Tuesday, May 09, 2017

Once Again, the Tax Law Gets Mortgages Backwards

The Trump tax plan has many interesting features but it gets homeownership incentives all wrong. As I have noted before, if policymakers were really interested in financing home ownership (as opposed to "renting from the bank") it should provide a tax deduction for paying down the PRINCIPAL of a home mortgage, not for paying interest. Paying down principal means acquiring more equity in the home, i.e., moving closer to actual ownership, in fee, without encumbrances. The current system, continued under the Trump plan, provides incentives to increase leverage (decrease equity) and keep it high. It is a great boon to the real estate and banking industries but does not help Americans to save for the future as they once did.

Tuesday, April 11, 2017

The Case for Slavery Reparations Rests on a False Assumption

Read the final version on the History News Network: http:historynewsnetwork.org/article/165483
by Robert E. Wright
 



The Case for Slavery Reparations Rests on a False Assumption

Teaser:  The assumption is that slavery enriched the country.  It actually impoverished America.

Robert E. Wright, the Nef Family Chair of Political Economy at Augustana University, is the author of The Poverty of Slavery: How Unfree Labor Pollutes the Economy.


Horses numbering some 6.2 million. Over 1.1 million asses and mules and 2.2 million oxen. Over 8.5 million milch cows and 14.7 million other head of cattle. Almost 21.6 million sheep and 33.5 million hogs. Some 163 million acres under the plow. Farming implements and machines worth $245 million. Almost $98.6 million worth of cotton manufacturing equipment, $31 million of woollen manufacturing equipment, $23.4 million in boot and shoe manufacturing equipment, and many more millions, in sum, invested in scores of other types of manufacturing industries. Workers numbering 11.1 million, of whom almost 2.34 million were enslaved. All were important factors in an economy that created $4.4 billion of final goods in 1860 ($88.7 billion in today’s dollars).*
None of those classical factors of production (land, labor, and capital),** however, rightly could be said to have caused the creation of those final goods. Businesses (ranging from sole proprietorships to publicly traded corporations) cleared land, acquired or created capital, and hired or enslaved laborers for the purpose of creating goods that they hoped to sell for a profit. The expectation of profit was what caused production. Businesses expected a chance to earn a profit because the American government had credibly committed to protecting the lives, liberty, and property of business owners. Alexander Hamilton correctly averred that economies grow and development when governments successfully protect property from threats both foreign and domestic. The factors of production delineated above were not unimportant but they were, ultimately, effects rather than causes.
In recent years, several scholars have tried to raise one of those effects, slaves, into a, if not the, cause of economic growth in the United States and the United Kingdom. Economist historians have criticized many of the more technical aspects of that attempt, especially the claim that cotton productivity grew in the late antebellum decades mainly because masters learned how to force slaves to work harder. Alan Olmstead and Paul Rhode, for example, have convincingly countered that new strains of cotton were easier to pick and produced higher yields.
Neo-abolitionist scholars are also uneasy with the claim, not heard since the proslavery rantings of people like George Fitzhugh, that slavery can induce economic growth. Such claims, unsubstantiated as they are, undermine the efforts of NGOs like Free the Slaves to reduce the number of people forced to labor today, which most estimates place at above 30 million.
My view, detailed in The Poverty of Slavery: How Unfree Labor Pollutes the Economy, is that slaves are the least likely candidate to be, or to have been, a growth driver. As hinted by the subtitle, the book shows that slavery creates negative externalities that swamp the marginal benefits of slave labor by several orders of magnitude. Negative externalities are costs not borne by participants in a given market (buyers or sellers). The prime textbook example of a negative externality is pollution: factory owners (and their customers) benefit from spewing pollutants into the environment but that injures everyone else so, hopefully, the government imposes regulations to stop or tax it.
Slavery was (and remains) no different. Enslavers do everything in their power to get society to pay for the high costs of controlling their human minions, very few of whom want to be enslaved. Throughout history, including the U.S. antebellum South, enslavers have used taxpayer monies to discipline their slaves, put down rebellions, return runaways, and so forth. They distorted republican governance processes to further their ends and deliberately stymied economic development (literacy, communications, transportation infrastructure, etc.).
In the process, enslavers profited and became wealthy. But the profits they generated were not much higher than they would have earned using the next most profitable type of labor. So the marginal benefit of slavery was small, while its aggregate cost was enormous. The conclusion is inevitable: while slaves were important, the U.S. South and every other slave society throughout history would have created more output without slavery. In addition to being immoral, slavery created poverty, not wealth, and for both reasons should be extirpated from the globe once and for all.
This conclusion leaves little room for scholars who would like to see reparations paid to African-Americans descended from slaves. That effort is on shaky moral ground anyway because slavery was a ubiquitous institution throughout most of human existence, so nary a person alive today, regardless of the complexion of his or her skin, is not descended from at least one slave and at least one slaveholder. The best case for reparations, therefore, lay not in old forms of slavery but in forced labor today, particularly the millions of living victims of America’s overgrown carceral state.
*All figures are from the 1860 U.S. Census except for GDP, which is from MeasuringWorth.com, and the number of total and enslaved workers, which is from Stanley Lebergott, “Labor Force and Employment, 1800-1960,” in Dorothy Brady, ed. Output, Employment, and Productivity in the United States After 1800 [NBER, 1966], Table 1.
**https://en.wikipedia.org/wiki/Factors_of_production


by Robert E. Wright
This conclusion leaves little room for scholars who would like to see reparations paid to African-Americans descended from slaves. That effort is on shaky moral ground anyway because slavery was a ubiquitous institution throughout most of human existence, so nary a person alive today, regardless of the complexion of his or her skin, is not descended from at least one slave and at least one slaveholder. The best case for reparations, therefore, lay not in old forms of slavery but in forced labor today, particularly the millions of living victims of America’s overgrown carceral state.
*All figures are from the 1860 U.S. Census except for GDP, which is from MeasuringWorth.com, and the number of total and enslaved workers, which is from Stanley Lebergott, “Labor Force and Employment, 1800-1960,” in Dorothy Brady, ed. Output, Employment, and Productivity in the United States After 1800 [NBER, 1966], Table 1.
- See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf
Horses numbering some 6.2 million. Over 1.1 million asses and mules and 2.2 million oxen. Over 8.5 million milch cows and 14.7 million other head of cattle. Almost 21.6 million sheep and 33.5 million hogs. Some 163 million acres under the plow. Farming implements and machines worth $245 million. Almost $98.6 million worth of cotton manufacturing equipment, $31 million of woollen manufacturing equipment, $23.4 million in boot and shoe manufacturing equipment, and many more millions, in sum, invested in scores of other types of manufacturing industries. Workers numbering 11.1 million, of whom almost 2.34 million were enslaved. All were important factors in an economy that created $4.4 billion of final goods in 1860 ($88.7 billion in today’s dollars).*
None of those classical factors of production (land, labor, and capital), however, rightly could be said to have caused the creation of those final goods. Businesses (ranging from sole proprietorships to publicly traded corporations) cleared land, acquired or created capital, and hired or enslaved laborers for the purpose of creating goods that they hoped to sell for a profit. The expectation of profit was what caused production. Businesses expected a chance to earn a profit because the American government had credibly committed to protecting the lives, liberty, and property of business owners. Alexander Hamilton correctly averred that economies grow and development when governments successfully protect property from threats both foreign and domestic. The factors of production delineated above were not unimportant but they were, ultimately, effects rather than causes.
In recent years, several scholars have tried to raise one of those effects, slaves, into a, if not the, cause of economic growth in the United States and the United Kingdom. Economist historians have criticized many of the more technical aspects of that attempt, especially the claim that cotton productivity grew in the late antebellum decades mainly because masters learned how to force slaves to work harder. Alan Olmstead and Paul Rhode, for example, have convincingly countered that new strains of cotton were easier to pick and produced higher yields.
Neo-abolitionist scholars are also uneasy with the claim, not heard since the proslavery rantings of people like George Fitzhugh, that slavery can induce economic growth. Such claims, unsubstantiated as they are, undermine the efforts of NGOs like Free the Slaves to reduce the number of people forced to labor today, which most estimates place at above 30 million.
My view, detailed in The Poverty of Slavery: How Unfree Labor Pollutes the Economy, is that slaves are the least likely factor in the growth of the economy. As hinted by the subtitle, the book shows that slavery creates negative externalities that swamp the marginal benefits of slave labor by several orders of magnitude. Negative externalities are costs not borne by participants in a given market. The prime textbook example of a negative externality is pollution: factory owners (and their customers) benefit from spewing pollutants into the environment but that harms everyone else so, hopefully, the government imposes regulations to stop or tax it.
Slavery was (and remains) no different. Enslavers do everything in their power to get society to pay for the high costs of controlling their human minions. Throughout history, including the U.S. antebellum South, enslavers used taxpayer monies to discipline their slaves, put down rebellions, return runaways, and so forth. They distorted republican governance processes to further their ends and deliberately stymied economic development (literacy, communications, transportation infrastructure, etc.).
In the process, enslavers profited and became wealthy. But the profits they generated were not much higher than they would have earned using the next most profitable type of labor. So the marginal benefit of slavery was small, while its aggregate cost was enormous. The conclusion is inevitable: while slaves were important, the U.S. South and every other slave society throughout history would have created more output without slavery. In addition to being immoral, slavery created poverty, not wealth, and for both reasons should be extirpated from the globe once and for all.
This conclusion leaves little room for scholars who would like to see reparations paid to African-Americans descended from slaves. That effort is on shaky moral ground anyway because slavery was a ubiquitous institution throughout most of human existence, so nary a person alive today, regardless of the complexion of his or her skin, is not descended from at least one slave and at least one slaveholder. The best case for reparations, therefore, lay not in old forms of slavery but in forced labor today, particularly the millions of living victims of America’s overgrown carceral state.
*All figures are from the 1860 U.S. Census except for GDP, which is from MeasuringWorth.com, and the number of total and enslaved workers, which is from Stanley Lebergott, “Labor Force and Employment, 1800-1960,” in Dorothy Brady, ed. Output, Employment, and Productivity in the United States After 1800 [NBER, 1966], Table 1.
- See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf


Robert E. Wright, the Nef Family Chair of Political Economy at Augustana University, is the author of The Poverty of Slavery: How Unfree Labor Pollutes the Economy.
Horses numbering some 6.2 million. Over 1.1 million asses and mules and 2.2 million oxen. Over 8.5 million milch cows and 14.7 million other head of cattle. Almost 21.6 million sheep and 33.5 million hogs. Some 163 million acres under the plow. Farming implements and machines worth $245 million. Almost $98.6 million worth of cotton manufacturing equipment, $31 million of woollen manufacturing equipment, $23.4 million in boot and shoe manufacturing equipment, and many more millions, in sum, invested in scores of other types of manufacturing industries. Workers numbering 11.1 million, of whom almost 2.34 million were enslaved. All were important factors in an economy that created $4.4 billion of final goods in 1860 ($88.7 billion in today’s dollars).*
None of those classical factors of production (land, labor, and capital), however, rightly could be said to have caused the creation of those final goods. Businesses (ranging from sole proprietorships to publicly traded corporations) cleared land, acquired or created capital, and hired or enslaved laborers for the purpose of creating goods that they hoped to sell for a profit. The expectation of profit was what caused production. Businesses expected a chance to earn a profit because the American government had credibly committed to protecting the lives, liberty, and property of business owners. Alexander Hamilton correctly averred that economies grow and development when governments successfully protect property from threats both foreign and domestic. The factors of production delineated above were not unimportant but they were, ultimately, effects rather than causes.
In recent years, several scholars have tried to raise one of those effects, slaves, into a, if not the, cause of economic growth in the United States and the United Kingdom. Economist historians have criticized many of the more technical aspects of that attempt, especially the claim that cotton productivity grew in the late antebellum decades mainly because masters learned how to force slaves to work harder. Alan Olmstead and Paul Rhode, for example, have convincingly countered that new strains of cotton were easier to pick and produced higher yields.
Neo-abolitionist scholars are also uneasy with the claim, not heard since the proslavery rantings of people like George Fitzhugh, that slavery can induce economic growth. Such claims, unsubstantiated as they are, undermine the efforts of NGOs like Free the Slaves to reduce the number of people forced to labor today, which most estimates place at above 30 million.
My view, detailed in The Poverty of Slavery: How Unfree Labor Pollutes the Economy, is that slaves are the least likely factor in the growth of the economy. As hinted by the subtitle, the book shows that slavery creates negative externalities that swamp the marginal benefits of slave labor by several orders of magnitude. Negative externalities are costs not borne by participants in a given market. The prime textbook example of a negative externality is pollution: factory owners (and their customers) benefit from spewing pollutants into the environment but that harms everyone else so, hopefully, the government imposes regulations to stop or tax it.
Slavery was (and remains) no different. Enslavers do everything in their power to get society to pay for the high costs of controlling their human minions. Throughout history, including the U.S. antebellum South, enslavers used taxpayer monies to discipline their slaves, put down rebellions, return runaways, and so forth. They distorted republican governance processes to further their ends and deliberately stymied economic development (literacy, communications, transportation infrastructure, etc.).
In the process, enslavers profited and became wealthy. But the profits they generated were not much higher than they would have earned using the next most profitable type of labor. So the marginal benefit of slavery was small, while its aggregate cost was enormous. The conclusion is inevitable: while slaves were important, the U.S. South and every other slave society throughout history would have created more output without slavery. In addition to being immoral, slavery created poverty, not wealth, and for both reasons should be extirpated from the globe once and for all.
This conclusion leaves little room for scholars who would like to see reparations paid to African-Americans descended from slaves. That effort is on shaky moral ground anyway because slavery was a ubiquitous institution throughout most of human existence, so nary a person alive today, regardless of the complexion of his or her skin, is not descended from at least one slave and at least one slaveholder. The best case for reparations, therefore, lay not in old forms of slavery but in forced labor today, particularly the millions of living victims of America’s overgrown carceral state.
*All figures are from the 1860 U.S. Census except for GDP, which is from MeasuringWorth.com, and the number of total and enslaved workers, which is from Stanley Lebergott, “Labor Force and Employment, 1800-1960,” in Dorothy Brady, ed. Output, Employment, and Productivity in the United States After 1800 [NBER, 1966], Table 1.



- See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf
Horses numbering some 6.2 million. Over 1.1 million asses and mules and 2.2 million oxen. Over 8.5 million milch cows and 14.7 million other head of cattle. Almost 21.6 million sheep and 33.5 million hogs. Some 163 million acres under the plow. Farming implements and machines worth $245 million. Almost $98.6 million worth of cotton manufacturing equipment, $31 million of woollen manufacturing equipment, $23.4 million in boot and shoe manufacturing equipment, and many more millions, in sum, invested in scores of other types of manufacturing industries. Workers numbering 11.1 million, of whom almost 2.34 million were enslaved. All were important factors in an economy that created $4.4 billion of final goods in 1860 ($88.7 billion in today’s dollars).*
None of those classical factors of production (land, labor, and capital), however, rightly could be said to have caused the creation of those final goods. Businesses (ranging from sole proprietorships to publicly traded corporations) cleared land, acquired or created capital, and hired or enslaved laborers for the purpose of creating goods that they hoped to sell for a profit. The expectation of profit was what caused production. Businesses expected a chance to earn a profit because the American government had credibly committed to protecting the lives, liberty, and property of business owners. Alexander Hamilton correctly averred that economies grow and development when governments successfully protect property from threats both foreign and domestic. The factors of production delineated above were not unimportant but they were, ultimately, effects rather than causes.
In recent years, several scholars have tried to raise one of those effects, slaves, into a, if not the, cause of economic growth in the United States and the United Kingdom. Economist historians have criticized many of the more technical aspects of that attempt, especially the claim that cotton productivity grew in the late antebellum decades mainly because masters learned how to force slaves to work harder. Alan Olmstead and Paul Rhode, for example, have convincingly countered that new strains of cotton were easier to pick and produced higher yields.
Neo-abolitionist scholars are also uneasy with the claim, not heard since the proslavery rantings of people like George Fitzhugh, that slavery can induce economic growth. Such claims, unsubstantiated as they are, undermine the efforts of NGOs like Free the Slaves to reduce the number of people forced to labor today, which most estimates place at above 30 million.
My view, detailed in The Poverty of Slavery: How Unfree Labor Pollutes the Economy, is that slaves are the least likely factor in the growth of the economy. As hinted by the subtitle, the book shows that slavery creates negative externalities that swamp the marginal benefits of slave labor by several orders of magnitude. Negative externalities are costs not borne by participants in a given market. The prime textbook example of a negative externality is pollution: factory owners (and their customers) benefit from spewing pollutants into the environment but that harms everyone else so, hopefully, the government imposes regulations to stop or tax it.
Slavery was (and remains) no different. Enslavers do everything in their power to get society to pay for the high costs of controlling their human minions. Throughout history, including the U.S. antebellum South, enslavers used taxpayer monies to discipline their slaves, put down rebellions, return runaways, and so forth. They distorted republican governance processes to further their ends and deliberately stymied economic development (literacy, communications, transportation infrastructure, etc.).
In the process, enslavers profited and became wealthy. But the profits they generated were not much higher than they would have earned using the next most profitable type of labor. So the marginal benefit of slavery was small, while its aggregate cost was enormous. The conclusion is inevitable: while slaves were important, the U.S. South and every other slave society throughout history would have created more output without slavery. In addition to being immoral, slavery created poverty, not wealth, and for both reasons should be extirpated from the globe once and for all.
This conclusion leaves little room for scholars who would like to see reparations paid to African-Americans descended from slaves. That effort is on shaky moral ground anyway because slavery was a ubiquitous institution throughout most of human existence, so nary a person alive today, regardless of the complexion of his or her skin, is not descended from at least one slave and at least one slaveholder. The best case for reparations, therefore, lay not in old forms of slavery but in forced labor today, particularly the millions of living victims of America’s overgrown carceral state.
*All figures are from the 1860 U.S. Census except for GDP, which is from MeasuringWorth.com, and the number of total and enslaved workers, which is from Stanley Lebergott, “Labor Force and Employment, 1800-1960,” in Dorothy Brady, ed. Output, Employment, and Productivity in the United States After 1800 [NBER, 1966], Table 1.
- See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf
The Case for Slavery Reparations Rests on a False Assumpt - See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf
The Case for Slavery Reparations Rests on a False Assumpt - See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf
The Case for Slavery Reparations Rests on a False Assumpt - See more at: http://historynewsnetwork.org/article/165483#sthash.ve8XTYkk.dpuf

Wednesday, March 29, 2017

The Big Evil Bank Stumbles Again

The WSJ reported today (29 March 2017) that Wells Fargo has stumbled again as its CRA (Community Reinvestment Act) rating was cut to "needs improvement." (What is this kindergarten??) In short, it isn't lending enough to minorities according to the government and that means "The Big Evil" will find it more difficult to acquire more banks, open or relocate branches, and make certain types of investments. Institutions like Wells Fargo are not "evil" per se, of course, they just behave as if they were evil when they do not have proper incentives in place. I think regulators ought to audit ALL of their compensation and other incentive programs back to at least 2010, if not 2005, to look for other customers that the bank defrauded for the benefit of some of its employees.

Friday, March 24, 2017

The Poverty of Slavery: Slavery Is Alive, but Unwell

This recently appeared on Palgrave's blog:

Slavery Is Alive, but Unwell 


Robert Wright, author of The Poverty of Slavery: How Unfree Labor Pollutes The Economy, writes about the continued existence of slavery today and its impact on the global economy.
About 46 million people worldwide today are enslaved. In absolute terms, that is more than at any other time in recorded history. In terms of percentage of the total population, though, slavery is less important today than during any previous epoch, raising the hope that it might soon be extirpated once and for all.

That any significant number of people remain enslaved today runs counter to the widely taught but erroneous belief that slavery ended thanks to a wave of Great Emancipations by Britain, the United States, Brazil, and others in the nineteenth century, and the outlawing of domestic slavery by nations throughout the globe over the course of the twentieth century. While slavery did end de jure throughout the world, it never ended de facto anywhere.

In the United States, for example, the Thirteenth Amendment allows for the enslavement of convicts, a loophole that white bigots leveraged in the late nineteenth and early twentieth centuries to enslave large numbers of African-Americans, most convicted of minor crimes like loitering, on plantations and in coal mines and factories. Such practices formed the basis of today’s carceral state. Meanwhile, so-called “white slavery” was perpetrated in most major urban areas throughout the nation and over time morphed into today’s sex trafficking.

Although the term slavery has lost some of its precision over the years due to its misapplication to a wide variety of heinous practices, the 46 million person estimate is legitimate, referring only to people who are physically or psychologically prevented from seeking employment elsewhere. Unlike slaves of yore, which were valuable assets, today’s slaves are cheap and hence disposable. Enslavers regularly work them to death or until they are no longer able to function, then discard them unceremoniously.

Despite its illegality, slavery persists because enslavers find it profitable. Enslaving others entails only a minimal purchase price and the biological minimum needed to keep the enslaved at his or her assigned tasks. It is said to be the third most profitable illicit business in the world today, after drugs and arms dealing, but few enslavers are ever convicted because they are able to buy off law enforcement officials or intimidate witnesses.

Over the last twenty years or so, however, antislavery NGOs and governments have recognized the size of the problem and taken steps to raise public awareness and to strengthen antislavery laws and enforcement. Their efforts are strengthened by the conviction of all but a few fringe groups, like ISIS, that slavery is morally unacceptable in today’s world.

Unfortunately, a bevy of historians has recently broken the 150-year consensus that slavery is also economically bankrupt by arguing that slaves, slavery, and/or the slave trade spurred British and American industrialization. Their works are popular in some circles because they provide the descendants of slaves with a source of pride and fodder for reparations claims.

Ultimately, however, the notion that slavery can be good for the overall economy is deeply flawed because enslaving others creates large negative externalities, or costs borne by society (and not by enslavers). Those externalities are myriad but not easily seen. Where slavery is legal, they include the cost of returning runaways, special slave codes, and slave patrols. Where slavery is illegal, the costs include corruption, environmental degradation, and lives ruined by rape, drugs, disease, and torture.

The negative externalities, or pollution, caused by the enslavement of others pervades every known slave society throughout the globe and throughout history, proving that slavery has never, anywhere, induced economic growth or development. African-Americans in search of economically powerful forbears should look to early West African empires, like Timbuktu, rather than to slave regimes like the U.S. South.

While the inability to accept alternative employment (or not to work at all) is a key indicator of enslavement, a new 20-point freedom scale details the myriad ways in which individual workers suffer loss of freedom. The freedom index helps to differentiate chattel slaves, who generally score 2 or less on the scale, from other forms of bonded or coerced laborers, who typically score 3 to 5 on the scale, from workers, like interns, apprentices, and long-term contract workers, who enjoy more freedom than bound laborers but considerably less freedom than most modern employees, their bosses, or proprietors. The freedom index also explains how NBA players worth millions can equate themselves with slaves.

The index is important because less freedom (more slavery) leads to larger negative externalities, so policymakers interested in increasing economic output should strive to help workers achieve as much freedom as they can, consistent with the available technology set. Technological advancement reduces unfreedom in the workplace by allowing producers to replace labor with capital whenever the latter becomes cheaper than the former, even in its cheapest enslaved form. But those concerned about modern slavery cannot wait for technology to produce viable sexbots or machines that can roll bidis or weave carpets cheaper than enslaved children can. Slavery is simply too morally reprehensible, and too economically costly, to ignore.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University and the author of 18 books, including The Poverty of Slavery: How Unfree Labor Pollutes The Economy.

NB: All opinions expressed here are the author’s own and do not represent the views of Palgrave Macmillan.

© Springer
This ground-breaking book adds an economic angle to a traditionally moral argument, demonstrating that slavery has never promoted economic growth or development, neither today nor in the past. 

Thursday, March 02, 2017

"Wells Fargo Withholds Top-Level Bonuses" by Emily Glazer and Austen Hufford

In today's (3/2/17) Wall Street Journal, Emily Glazer and Austen Hufford describe how the board of directors of Wells Fargo has stripped 8 top execs of bonuses tied to the fake account creation scam. That is certainly a step in the right direction. What the Wells Fargo board and investigative reporters need to look into, though, are the scams that Wells Fargo ran on borrowers who had defaulted on their mortgages during the subprime mortgage fiasco. This included hiding behind  "holder in due course" doctrine though WF (or at least some persons employed by WF) knew the bank was buying tainted paper and colluding with the lawyers of mortgage defaulters to induce their clients to settle deficiency suits when it best suited WF execs. (When anything is collected on debts previously written off as bad the funds go right to the bottom line.) Finding sufficient evidence would take some digging, and will probably require a whistle blower, but the story would be worth a Pulitzer or at least a Peabody.

UPDATE: The WSJ reported today (4/6/17) that Wells Fargo did indeed screw over additional groups of customers, including credit card holders. Reporters who keep pushing will be rewarded! So, too, will regulators. The big evil bank's transactions going back to the subprime crisis -- ALL OF THEM -- need to be scrutinized. If the bank dies in the process, so be it. There are PLENTY OF CREDIT UNIONS that will be happy to hold deposits, etc. safely and ETHICALLY for former WF customers.

UPDATE 2: The WSJ reported today (4/11/17) that the "clawbacks" on executive compensation were being increased at the top level. A 113-page report essentially blames the former CEO for the bank's unethical practices. This is a flawed narrative! WF has been "evil" since at least 2000. They are throwing Stumpf under the bus (as they well should) not for justice but to try to minimize the damage by limiting wrongdoing to the reign of the most recent CEO. The FEDERAL RESERVE and FDIC need to investigate Wells Fargo's activities carefully, all of its activities, going back to Kovacevich if not Hazen.

See Genealogy of American Finance for background!!!!

Tuesday, February 28, 2017

Selling Slavery: Conflating Profits with Prosperity in the Early Republic

Apologies for the last post but I hit both the ASSA/AEA and the AHA this year, while teaching an intensive January course to boot! So this slipped my mind until now.



Selling Slavery: Conflating Profits with Prosperity in the Early Republic
Robert E. Wright, Augustana University, at the American Historical Association Conference, Sheraton Denver, CO, 7 January 2017, 1:30-3:00 p.m. Governor’s Square 15

Slavery in America was often called the “Peculiar Institution” but what is truly peculiar is the historiography of slavery. From about 1850 until about 2010, people opposed to slavery held that slavery hurt economic growth, defined as increased, inflation-adjusted per capita aggregate output and measured by indices like GDP, and development, defined as the capacity for growth and measured by various indices of literacy, education, technology, and infrastructure. People who argued during that period that slavery aided economic growth and development were racist, pro-slavery advocates like George Fitzhugh, or, like Robert Fogel and Stan Engerman, they were castigated as racist, pro-slavery advocates by various liberals and progressives.
That equilibrium made good intuitive sense because it allowed anti-slavery thinkers to advocate abolition on both moral and economic grounds. No tradeoff between morality and growth was necessary on either side; either slavery was all bad or it was all good. In recent years, however, a spate of books by Ed Baptist, Sven Beckert, Robin Blackburn, Walter Johnson, Calvin Schermerhorn, and others has attempted to break the equilibrium by maintaining that slavery, while a moral evil, aided, nay caused, U.S. economic growth and development. None of those authors has been called racist because their goal is to make a case for general reparations from taxpayers to the descendants of slaves. Such a policy, though, would be fraught with difficulties, the most important of which is that slavery actually hurt the overall U.S. economy.
As I show in Poverty of Slavery: How Unfree Labor Pollutes the Economy, which Palgrave is publishing in early March of this year, slavery creates profits for enslavers but it does not stimulate growth or development. Most obviously, only a few slave nations grew rich and some grew rich without, or before, becoming slave powers. Without having to run a single regression, we therefore know that slavery is neither a necessary nor a sufficient cause of economic growth.
Poverty of Slavery also shows that slavery could not have aided growth or development at the margins either. That is because slavery creates huge negative externalities, or costs not born by enslavers. So while slavery was often profitable for enslavers, its marginal net effect on the economy was clearly negative when the costs of controlling slaves and numerous other negative externalities, like decreased innovation, population, and non-slave wages, are accounted for. That holds not just for the antebellum U.S. but for every slave society the globe over since prehistoric times. Those few slave nations that attained wealth and development did so despite slavery, not because of it.
Without the concept of negative externalities, which economists did not formally name until the early 20th century, identifying the poverty induced by slavery is difficult to discern. That is why prior to about 1850 or so abolitionists were often silent about the economic effects of slavery. They knew that slavery was a ubiquitous institution because it was usually profitable and feared that those profits meant that slavery stimulated growth and development. So they remained fixated on the moral and religious aspects of the institution, a message that many Americans did not find compelled them to action. Early proslavery thinkers also did not calculate the negative externalities created by slavery, yet they often downplayed the profitability of enslaving others for rhetorical and competitive reasons, so they, too, generally concentrated on the cultural and religious effects of enslavement.
Those who came to see the negative externalities created by slavery became abolitionists because it removed all doubt from their minds. Hinton Helper was the most famous of these. His Impending Crisis is basically an extended, if somewhat sloppy, analysis of the negative externalities created by slavery. “Slavery,” he wrote, “benefits no one but its immediate, individual owners, and them only in a pecuniary point of view.” “Does the slaveholder, while he is enjoying his slaves,” Helper wondered, “reflect upon the deep injury and incalculable loss which the possession of that property inflicts upon the true interests of the country?” Or my favorite: “Slaveholders! … You are daily engaged in the unmanly and unpatriotic work of impoverishing the land of your birth. … Your conduct is reprehensible, base, criminal.”
Helper was not the first to separate profits from growth and development, nor was he the first to point to the many costs that slaves imposed on the larger economy. In 1764, Philadelphia merchant Nicholas Waln wrote to Richard Waln: “The illicit Trade wch has been carryed on a long time has probably enriched the Individual, but I believe in the Event will extremely derogate from the Good & true Interest of the Colonies.” A few years later, a writer in New York also noted that “a Merchant may, and often does, get rich by a Trade that makes his Country poor.” In one of his famous state papers, Alexander Hamilton also noted that profits and economic growth were sometimes incompatible. In 1817, Littleton D. Teackle of Maryland noted that “merchants, speculators, stock-jobbers and money changers … may flourish and get rich though the country be ruined.”
The notion that the enslavement of others was one of the activities by which a few became enriched at the expense of the whole can be dated back to at least Jean Bodin, a sixteenth century French philosopher, who argued that the profits created by slaves were offset by the fear induced by the institution in both slaves and the general population. As Bodin put it, slave societies were “always in daunger of trouble and ruine, by the conspiracie of slaves combining themselves together: All Histories being full of servile rebellions and warres.” Eighteenth century German scholar Johann Gottfried Herder also clearly saw that slavery created social costs not borne by slave masters. He attributed to slavery the spread of syphilis and the devastation of three continents.
In the early nineteenth century, the notion that slavery imposed large costs on non-slaveholders gained traction in America. In 1805, Thomas Branagan of Philadelphia compared slavery “to a large tree planted in the south, whose spreading branches extends to the North; the poisonous fruit of that tree when ripe falls upon these states, to the annoyance of the inhabitants, and contamination of the land which is sacred to liberty.” George Mason had also likened slavery to a “slow Poison” and in 1832 fellow Virginian Henry Berry argued that slavery was akin to raising tigers, something the state certainly had an interest in arresting, even if it was “a very lucrative business.” Virginians would not be allowed to raise “the far-famed Upas tree” (the “Tree of Death”), he argued, even if it grew entirely on their own private land. That same year, Charles James Faulkner said the same thing but much more directly before the Virginia House of Delegates: “Slaves are injurious to the interests and threaten the subversion and ruin of this Commonwealth.”
Just a year later, on the other side of the Atlantic, Joseph Conder argued that free laborers cost society less than slaves did because slavery encouraged “a wasteful and deteriorating husbandry” due to its reliance on monoculture and primitive tools as well as “contingent social evils, which demand a precautionary provision.” “The ultimate cost of slavery,” he concluded, also included “the state expenditure which it renders necessary in order to provide against the dangers inseparable from the existence of a servile class.”
Such arguments could at first be dismissed as mere rhetoric but as the years turned into decades one of the greatest natural experiments in history, the division of the United States into free and slave slaves, helped observers to test the negative externality hypothesis. As early as 1824, the economies of Pennsylvania and Virginia were compared and the former found superior. Several decades later, the economic differences between otherwise comparable free and slave states were even more pronounced, a point made forcefully by Cassius Clay, a Kentucky slaveholder ‘mugged by reality’ and converted to the antislavery cause. Despite Virginia’s natural advantages over New York, the latter exceeded the former in “the elements of National prosperity and glory; wealth, numbers in new countries, literature, industry, the mechanic arts, scientific agriculture, &c.” Slavery, Clay concluded, was clearly to blame. “The twelve hundred millions of capital invested in slaves is a dead loss to the South,” he declared, predicting, accurately, that the free North would defeat the slave South in a civil war.
At the outset of that war, Irish economist John Elliott Cairnes established the orthodox view that held until about 2010:
Those who are acquainted with the elementary principles which govern the distribution of wealth, know that the profits of capitalists may be increased by the same process by which the gross revenue of a country is diminished, and that therefore the community as a whole may be impoverished through the very same means by which a portion of its number is enriched. The economic success of slavery, therefore, is perfectly consistent with the supposition that it is prejudicial to the material well-being of the country where it is established.
Before closing, I need to make clear that the issue of externalities and the economic effects of slavery is not a merely academic one. In case you haven’t heard, slavery did not end in the nineteenth century, it merely changed form, into debt peonage, bonded labor, sex trafficking, child soldiers, and myriad other forms. Although unfree laborers compose a much smaller portion of the global work force than ever before, in absolute numbers they are now more numerous, between 30 and 45 million by common estimates, than at any time in history. The notion that slavery can jumpstart economies can, and has, been used to justify enslaving people today. Claims that Britain and the U.S. grew rich due to slavery have emboldened those in developing nations to ignore international anti-trafficking protocols on the supposition that it is not fair for the rich nations to prevent poor nations from catching up economically by outlawing a key growth driver. What this paper, and Poverty of Slavery, re-establish is that slavery is not just immoral, it is bad economics because any economic benefit produced by enslavers’ marginal profits, the profits earned above and beyond what would have been earned using a less coercive labor regime, is more than wiped out by the societal costs created when people are forced to work against their will. This in no way diminishes the sacrifices of African-American slaves or indeed any other group enslaved in the past, which, by the way, would include most people alive today. It does, however, suggest that general reparations for slavery are not merited and that the descendants of slaves should look to the profits created by their ancestors for recompense.
Thank you.