The 1619 Project's Tooth Fairy Economics
Ms. Hannah-Jones interviews Duke University economist William A. Darity, one of the most prominent academic voices behind the $13 trillion number. Darity has advanced similar dollar amounts in his scholarly work, including a 2022 article in the Journal of Economic Perspectives. As with the Hulu episode, he offers this figure while eliding difficult questions about financing this redistributive payout.
Vaguely sensing that there’s no such thing as a free lunch, Hannah-Jones asks where the federal government would get the money to pay such a massive amount. Wouldn’t taxes have to be raised, she queries. Mr. Darity confidently asserts that no such action is necessary.
“It’s a matter of the federal government financing it in the same way that it financed…the stimulus package for the Great Recession” and the COVID-era CARES Act, Darity continues. To do so, the federal government need only “spend the money but without raising taxes.”
This verges on tooth-fairy economics.
This is from David R. Henderson and Phillip W. Magness, “The Tooth-Fairy Economics of Slavery Reparations,” American Institute for Economic Research, March 7, 2023.
If the Federal Reserve monetized the whole amount, base money, which is currency in circulation plus bank reserves, would increase by $13 trillion. M2, the conventional measure of the money supply, is 3.96 times the monetary base. If that relationship held, then increasing the monetary base by $13 trillion would increase M2 by 3.96 times $13 trillion, which is $51 trillion. M2 is currently $21 trillion. $51 trillion is a whopping 245 percent increase. So if the spending occurred all in one year, inflation would be about 240 percent. Critical Race Theory would unite with Modern Monetary Theory in an inflationary spiral.
Thanks to Jeff Hummel for checking our M2 numbers in an earlier draft.
Read the whole thing.