The Angry Economist

Several people have remarked on Jim Crow laws lately: Don Boudreaux at CafeHayek, Thomas Sowell, and myself. Edwin writes to me saying that he thought Thomas Sowell got to the point better, which is that free markets don't tolerate discrimination. He is quite right.

Any kind of interference in the free market which does not favor one party over another will never be favored by businessmen for two reasons. First, because it's always possible that a competitor will cheat on the sly. Regulations only regulate the honest businessman. Second, because any regulation which requires modified behavior imposes a cost, and only rarely is this cost compensated-for. Perhaps the cost is a one-time cost in the form of retraining staff members. More likely the cost will be ongoing.

A non-economist might say "but everyone has that cost imposed on them, so it's perfectly fair." No, it's not. Everything has a substitute. Before we had FedEx, time-critical packages were hand-carried on airplanes. When I was a chip designer at HP, an engineer would fly down to the Bay Area to pick up her masks. People can still do that, and if FedEx and/or UPS stopped selling overnight services, the practice of hand-carrying would resume.

The bus companies in the south discovered to their chagrin that the black people didn't HAVE to ride their busses. During the bus boycott in 60's, blacks didn't ride any busses for an entire year. They walked, bicycled, and organized jitneys (private automobiles used for pay carriage; similar to taxis).

Jay Warran insists, in a letter to the Daily Courier-Observer published 10/29, that we should "Remember, with drugs comes violence. Period." I'm sure that the manager of the local P&C would be surprised, since he has an entire aisle-full of drugs, and sells them daily with nary a hint of violence. The pharmacist in the nearly Eckerd's would be equally surprised, since he sells drugs non-violently all day long.

Clearly, Jay means "With illegal drugs comes violence" even though he didn't say so. And yet I have to question this too. Which came first, the drugs or the violence? If one person is peacefully selling drugs to another, and society pulls a gun on both of them to force them to stop, it seems to me that society has created violence out of peace. So yes, I agree that illegal drugs are associated with violence, but that violence has been created by the laws that made the drugs illegal.

You may think that drugs are inherently bad, and this causes the violence, but you might be wrong. Imagine if use of the number five was absurdly made illegal. Everyone can see from their life experience that they can use the number five successfully without violence. If, after the start of the War on Fives, they needed to use a five every day, they would continue to do so in spite of the ban. Any violence used to stop the use of five would clearly be caused by the law, not by the five itself. If there were profits to be had from the use of five, they would have to be distributed without recourse to the law. Any conflicts would be escalated into outright violence.

What can we do about it here in St. Lawrence County? We can't make drugs legal on our own. We can, however, instruct the county sheriff to tolerate the use of drugs in certain socially-acceptable contexts. The drugs would still be illegal, and the state troopers might cause trouble, but at least we wouldn't be wasting tax dollars creating violence where none exists naturally.

Update 11/21: Richard Gadsden points out that a drug may very well be associated with violence, e.g. some people get aggressive when they get drunk. Clearly a designer drug formulated to enrage someone would be likely to come with violence. I think that Jay Warran was referring to drug sales, so I restricted my discussion similarly.

Is Rosa Parks really a lone hero, riding away on her bus into the sunset? Certainly she is on the fast track to sainthood. Everyone who is anyone is currently lionizing her as the hero of the battle for civil rights for blacks. Only a few, however, have mentioned that earlier in her famous summer, a pair of unnamed black women had also gotten arrested. And for many years prior to Rosa's last stand, now-anonymous blacks fought and struggled for their right to be treated equally under the law.

So what makes Rosa Parks special? I say nothing much. She was not the first black hero, nor will she be the last one. Rosa Parks the person was clearly a brave person, but Rosa Parks is not just a person at this point. She has become a symbol, standing for many unnamed brave black people, each of them unwilling to accept being unfree in the Land of the Free and The Home of the Brave [black person]. People have a tendancy to personalize groups and movements, turning real people with foibles and faults into symbols. This is, I think, the flip side of our tendency towards bigotry. Just as we praise individuals (Rosa Parks) for the attributes of the group (the many blacks who struggled to be free), we also damn individuals for the (perceived) attributes of the group.

So why were the Jim Crow laws that mandated discrimination necessary? Because the nature of bigotry in a marketplace is a commons. Bigotry can be seen as an expense to a business. No business is well-served by treating potential (black) customers badly. No business is well-served by refusing to hire hard workers simply because of their color. The more any one business indulges itself in bigotry, the less profitable it is, and the more likely a non-bigoted business will be able to out-compete them. Thus, there is a limited amount of bigotry available to anyone.

A Jim Crow law serves to increase the available pool of bigotry by mandating that everyone be bigoted. It would be in a business's interest to cheat on Jim Crow laws and thus earn some extra profit, but such cheating would be highly visible. You can't not notice a black counterman serving white folks.

What finally broke the back of Jim Crow laws was black people refusing to put up with them. They attacked the backbone of businesses, so that businesses were hurt more by Jim Crow laws than they benefitted from idulging their bigotry. In the fourty years since the civil rights struggle was won, bigotry, although still present in American culture, has become unacceptable in polite company. Thus, I don't think that Jim Crow laws could get passed anywhere now.

And that's a good thing.

Probably the biggest argument against government action is the relationship between risk and reward. Whenever any government agency or private enterprise is directed to take action by a bureaucrat or entrepreneur respectively, there are risks and rewards. These are not apportioned equally in the two groups.

When a bureaucrat directs his agency to take action, he is taking the risk that the action will be wrong. The action may very well not pan out. If that happens, because he took the initiative, he will be blamed. Consider the case of Gary Miles, candidate for St. Lawrence County District Attorney. He received evidence that Dr. Latimer was prescribing large amounts of painkillers (opiates). Rather than charge Dr. Latimer, he hounded the doctor out of office through a trial by press release. For this he is being criticized and will probably lose his election to Nichole Duvé.

Let's say, though, that the action that the bureaucrat took was correct. He will receive scant reward for his efforts. The public will not remember his good deeds later, at election time. Doing well is only his job; people don't consider him worthy of reward simply for doing a good job.

Contrast this with the risk and reward available to entrepreneurs directing private enterprise. The risk is still there. Just look at HP (fired its CEO and laid off 10,000 employees). The reward, however, is substantially greater.

You can predict, then, that given scant reward and substantial risk, that bureaucrats will underperform their equivalents in private enterprise when in control of the same resources.

UPDATE: he did lose to Nichole.

I was having a conversation with a fellow over the morality of a living wage. His point was simply that a Christian could not morally pay less than a living wage. The thing about morals is that anything can be said to be moral or immoral, depending on the principle you are applying. His principle is that Jesus instructed us to take care of the least among us. From this principle he derives the moral judgement that if an employer pays less than a living wage, they are immoral.

This is economic nonsense. Just as a bridge is supported on two ends, so is every economic action. When somebody is paid, it must be for something they have done. If people are to be paid a living wage, they must accomplish a living wage's worth of work. Everyone is fundamentally lazy (a negative description) in that they seek to accomplish their goal efficiently with an economy of effort (a positive description of the same action.) Thus, in order to gain that living wage, people will work no harder than necessary. Similarly, an employer will pay no more than necessary to gain that amount of work. The amount of pay that anybody receives for their job is a function of the pay required to hire the last employee needed. If you can hire ten people at $1/hour, but you need eleven, and the eleventh can only be hired for $2/hour, then you will end up paying all of them $2/hour. What will happen is that the $1/hour people will inevitably find out about the $2/hour person, and either ask for a raise or quit. Since the last person hired had to have an offer of $2/hour, so will the next person hired. In time, everyone will be paid the same amount as the last person hired.

The intent of affirmative action is to correct for past prejudice. The intent of equal opportunity is to correct current prejudice. You often hear about employers advertising themselves as "Equal Opportunity / Affirmative Action" employers. The trouble with these two goals is that they are in conflict with each other. The goal of equal opportunity is to have a society with no prejudice: where all individuals are evaluated on their own merits. Affirmative action (AA, henceforth), on the other hand, requires employers and educators to treat the harmed individuals specially.

Logically, they are incompatible. There is only one way this situation can be saved: if AA is strictly limited in time. AA is a law that must eventually go away once the harm has been substantially addressed. Or the addressed groups must be limited as one group's harm is compensated but another group's remains (e.g. blacks have been under AA since the beginning, but the disabled were added later.)

It's really important that AA have a goal in sight. Prejudice is generally regarded as counter-factual. Let's say that you are prejudiced against blacks; you think that blacks make worse accountants. You would prefer to hire a white accountant. Prior to AA, it's likely that a black accountant would have had to work harder in school, in order to overcome the racism of those who think blacks would make bad accountants. So the racist's prejudice would be exactly backwards.

If AA is goes on longer than it should, then you end up with the opposite situation. Rather than blacks being given a hand up to the level of whites, blacks are effectively told "Our expectations of you are lower," "You can't do as well as whites, so we have AA for you," and "You don't have to work for success." Since a black can get into a degree-granting program with lower credentials, graduate with lower grades, and be hired by an accounting firm under AA, the racist has a concrete reason for preferring white accountants to blacks.

As reparation, AA is perfectly fine. "We harmed you in the past; this makes up for it." But reparation beyond the extent of the damage becomes a crutch. The question at hand is not "should we have AA?" but instead "has AA done its job; if so we must abolish it to avoid creating harm."