🗽 Juneteenth and the productivity shock of 1865

'Emancipation and the move to an economy based on voluntary labor market transactions led to the single greatest annual increase in aggregate economic surplus in American history'

Juneteenth has an important economic angle that’s perfect for this newsletter: how freedom can unlock our productive capacity through greater human flourishing. Emancipation may have delivered the largest single boost to productivity in American history. Sorry, anti-capitalists: Freedom, not enslavement, was the spark of economic growth that helped launch an acceleration that led to the 20th century being the American Century.

This isn't the economic history often heard in classrooms or media. Economists Richard Hornbeck (University of Chicago) and Trevon Logan (Ohio State University) acknowledge the widespread view of slavery as economically productive in their 2023 paper, "One Giant Leap: Emancipation and Aggregate Economic Gains." Previous research found that slavery produced high crop yields and wealth for enslavers, markets during slavery were "efficient" in allocating enslaved labor to maximize output, and after emancipation, crop yields declined significantly.

But as the economists point out, many analyses of slavery have conflated the "economics of slavery" with the "business of slavery" from the enslaver's perspective, neglecting the massive hidden costs to the enslaved people forced to work in brutal conditions. While slave owners didn't pay for these costs directly, they were still real and borne by four million enslaved people, 13 percent of the total US population.

Recognizing these costs — mainly by using the economic concept of  "value of a statistical life" — should be central to evaluating the economic implications of slavery. Their calculations show that the costs to the enslaved were vastly higher than the economic benefits to the enslavers. In other words, slavery wasn't just immoral, it was economically inefficient on a gigantic and guesome scale. Emancipation wasn't just a moral victory but an economic one, too. 

“Indeed, we calculate that emancipation generated economic gains that exceed estimated costs of the Civil War,” the researchers write. “Economic gains from emancipation are comparable to those from the largest increases in aggregate productivity in American history.”

To be wonky about it, properly accounting for the high costs imposed on enslaved people, emancipation resulted in an immense reduction in unaccounted input costs that far exceeded the decline in output. The authors argue that even conservative estimates of these gains, at four percent of GDP, surpass previous calculations of the economic benefits of railroad expansion. 

From the paper: “The costs of enslavement are inherently difficult to quantify, which leads to a wide range of quantitative estimates, but we calculate that emancipation generated aggregate economic gains worth the equivalent of a 4 percent to 35 percent increase in US aggregate productivity (7 to 60 years of technological innovation).”

And as Logan wrote in a piece for Bloomberg explaining how slavery imposed immense costs on enslaved people that were not accounted for in the market value of enslaved labor:

Thinking through the costs to the enslaved themselves reveals the tremendous economic inefficiency of slavery. The practice was both a moral and a market failure, violating a key tenet of free enterprise: the ability to control one’s supply of goods and services (in this case, labor). Conversely, emancipation unlocked immense value for formerly enslaved Black people. Simply coming and going as they pleased during leisure time was a remarkable source of freedom and agency. Mundane tasks took on new meaning when done outside of chattel bondage. Neglecting to account for the value of freedom ignores those most affected by the institution.

In work with Richard Hornbeck, I have sought to quantify the value of freedom to those who were freed — the wealth created by reallocating 13% of the population from slave labor to using their time as they saw fit. We found that the benefit to the formerly enslaved far exceeded the associated declines in output of cotton and other relevant goods. So instead of destroying wealth, emancipation actually delivered the largest positive productivity shock in U.S. history. Under conservative assumptions about the value of non-working time to enslaved people, we estimate that the productivity gain was roughly 10% to 20% of gross domestic product.

Some may assume the paper is meant to rebut The 1619 Project, the controversial long-form journalism effort that sought to reframe US history by placing the consequences of slavery the center of the national narrative. I asked Logan that very question in a 2022 chat. His answer:

The 1619 Project is about the central role that enslavement (and its deeply related process of racialization) played in the founding of the nation down to this day. We know that slavery was quite profitable for enslavers, for Northern financiers, for insurance companies, for land speculators, etc. It’s critical to understand that the political power of the planter class was only temporarily halted during Reconstruction. Slavery is an enduring arc, and for whatever reason we want to treat it as an aberration. My piece is about correctly noting the economic losses we are willing to sustain in order to keep these systems afloat. Profit for some (the master class, the top 1% today) does not imply that the system is economically efficient. Enslavement was a gross misallocation of resources. Even today, economists have noted that discrimination leads to misallocation. That is the point I’m making.

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The Conservative Futurist: How To Create the Sci-Fi World We Were Promised

“With groundbreaking ideas and sharp analysis, Pethokoukis provides a detailed roadmap to a fantastic future filled with incredible progress and prosperity that is both optimistic and realistic.”

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And here is the point I’m making: a world with greater economic freedom — and technological progress and economic growth it enables — is a better world, a more prosperous world, a more human world. It’s a big theme in The Conservative Futurist. Economic growth is not merely about consumerism and materialism; it can also foster a more tolerant, compassionate, and liberal democratic society.

• Harvard economist Benjamin M. Friedman argues that rising living standards often lead to progress in social justice, while economic hardship can promote a retreat from values such as tolerance and respect for civil liberties. This is evident in American history, where economic booms helped lead to the Civil Rights Acts of 1875 and 1964, while downturns resulted in retrenchments.

• Economic growth is supportive of democracy. MIT economist Daron Acemoğlu finds that people's support for democracy is driven by their exposure to successful democratic regimes that deliver economic growth, peace, political stability, and public services. 

• Despite the benefits of market capitalism, some critics view it as inherently dehumanizing. Yet studies show that companies that treat their employees and customers well often outperform the broader market, suggesting little conflict between the interests of labor and capital. (Economist Deirdre McCloskey eloquently describes the virtues of a business-loving society, including prudence, temperance, justice, courage, love, faith, and hope.)

With Juneteenth came a huge expansion of economic freedom in America, though plenty more needed to be done. So even more reason for Juneteenth celebration than you might have thought.

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Micro Reads

Business/ Economics

Nvidia Becomes Most Valuable Company in the World - The New York Times
Nvidia’s Ascent to Most Valuable Company Has Echoes of Dot-Com Boom - The Wall Street Journal
Perplexity is a Bullshit Machine - Wired
How not to do industrial policy - Financial Times
Salesforce, Workday Struggle to Make Money from Boom in AI Demand - Bloomberg
Silicon Valley steps up staff screening over Chinese espionage threat - Financial Times

Policy/Politics

Biden’s Tough-on-China Stance Threatens Green America Push - The Wall Street Journal
Of Course U.S. Government-Imposed Tariffs Are Taxes on Americans - Cafe Hayek

AI/Digital

Why Artists Are Becoming Less Scared of AI - MIT Technology Review
Butterflies App: AI Chatbots and Social Media - The Verge

Clean Energy/Climate

Congress Passes Advance Act to Boost Nuclear Power - HuffPost
Energy-positive laser fusion approach heads toward commercialization - New Atlas
Farmland Near Chernobyl Nuclear Reactor is Finally Safe to Use Again - New Scientist
Why Americans are not buying more EVs - Financial Times
Fisker Bankruptcy: Electric Vehicles and Biden Administration Subsidies - The Wall Street Journal
Could Advanced Nuclear Reactors Fuel Terrorist Bombs? - IEEE Spectrum

Robotics/AVs

Autonomous Vehicles: Great at Going Straight - IEEE Spectrum

Up Wing/Down Wing

This is What Would Happen if China Invaded Taiwan - Wired
Don’t blame neoliberalism for the rise of the hard right - Financial Times

Substacks/Newsletters

Which AI Should I Use? Superpowers -One Useful Thing