Capital and Moral Inheritance

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.

Data attached:

piketty slave reparations

*2010 dollars throughout.

My Letter in Support of Erik Loomis

Sent but a minute ago-

Dean Winnie Brownell, Provost Donald DeHays, President David Dooley,

I write in support of Prof. Erik Loomis. Prof. Loomis is a brilliant, insightful, and talented writer and thinker whose extra-academic pursuits have contributed to the greater flourishing of knowledge in our society. Over the last few days he has been targeted by a purely political smear campaign because he is an easy target for an extremist political movement raging against a moment of helplessness. I strongly encourage you, as leaders among the guardians of the flame of the academy and caretakers of a venerable institution of public learning, to support Prof. Loomis in this hour. While Loomis’ extra-academic activities are not technically within the bounds of his duties as a professor, the erudition and incisiveness of his writings, his broad audience, and his critical acclaim bring credit upon the University of Rhode Island, and are precisely the emerging forms of increased engagement with a broader audience that the academy, especially the public academy, should be encouraging. Academic freedom is not a laissez-faire institution; it requires those charged with ensuring it to wield their shield proactively, to not merely acknowledge the security of intellectuals to pursue ideas but to vigorously affirm them, including and especially at difficult hours. I hope you will use this opportunity to do so.

Thank You,
-[SR]

You Can Save The World But The World Can’t Save

Matt Yglesias and Tim Fernholz have both written great stuff about how US government borrowing is supporting US household deleveraging, a process Fernholz calls the “invisible bailout.” And they’re right, and for important reasons – as Yglesias says:

But when the household sector tries to reduce its indebtedness it needs to do something to make that happen. Stacking up huge piles of money in the closet is not a very sound method. As an individual, you don’t really need to think about this. You save by either lending money to your bank or else by purchasing a financial asset (stock, ETF, mutual fund, bond) from someone else. But that just puts the money in the bank fault or in someone else’s closet. Ultimately the money saved has to go to something.

What’s really interesting about that, though, is that it’s also true on a global level and not just a national one. One of Fernholz’s charts shows that the US has net-delevered even relative to pre-crisis 2007 levels. This should not only give a lot of pause to American austerity pushers, but austerity pushers everywhere. For if the US is net-saving, somebody else is net-borrowing. Europe? Maybe. But as austerity gets pushed harder there then that means either somebody else is saving less or some other party is borrowing more or both. Just like we can’t all be net exporters, we can’t all be net savers. In some sense, all saving is simply being the counterparty to someone’s borrowing (since saving is an attempt to push current consumption into the future and borrowing is the opposite) and therefore if you’re not affecting net global indebtedness you’re just squeezing the balloon. But net global indebtedness should be driven by the desire to save, not the desire to borrow – as long as the world is accumulating capital and is looking for some kind of store of value or investment return then they’ll find something, but in the absence of that you’re not going to magically find money to borrow. So the real question we should all be answering is “given the current global demand for savings how can we allocate that capital?” not “how can we reduce the federal government’s borrowing?”

I think this is all getting a little confused by the Euro crisis. Not being able to run experiments like this is what makes macroeconomics such a headache, but I’d bet dollars to donuts that on Earth-beta where there was never a European monetary union there is no debt crisis in Europe and most developed country would be currently borrowing at super-low rates, which is in fact what we see elsewhere.

Doming it up @SixthandI

The Jewish Perspective On #OWS Rolling Jubilee

A lot has been written and debated about Rolling Jubilee, but one perspective I haven’t seen is a specifically Jewish one. Jewish tradition and thought is rich and dense with ideas about tzedakah, a word that literally means “righteousness” or “justice” but is usually used to mean charity, especially through giving.  Tzedakah is a high mitzvah (a mandatory good deed), and Jewish thought leaders throughout the ages have given lots of thought to how much, to whom, and in what manner to give.

Among the greatest Jewish thinkers on the subject (among many others) was Moses Maimonides; his eight ascending levels of tzedakah are well known to most alumnae of Jewish education (they were posted on the walls of classrooms at my Hebrew school).  Rambam said the very highest level was a gift, loan, or partnership that allowed a needy person to start a business. But the second-highest level was this:

one in which the benefactor has no knowledge of the recipient and the latter has no knowledge of the individual source of charity—matan b’seter [“giving in secret”]. This is practicing the mitzvah of charity for the sake of the mitzvah [since the benefactor has no benefit, social or egoistical]. Such charity is like the courtyard in the [ancient] Temple where the righteous used to place their donations secretly and the poor would benefit from them in secret. Similar to this secret courtyard is the act of one who puts his money into the charity box [or funds].

I think this should ring a few bells to those familiar with Rolling Jubilee. By definition, when you contribute to their fund, you have no idea whom will benefit, and for the most part neither do they. And in fact you aren’t really assessing anyone’s worthiness of receiving the gift. I wonder, though, what Maimonides would have made of the fact that many of the beneficiaries of Rolling Jubilee may not even know they have benefitted at all.

Now there are plenty of  quite legitimate issues you can raise with this program. But I think it has a lot of underlying merit.

The 90s Were Kind Of Weird

Via Jason Kottke, Bob Dole’s campaign website is still on the internet. Among the awesome nuggets (I personally love the cookie recipe), you can see debate highlights. This is Bob Dole’s closing statement from the first debate:

Thank you, Jim. Thank you, Mr. President. Thanks to everyone for watching and listening. I want to address my remarks to the young people of America, because they’re the ones who are going to spend most of their life in the 21st century. They are the ones who have the challenges, and there are people out there making predictions that it’s not going to be the same, you’re not going to have the same opportunity, it’s going to be more deficits, more drugs, more crime, and less confidence in the American people. And that’s what you’re faced with, what parents are faced with and what grandparents are faced with.

It’s important. It’s their future. And I would say to those – I know there are more young people experimenting with drugs today than ever before, drug use has gone up. If you care about the future of America, if you care about your future, just don’t do it.

And I know that I am someone older than you, but I’ve had my anxious moments in my life. I’ve learned to feed myself and to walk and to dress, and I’m standing here as proof that in America the possibilities are unlimited. I know who I am and I know where I’m from, and I know where I want to take America.

We are the greatest country on the face of the earth. We do more good things for more people in our communities, our neighborhoods, than anywhere that I know of.

This is important business – this election is important. I ask for your support, I ask for your help. And if you really want to get involved, just tap into my home page at http://www.dolekemp96.org.

Thank you and God bless America.

As a young person in 1996, I would have been totally befuddled by this. Obviously I think it was aimed more at old people who wanted young people to hear something like this. But especially if I was in high schooler (I was actually 10) I don’t know what I would’ve made of Bob Dole personally exhorting me to stay away from drugs.

Also: plugging his website, that must have been a first.

One-Term Party Control Is Really Rare In America

Matthew Dickinson has a terrific post about how hard it is to unseat a sitting President. Rather than disagree, I thought I’d just take a different perspective on it.

Barack Obama’s second term in office will be the 57th term of office since the Presidency was inaugurated. The office has been held by members of five different parties – the Federalists (I’m including Washington here), the Democratic-Republicans, the Whigs, the Democrats, and the Republicans. I made a nice little spreadsheet about it, using colors and everything:

Presidential Terms By Party

The result:

As you can see, there are very few instances where a party took the office and lost it again in the next election. Not counting the weirdness of Andrew Johnson, there was the Whig-Polk Sandwich of 1840-52; the Cleveland-Harrison Swaperoo of 1884-96; and Jimmy Carter. Other than that, once a party wins a Presidential election, you can expect them to remain in power for at least two terms.

What About The #2016 Dem Nominee?

I think we could see candidacies from Bayh, Warner, Sebelius, Schweitzer, Napolitanto, Cuomo, Clinton, Biden, O’Malley, and Hickenlooper. I would love to see Malloy run. Sebelius as nominee would be pretty awesome. This picture is fuzzier to me, for some reason.

Obviously, unpredicable events between now and then will shake these pictures up substantially.

Who Will Be The #2016 GOP Nominee?

Obivously the answer to that question is “who knows?” But here are three useful heuristics.

1) It will be whomever is “next in line.”
2) It will be the most “electable candidate” that the GOP
primary-voting base finds acceptable.
3) It will likely be a moderate, as the longer a party has been out of the White House, the more moderate their nominees become.

Who does #1 mitigate towards? Probably Paul Ryan. The 2012 primaries didn’t really produce an obvious second-place finisher. In terms of remotely credible candidates, the folks who ran in 2012 who have any kind of plausibility whatsoever are Santorum, Gingrich, Perry, and Huntsman. Bachmann is nutty and Cain is a goofball.

What about #2? The question here is not “electability” so much as what the GOP primary-voting base finds acceptable, especially in light of #3. After 8 years of Clinton they swallowed a “compassionate conservative.” Will they be willing to do that again? Or will they view Romney as a moderate squish and try to nominate someone who more wholeheartedly embraces their views and attitudes?

Other possibles include Marco Rubio, Chris Christie, Bobby Jindal, or Mike Huckabee, but I consider none very likely to prevail.

I think Gingrich is too widely despised within the party to win. I think Santorum isn’t taken seriously enough. I think Perry may have too thoroughly damaged his standing with his lousy performance in 2012.

So that leaves Ryan and Huntsman. It is possible he has too distanced himself from the party to be credible, but he may have a lot of Beltway support. Also, Ryan has the whiff of loser on him.

So, I’m not sure, but I think Huntsman has a pretty good shot.

There are a few other potentials I think have a real chance. Bob McDonnell is one, as are a few other governors – Haley, Martinez, Sandoval – but they’re not well groomed for the national stage.

I think everyone is sick of Bushes.

Candidacies from Pawlenty or Daniels would be…interesting.

Also, too, Palin, also, too.

Where’s my popcorn?

#OWS’s Rolling Jubilee Is Awesome Because It’s Leveraged

Matt Yglesias likes the Rolling Jubilee but still isn’t sure if it passes the “is this a better idea than cash transfers to the poor?” test. Which is a good test! But I think this particular idea does past that test, for one reason: leverage.

If I’m poor and I owe $100, that debt may get sold for $15 to a collector who will hound me to the grave for$30, $40, $50. So a cash transfer to me that eliminates that debt has to be in the $30-50 range. But if Occupy purchases the debt for the $15 and then tears it up, they have accomplished the same thing for cheaper. Both scenarios have the same financial impact on me (debt goes away) but Occupy’s Rolling Jubilee accomplishes it with less money. Ergo, the same amount of money can have more impact – leverage!

As to whether the heavily indebted are more worthy of assistance – maybe, maybe not. But as a heuristic they are certainly more likely to be in need of assistance. And the faster folks can deleverage the faster they can return to the kind of consumer spending that will create jobs for poor people.

It would also be rather poetic if an inverted form of the same financial tactic that got us into this mess helped us also get out of it.