Markets and Discrimination
"Capitalism causes people to pursue profits blindly!" complain some.
"Capitalism promotes unwarranted discrimination!" complain many of the same some.
.........................
4 January 2009
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
George Will nicely explains how the 1971 ruling in Griggs v. Duke Power is an example of the law of unintended consequences at work ("The Toll of a Rights 'Victory,'" January 4). Another point deserves mention, though.
The market share of, and the rates charged by, defendant Duke Power were regulated by government. Moreover, these regulated rates were based on the Company's costs; higher costs meant higher permitted rates, and vice versa. So it's unsurprising that Duke Power practiced racial discrimination in hiring: failure to use the most productive workers cost it very little, for the higher costs resulting from sacrificing worker productivity in order to satisfy its preference for white workers were recovered through higher regulated rates.
In contrast, firms regulated by market competition pay dearly if they discriminate in favor of racially preferred but less-productive workers, for the resulting higher costs cannot be recovered through government-set higher prices.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
©
"Capitalism promotes unwarranted discrimination!" complain many of the same some.
.........................
4 January 2009
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
George Will nicely explains how the 1971 ruling in Griggs v. Duke Power is an example of the law of unintended consequences at work ("The Toll of a Rights 'Victory,'" January 4). Another point deserves mention, though.
The market share of, and the rates charged by, defendant Duke Power were regulated by government. Moreover, these regulated rates were based on the Company's costs; higher costs meant higher permitted rates, and vice versa. So it's unsurprising that Duke Power practiced racial discrimination in hiring: failure to use the most productive workers cost it very little, for the higher costs resulting from sacrificing worker productivity in order to satisfy its preference for white workers were recovered through higher regulated rates.
In contrast, firms regulated by market competition pay dearly if they discriminate in favor of racially preferred but less-productive workers, for the resulting higher costs cannot be recovered through government-set higher prices.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
©
Posted by Don Boudreaux on
Wednesday May 27, 2009 at 9:36am