Capitalism has a disparate impact

By Scott Sumner.

"Matt Yglesias has an excellent post discussing Ibram X. Kendi’s attempt to redefine the term ‘racism’ from personal animosity against another racial group to advocacy of policies that widen the gap between two racial groups:

When the book was first published in 2019, that’s not how it was received. Kelefa Sanneh’s excellent review in the New Yorker heads straight for what I think is the core weirdness of Kendi’s ideas. If we accept the definition that a racist is a person who supports racist policies, and what makes a policy racist is that it “produces or sustains racial inequity,” then determining which policies are racist requires exhaustive analysis of controversial empirical questions. Sanneh uses the example of “ban the box” laws which prohibit employers from asking about past criminal convictions. Many activists and the National Employment Law Center regard this as an important anti-racist measure since African Americans are more likely to have prior convictions and thus be disadvantaged by this question.

But Jennifer Doleac and Benjamin Hansen find that “ban the box” laws lead to worse employment outcomes for Black men because absent specific information about past criminal records, employers engage in statistical discrimination.1

“Are these laws and their supporters racist?” Sanneh asks. “In Kendi’s framework, the only possible answer is: wait and see.”

Just to be clear, there are public policies that have a disparate impact and are also motivated by racism.  That is probably true of our crack cocaine laws, and also some zoning regulations.  Nonetheless, Yglesias points out that it is a very odd definition of racism where a person might end up being called racist for advocating laws that they thought were anti-racist—such as “ban the box” or “defund the police”.

In fact, I think it’s even worse than Yglesias suggests.  Why should we worry about how laws affect inequality?  Isn’t the actual goal to maximize aggregate utility?  And if that’s not the goal, if you have a Rawlsian value system, then surely a public policy that improves the utility of disadvantaged minorities is not racist, right?

In 1959, Mao implemented an egalitarian program called the Great Leap Forward, which equalized the pay of Chinese peasants regardless of their productivity.  Unfortunately, that program also reduced the incentive to work hard and output fell sharply, resulting in the death of roughly 30 million people from starvation.  Not good.  Indeed, maybe the worse disaster ever.

This example might seem pretty far removed from our society.  Don’t most actual policies that increase economic disparities also make the poor worse off?  Actually, not as often as you’d think.

If you polled most American economists they would probably agree that:

1.  Capitalism makes the poor better off than socialism.

2.  Capitalism results in more income inequality than socialism.

And I don’t think it’s just economists that have this view.  Over the years, I recall reading a number of studies suggesting that African-American voters tended to be skeptical of candidates that advocated socialism, and often voted for more centrist Democratic candidates.

I agree with Yglesias that it’s a bad idea to define “racist” as someone who advocates programs that increase racial disparities.  (And who gets to make that judgment?  Kendi?  Trump?)  But I would go even further.  Reducing racial disparities should not be the primary goal of public policy.  I don’t want to live in a country where everyone is paid the same, because in that country the average level of real wages will fall to a very low level.  Instead, the goal of antiracists should be raising the utility level of disadvantaged groups.

Lots of obvious policy initiatives like decriminalizing crack cocaine or eliminating residential zoning restrictions can do this without making society worse off.  But I would go even further.  There are non-obvious policy initiatives that can improve the well being of disadvantaged groups, such as lower tax rates on capital income and free trade agreements.  Those initiatives won’t necessarily reduce racial disparities; they might even widen them.  But they will improve the well being of disadvantaged groups.

To summarize, the anti-racist movement is not merely off track in redefining racism from personal animosity to economic disparity, it is also infected with zero sum mentality, which assumes that any policy that widens disparities reduces the welfare of the lowest paid groups.  And that’s just false."