervention if we were to go down that road. Do we in America, in the 21st Century, really want to construct a Social Security-magnitude social intervention based on race? I don’t think so.

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The economist Glenn Loury has been telling us why the idea of reparations for Black Americans does not sit well with him.

LOURY: I worry about the consequences for my country of the reification of racial categorization as the basis for state action.

So, what kind of policy ideas does Loury support to help low-income populations — Black, white, or otherwise?

LOURY: Well, I’m a big fan of the kind of argument about early investment in human development. I think you’ve got a lot more malleability when you’re trying to intervene at between kindergarten and 12th grade than when you try to intervene with adult populations. The evidence seems to suggest that. The estimates of the rates of return on early investment in the best programs are really quite respectable in terms of social rate of return.

But even a solution as sensible as investing more in early education can lead back to the same systemic inequities the solution is meant to address.

Richard ROTHSTEIN: Schools are more segregated today than they ever have been in the last 50 years.

That’s Richard Rothstein, a historian with the left-leaning Economic Policy Institute.

ROTHSTEIN: And the reason they’re so segregated is because the neighborhoods in which they’re located are segregated.

Rothstein is the author of The Color of Law: A Forgotten History of How Our Government Segregated America. In it, he describes how for decades federal and local housing authorities not only subsidized and invested heavily in white suburbs — like Levittown, N.Y. — but expressly forbade Blacks from owning homes there. Over time, housing values in those white suburbs appreciated much more than houses in Black neighborhoods. How would Rothstein address this issue now?

ROTHSTEIN: We need an affirmative-action program in housing. We need to subsidize African-Americans to buy into communities that were once affordable to them but are now no longer.

Affirmative action programs have become standard practice — although not without controversy — in other areas.

ROTHSTEIN: They’ve been quite successful in diversifying workforces and in diversifying college campuses. In the 1960s, I was a research assistant, a young man, at the Chicago Urban League. And one of my jobs was to count up the number of policymaking positions in the corporate sector of Chicago. And I identified 4,000 policymaking positions. There wasn’t a single African-American. Fifteen years later, you couldn’t have a corporation in Chicago without significant diversity — not enough, but significant diversity — because of affirmative-action programs that were implemented as a result of the civil-rights movement of the 1960s.

How would such a program work for housing? Consider Levittown, which was built just after World War II as affordable housing for the families of veterans. White veterans.

ROTHSTEIN: The federal government should perhaps be buying up homes in Levittown at market rates when they come up for sale and reselling them to African-Americans at the price that they can afford, something similar to the $100,000 that their ancestors would have been able to purchase those homes for.

In other words, give Black Americans today the same kind of boost white Americans got from federal, state, and local housing policy in the postwar era.

ROTHSTEIN: The civil-rights movement of the mid-20th century was an activist movement. But the civil-rights movement never addressed the existing segregation that had been created by unconstitutional federal, state, and local policy. We need a new civil-rights movement that’s going to pick up where that one left off. What’s missing is the political support for those policies. People are tempted to think that this is a problem of the Trump administration. It’s not the problem of the Trump administration. The Democratic Party is a coalition of low-income, minority voters and suburban white voters. On many issues, that coalition works. But when it comes to desegregating housing, those suburban white voters are — the term that’s used is NIMBYs, Not In My Back Yard.

It makes sense to focus on housing in any discussion of poverty or wealth, since housing is both a significant cost for any family and — if you own your home — a significant chunk of your net worth. That said, the economist Darrick Hamilton — along with his onetime professor William Darity — also came up with another idea, one that starts well before someone is old enough to buy a house.

HAMILTON: Baby bonds is a birthright to capital.

It’s an idea that’s been around for a long time in various forms.

HAMILTON: Baby bonds is an idea that is an evolution from people as far back as Thomas Paine, when Thomas Paine described how at 18 everyone should be seeded some land so that they can have an opportunity for economic security and economic mobility.

The idea was that America was a country rich in resources, and that everyone was entitled to a share. Back then, the resources were more of the natural variety. Today, the idea is to give everyone a financial share.

HAMILTON: And that’s what baby bonds do. It says at birth, we will seed you with a public resource that will accumulate over time to adjust for inflation.

In other words: every child in America would have a trust fund.

HAMILTON: And when you become a young adult, you can use that seed capital to purchase an asset like a home, like a debt-free education, like some capital to start a business so that you can generate wealth and economic security over your life.

New Jersey Senator Cory Booker, when he ran for president last year, made baby bonds a key part of his platform.

HAMILTON: He seeds every newborn an account at birth worth $1,000 and those accounts would be adjusted over time based on the income position of your family until the child reaches 18 years old. So, it would be adjusted in a progressive way. So, if your family is not doing as well in terms of their income position, they would get the largest contribution to their account from the government. And that would be progressively scaled down depending on how much income your family reports on their taxes.

Booker estimates the cost of this program at roughly $60 billion a year — a little over 1 percent of U.S. government spending. Baby-bonds backer Darrick Hamilton, remember, is an economist in favor of reparations. Glenn Loury is an economist against the idea of reparations. Now, are baby bonds a form of reparations? Some might say yes; but it’s also easy to say no — after all, they have nothing to do with race, only income level. Maybe that’s why baby bonds are an idea that even Glenn Loury would consider. Maybe.

LOURY: To the extent that you decided that you wanted to do something about inequality that was deeply structural and that was a massive commitment — financial commitment by the government, setting up accounts for everybody along with their Social Security number at the Fed and putting a little bit of money in there. I mean — this is not Bernie Sanders that you’re talking to here, okay? So, that might not be at the top of my policy agenda, but I could see it getting through somebody’s Congress and I wouldn’t fall on my sword about it.

Another financial-aid idea that’s been gathering momentum is a universal basic income, or U.B.I. It’s a much larger, more expensive idea than baby bonds, as it would provide ongoing payments to everyone. Imagine $1,000 a month to every U.S. citizen over age 18. How does Darrick Hamilton think about U.B.I. as a means to address the racial wealth gap?

HAMILTON: We know that those that are at the low end of the income spectrum, by definition, they’re going to have to consume because they’re a subsistence population. So, they would use their income towards subsistence. And there’s nothing wrong with that. That’s a good thing, if their lives could be made better. But at the top end, those that have a lot, you’re basically subsidizing their savings and thereby enhancing the racial wealth gap. So, in execution, U.B.I. is very problematic.

Hamilton is concerned about a similar problem if, someday, the U.S. were to pay cash reparations to the descendants of slaves.

HAMILTON: There is controversy about whether reparations should be paid in the form of literally a check going to Black people of a certain amount. At issue for me is not whether Black people should get a check. At issue for me is that Black people don’t own the means of production, nor do they own a great mass of land in America. So, as a result of not owning the assets of America, you might get the perverse action of reparations providing a stimulus that, iteratively or in a multiplicative way, benefits those that own the means of production and land in America, and thereby leading to greater inequality.

And addressing that issue — Black participation in the means of production, in the owning of assets — is the central focus of this man.

Segun IDOWU: Yes. My name is Segun Idowu. I’m the executive director of BECMA, or the Black Economic Council of Massachusetts.

Which does what?

IDOWU: So, BECMA serves essentially as the Chamber of Commerce for Black businesses across Massachusetts, to advocate for existing businesses and ensure that we have or get access to a piece of the pie, or, as Congressman Pressley would say, not just having a piece of the pie, but being able to bake the whole damn thing or being able to own the bakery itself.

A lot of the conversations happening these days around wealth inequality — and just about every other social or economic issue — talk about things at the federal level. Idowu thinks that’s a distraction.

IDOWU: The state continues to get away with not doing anything because of the focus on the federal government right now. And so, for us, it’s like — it doesn’t matter who is in the White House. The state has the power to do many, many things and they continue to drop the ball.

BECMA was founded in 2015 after the Federal Reserve Bank of Boston published a report called “The Color of Wealth.”

IDOWU: And one of the startling statistics was that the median net worth of the white family was $247,500 and the median net worth of the Black family was $8. Black business leaders founded BECMA as a way to both support existing Black businesses as well as promote new ones with the belief that if we’re going to address the racial wealth gap, one way is through business creation, which generates wealth for the family of the owner, employees who work there, and the community that it serves.

A white family in the U.S. is more than twice as likely as a Black family to hold business equity. One goal of BECMA is to help Black-owned businesses by giving them more visibility to investors.

IDOWU: When we think of venture firms in particular there are reports that show that 1 percent, barely 1 percent, of their annual investments go to Black-owned businesses.

Black-owned firms are also substantially less likely to get bank loans. BECMA is looking to shrink the entrepreneurship gap. One proposal is a reconstruction and rehabilitation fund with a billion dollars in contributions coming from private firms in Massachusetts.

IDOWU: There are reports that say that somebody owes me and my friends $14 trillion, so this $1 billion really is not a lot to ask for.

Idowu has also proposed that big philanthropies in Massachusetts set aside 1 percent of their assets for the BECMA fund.

IDOWU: You know, this reconstruction and rehabilitation fund would be investing in things like alternative economic models. It would be investing in purchasing land so that we own land. It would be invested in homeownership and building homes and making sure that we’re able to purchase homes across the state. It would invest in things like business ventures.

There’s one industry in particular where Idowu sees a rich opportunity for Black investment:

IDOWU: So, November 8, 2016, Massachusetts voters passed Question No. 4, which legalized recreational marijuana. There’s a former city councilor, Tito Jackson, who ran for mayor of Boston in 2018. And one thing he points out is that if you want to start a cannabis business in Massachusetts, you have to have no less than $1 million. What Black person do you know walking around Massachusetts has a million dollars in disposable cash sitting around to open up a business? Zero. Even our wealthiest Black people don’t just have a random million dollars just sitting there, you know?

This is an industry where it can generate billions of dollars in Massachusetts alone, which is tax revenue. And this is an area where I think we know what we’re doing. And so, to then deny us the ability or the opportunity to open up a business — like this, literally how many opportunities, anywhere in history, do we get to see an industry start from the beginning, right? I mean, this, in any of our lifetimes, is the first time. And we are already setting up these inequities in the process, ensuring that 100 years from now, we’re going to be holding protests and complaining about the fact that there is a lack of equity in this industry. And yet, we could have gotten it right today.

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Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Zack Lapinski. Our staff also includes Alison Craiglow, Greg Rippin, Matt Hickey, Corinne Wallace, Daphne Chen, and Mary Diduch. Our intern is Emma Tyrrell; we had help this week from James Foster. Our theme song is “Mr. Fortune,” by the Hitchhikers; all the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.

Here’s where you can learn more about the people and ideas in this episode:

SOURCES

  • Stefan Szymanski, economist at the University of Michigan.
  • Darrick Hamilton, economist at Ohio State University.
  • Glenn Loury, economist at Brown University.
  • Richard Rothstein, historian and author of The Color of Law: A Forgotten History of How Our Government Segregated America.
  • Segun Idowu, executive director of the Black Economic Council of Massachusetts.

RESOURCES

EXTRA