Former Fed official Jeff Fuhrer argues for $2 trillion in annual reparations

“It is not surprising to people who know anything about the world of statistics,” says the non-resident fellow at the Brookings Institution, who is the author of The Myth That Made Us, out recently from MIT Press. Take the survey of consumer finances, he says, which he considers the best survey on wealth that economists have nationwide (the most recent was in 2019). “You can see what the average gap is by household between Black families and white families.” In fact, he argues in his book, $2 trillion per year may even be a conservative estimate.

“But do I get pushback on reparations?” Fuhrer says, audibly sighing as Fortune asks him about the big number, buried hundreds of pages into his book. “Absolutely.”

As for how long these investments would last, he varies his timelines. His housing plan would take 10 years, for instance, but his early childhood education plan would be “at least one generation,” or until the targeted outcomes are achieved. As for reparations, the problem is so huge to Fuhrer it implies another massive timescale, so he wonders aloud: 30 years? 

To put in perspective what a drastic proposal he’s making, consider: The proposed federal budget for the 2024 fiscal year is only $6.9 trillion, and Fuhrer wants to increase that by 39%, with reparations alone being a 28% boost. 

And how would he pay for this? Acknowledging that perhaps for a generation there will be a “shortfall of resources,” he writes that it could come from deficit spending, or alternatively tax increases on the wealthiest and highest-earning households and corporations. There is an enormous opportunity to do this, but “the political will to grasp that opportunity is another matter,” he writes—an understatement, to say the least.

The U.S. is far out of step with other democratic, free-market capitalist countries, he argues in his book, noting that U.S. taxes are quite low by international standards. Just look at the data, he says: For both individuals and corporations, data from the OECD and research from the Institute on Taxation and Economic Policy shows that “Americans have made unusual choices about how to structure our economy.” Just taxing people and corporations the way all of our international peers do would pay for his bold plan.

But do we really want to? That’s where the myth comes in.

‘The Myth’

Fuhrer’s reparations proposal may be the climax of his argument, but it is not the main thrust of the book. That is, as the title suggests, “the myth” whose roots he sees as inextricably entwined with the American republic itself: “Success goes to those who work hard. Failure goes to those who do not.” This long-term narrative that runs through American culture, he tells me, is easier for most people to believe than to admit there’s something structurally wrong.

Fuhrer insists that he doesn’t want to “paint the entire economics profession with too broad a brush,” but its proponents—including, he acknowledges, an earlier version of himself, with three degrees from Princeton and Harvard— “overemphasize the extent to which markets can take care of most everything.” And on top of this, he says, in his education and on the job he heard nothing about the economic outcomes stemming from racial and ethnic discrimination. 

But in the late 2000s, he started working on community development projects for the Fed, leaving behind his macroeconomic models to actually speak to people who were struggling. “The more I talked to people about [the economy], the more I saw going on in low-income neighborhoods,” the more he realized there was a gap in his understanding, he explains. “I think there are people hurting. There’s way too many.”

Consider the hard-working person in such a community who’s looking at their lives and saying, “How come I’ve been working for 35 years and I have very little in my savings account … and I’m not really succeeding in the way I thought when I was a 25-year-old?

He harkens back to the “Fed Listens” series that began in 2019, when the economy was growing and unemployment was low and the Fed held events nationwide “to hear about how monetary policy affects peoples’ daily lives and livelihoods.” The central bank was essentially taking on the work that Fuhrer had begun a decade previously, as he puts it, “to listen to regular people in neighborhoods that are chronically not doing well.”

He recalls being at the conference where one respondent was asked about the effects of recession, and says, “Our neighborhoods are always in recession. That’s just the way it is.” He may be naive, Fuhrer tells Fortune, but he thinks that resonated. “I think they actually heard that.”

What does ‘full employment’ really mean?

For a time, at least before the pandemic and the war in Ukraine upended the global economy, the Federal Reserve had begun to focus more on the first part of its so-called dual mandate—which includes ensuring full employment and stable prices. Inflation hadn’t been a serious problem in the U.S. since 2008, which enabled the central bank to focus on the labor market. But the rise of inflation during the pandemic changed everything, forcing Fed Chair Jerome Powell to replicate the moves of Paul Volcker, the hawkish central bank chair who fought (and defeated) inflation in the ’80s. Fuhrer argues that monetary policy is just one aspect of the full employment agenda, and bold fiscal policy is needed to structurally correct an economy that was “designed to produce inequality.”

But Fuhrer’s book argues for something more than full employment. When I press him on what he’s really proposing—to take what the former Treasury official Peter Fisher once described as an insurance company with an army and replace it with a massive kind of investment vehicle—he didn’t disagree. He said it could be called a “public equity investment company,” contrasting it with private equity. “All of these things are investments in the productive future of the economy, just by giving everybody a chance at actually succeeding.” 

There’s something charming in the wonkiness of Fuhrer’s vision, which even he acknowledges is unrealistic. But again, he points to what the hard data says, and how economic inequalities along racial and ethnic lines last for generations. If we don’t do something as drastic as what he proposes, “I think you’re going to look back 25 or 50 years from now, see essentially the same wealth gaps and say, ‘Well, why didn’t we do anything?’” 

The only answer, he adds, is that it’s just (considered to be) too expensive, and in part he blames his own generation for that. He sees hope in the millennial generation of his children (his oldest is around the age of 40). He says that given their experience of the economy, going through the upheavals of the Great Financial Crisis and the pandemic, “they might be the ones who support more of the kind of things that I have in mind.” 

But even that is, frankly, a bummer to him. “All of us who have money and power now, we don’t bear any responsibility, we just kind of … hope somebody else will take care of it. That seems pretty weird, pretty sad.” And as a data wonk, he hopes to urge people with his book to act. “I don’t want to wait for another generation to start taking on these bombs. We can do it now.”

Fuhrer tends to use a lot of “D words” in his book, as in “disturbing,” “dismaying,” “disheartening,” and “distressing.” He insists that he’s actually congenitally optimistic and that everyone knows the economy is broken, it just takes the will to act. “It’s a bunch of decisions we all make together.” So that’s a final “D word,” democracy? He agrees and adds another: “Is it doable? Yes.”