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Wednesday, August 29, 2012

Race and Economics: How Much Can Be Blamed on Discrimination

Few topics induce stronger emotional reactions by Americans than racism, and rightly so. Racial bigotry against black Americans has existed for centuries, and is responsible for innumerable injustices. Contemporary black Americans, on average, have lower incomes and life expectancies and less educational attainment, and are more likely to be victimized by and convicted of crimes.

Many people believe the simple argument that racism is what puts black Americans at a disadvantage, particularly in the private sector. The idea that racism causes private discrimination typically leads people to conclude that the interests of blacks can be advanced only through enlightened public policy. Freeman columnist and George Mason University professor Walter Williams, however, uses economic reasoning to make a more subtle argument: Private competition actually guides people toward color-blind exchange in markets. On the other hand, politics can lead to racist policies, which subvert competition to the benefit of influential special interests.

The logic behind the economic arguments of Race and Economics is largely implicit. As such, readers with a background in price theory may appreciate its content more than others. In any case, the author has a unique talent for making lessons on economic theory both informative and entertaining.

There is a tradeoff regarding the depth of the historical analysis of Race and Economics and its overall length and readability. Williams covers centuries of American history, and a few foreign examples, in only 141 pages. Chapter two covers a large number of historical examples in which black Americans advanced their interests through free-market competition. Some readers may be surprised to find that there were successful black entrepreneurs before the Civil War.

In chapter three Williams examines anti-black public policies. A main point is that such policies are not simply a product of racism. Interest groups composed of white Americans have often used public policy to gain at the expense of the rest of society, including black Americans. Opportunities for personal gain through coercive income transfers have reinforced anti-black biases in American politics. The number of race-related coercive transfers discussed in this book suggests that such problems are commonplace.

Readers who already appreciate the market process, as well as Public Choice problems with modern government, should find this book illuminating and convincing. Yet the cursory treatment of each of the examples in Race and Economics limits the potential for this book to overcome resistance from more skeptical readers, especially when skepticism is driven by emotion. For example, Williams discusses the entire subprime mortgage problem in only one and one half pages. While I see no problems with his argument, those who strongly disagree with a free-market perspective on racism before reading the book may find its arguments and evidence insufficient.

It would be unfortunate if such individuals dismissed the book, because it contains many informative cases. For example, Williams mentions the decline in black employment in construction in the late 1800s. The International Brotherhood of Electrical Workers and United Association of Plumbers and Steamfitters excluded blacks entirely, and the Plasterers Union allowed only a handful of black members. Williams also mentions several examples of companies hiring blacks as strikebreakers. Of course, violence was used against those black workers. The ability of union excluded blacks to replace white union workers was severely impaired by FDR’s National Recovery Administration. In fact, the NRA was sometimes referred to as “Negroes Rarely Allowed.”

More recently the International Brotherhood of Teamsters used trucking regulation to restrict black Americans from entering the trucking industry. Williams notes that after deregulation of interstate trucking began in 1979, the percentage of black truck drivers increased. While unions are private organizations, their efforts at suppressing competition, which often have a disparate impact on blacks and other minorities, typically succeed only with government support.

These and other examples are fascinating (if not angering), and they do support Williams’s thesis. However, the author might have buttressed them with more evidence and greater detail.

Race and Economics offers a correct interpretation of an important facet of American economic history, one that has applications to current public issues. Readers of The Freeman should find the book persuasive. Misconceptions concerning solutions to race-related economic problems are common. Many people lack an understanding of both the subtle working of markets and the perverse outcomes of politics, and react emotionally to race-related issues.

I hope Williams will write a longer and more detailed second edition of Race and Economics, but as it is, the book serves as a starting point for debate on the relative merits of public policy and private competition regarding racism.

  • D. W. MacKenzie is an assistant professor of economics at Dickinson College.