Does the Free Market Punish Racism? REASON TV Asks (But Doesn`t Answer)

Reason TV presented an airheaded bit asking whether the free market punishes racism.

Does the Free Market Punish Racism? What We Saw at the Donald Sterling Protest, by Alexis Garcia & Zach Weissmueller , April 30, 2014

The clip is not really worth viewing, since it`s nothing more than a series of questions put to Donald Sterling protestors, all of whom give unilluminating, expected answers (although the “Racism is Against the Law” placard is amusing, in addition to one black protestor`s comment that `we own this team`… legal accuracy has never been a strong point of the minority rights movement).

I was hoping for some serious answers from some serious economists.

Because it`s not a bad question.

I suspect the answer is “no”.

In a truly free market, people are free to make buying and selling decisions as they see fit, do business with whom they prefer to do business, and generally operate according to their personal desires with an eye toward making money. Anti-discrimination laws typically put the crimper on freedom of association, so they`d be out the door.

In such an atmosphere, banks could lend and deny loans as they saw fit—which would inevitably be deemed racist. But the banks would do well. Realtors would be free to announce the demographics of a neighborhood to prospective purchasers. Heck, a New York bodega, fed up with black shoplifters, could even ban them from the store.

“Racist”? Sure. I guess the question might be better phrased, “does the free market punish decisions made on the basis of inaccurate racial information?”, i.e., assume that the racist shop owner is wrong—in fact, banning all blacks from the store is economically irrational because he`s losing the business of honest black customers and perhaps a few non-black customers who are offended by the policy.

On the other hand, he probably reduces his shoplifting losses significantly. He gains back the time he used to spend eagle-eyeing black people in his store. His stress level goes down because he no longer has the aggravation of the thefts, the confrontations, the calls to the police, dealings with insurance (if he has any), and so on.

And maybe, just maybe, non-black customers will notice the subtle difference of a store unpopulated by blacks and start gravitating there in larger numbers, thus making up for the business lost.

Crunch all those numbers, and perhaps the “racist” bodega owner come out better.

Or not, I don`t know.

I suppose that at the top, unfashionable attitudes on race could be punished, as in advertisers pulling their money from the Clippers. But remember that these are decisions made at the top, in response to perceived social mores. Not all economic decisions come from the top like that.

Boycotts do seem to crumple in the market: We like to be patriotic, so we have a Ford, but the Honda is nice when, you know, you want the engine to start. If people like watching the Clippers, they`re going to pay for it, no matter what Donald Sterling has to say. Jews buy German cars for all the reasons everyone else does.

It might even be that a “racist” ends up cash-poorer, but happiness-richer.

But it`s worth a thesis or two for a PhD in economics, no?