Economics of worldwide Reparations

$1 billion and forty-four million acres given to Alaskan natives in 1971, $20,000 each to 60,000 identified victims to Japanese Americans post World War 2 by the United States and more than $800 million to the State of Israel on behalf of the German Weidergatmachung in 1952. All of these transnational payments are classified as reparations. Reparations have long held a moral incentive, a mechanism for nations to reconcile with their histories of racial oppression and marginalization, however the implementation of such policies remains largely controversial. Utilizing economic analysis, the form and magnitude of these financial policies can become clearer, with the aim of reducing the persistent gaps in income on the basis of race internationally. 

The need for certain measures to compensate for years of state-sanctioned apartheid in nations like the United States is rather obvious, with historic injustices still pervading multiple aspects of modern society. Research conducted by Duke University found that while Black citizens constitute 13% of America’s population, they hold less than three percent of its wealth. Within modern life discrimination on the basis of race is demonstrated in employment, healthcare and education among others. 

However, the questions that now remain are: is this policy enough to remedy the systematic inequalities and what would the logistics look like? While some political candidates in the United States champion a lump-sum payment to eligible citizens, and others lobby for guaranteed schooling or medical insurance, it is imperative to prioritize programs which foster longevity in financial prosperity. In the case of lump-sum payments, Professor William Darity, one of the foremost academics advocating for reparations, found that lump sum fees could actually result in an absolute decline in Black income as a whole. The causal analysis which supports this is one in which since the purchasing power of Black Americans increases, they consume non-Black goods more, thus increasing the relative income of non-Black producers. However, a viable option would be the redistribution of national wealth as demonstrated in Malaysia to build corporate ownership within the communities who were historically marginalized. Within Malaysia, shares of stock were purchased by the state and placed in a trust for allocation to native Malays. In addition, the implementation of more public trust funds which provide grants for asset acquisition or employment programs would achieve a similar, long-term outcome. The critique of such mechanisms is that they are deemed to be “overly paternalistic” as specific grants would limit the choice of those citizens, whereas a lump sum would arguably provide more individually tailored benefits. 

With these initiatives arises the pressing issue of who will pay for these reparations? How will the national economy be impacted? Public Finance Theory can argue that the parties who were not historically marginalized could finance the transfers by paying additional taxes, or governments could issue bonds. According to Thomas Craemer from the University of Connecticut, within the United States the reparations owed to descendants of slaves would be at $5.9-14.2 trillion, in 2009 dollars. With the U.S. federal budget estimated for the 2020 fiscal year to be 4.79 trillion dollars, it is imperative to find a robust mechanism which not only acts as a blanket solution towards temporary reconciliation but rather working towards ensuring long-term financial stability. 

It comes a time when nations can no longer pacify decades of racial oppression and brutality without truly addressing the root causes and systemic injustices. Financial stability is a foundational step for long-term change, whether or not reparations are adequate in accomplishing that is yet to be determined. However, utilizing economic principles to ascertain the eligibility, form under which these policies would be executed and financing mechanism will prove to be vital in the coming years