Rebuttal: Some Modern Discrimination Ain't That Bad

The last post called the consideration of the absolute level of welfare spending "completely irrelevant" to the issue of how welfare benefits should be distributed. For ANY particular level of welfare spending, it argued that welfare funds should be distributed strictly on poverty criterion rather than based on the causes of this or that form of poverty. Unfortunately for that line of reasoning, there is a strong case, related to how we decide what is the best level of welfare spending, for setting different levels of welfare spending for different groups of people.

To see this, look at the level of welfare spending as a compromise between two conflicting needs. The first need is to take care of the poor. The second need is to keep national productivity high so that the rich are rich enough to give to the poor (through redistributive taxation, for example). These needs conflict (with some exceptions) since redistribution reduces the incentives to work and produce. Poor people have less incentive to find work if the welfare system is already meeting its basic needs.

Now here is the important thing: Not all poor people respond to welfare benefits in the same way. The availability of welfare money enables some poor people to work much less than they would if the aid were not available, whereas other poor people continue to work just as hard after receiving aid. If we can find ways to identify who these hard workers are and give them better welfare benefits, then we have found a way to increase our welfare spending (and presumably improve the lives of more poor people) without reducing production and prosperity in general.

While we will never be able to figure out exactly who keep on working just as hard after they get welfare money, we can observe general trends among different groups of people. Then, by discriminating between different groups of people based on our stereotyping, we can come closer to achieving the goal of maximizing welfare spending while minimizing losses to national productivity.

For example, consider urban ghettos, stereotypically full of high school dropouts and druggies (and a few honest, hardworking individuals, no doubt), and often infected by a culture of defeatism or negativism. It would be unsurprising if welfare in such an area lowers labor rates just as much as it lowers poverty rates.

On the other hand, consider a rural, well-to-do town that is suddenly destroyed by an earthquake. In this case, providing funds to people who have lost their homes seems less likely to make them work less and more likely to be used quickly and efficiently to return to a normal standard of living. Providing this money to the town would not especially make the townspeople work less, especially if the aid comes as a one-time payment and the people realize that they will need to continue to provide for themselves.

Once again, as in the case of car insurance, skillful discrimination appears to improve the national economy at least in monetary terms. The more difficult thing to evaluate is the long-term economic and social cost of resentments and tensions that could result from discrimination.

Give Me Back Some of that Old-Time Discrimination

Most of us have at some time experienced discrimination in some form, especially in the formative childhood years: Children are one of the most discriminated-against groups in society. Children can't vote, can't drive, are rarely taken seriously, and are stereotyped as less intelligent and less capable than older people. Since we all are/were children at some point, it should be no surprise that voters in progressive societies tend to demand "fair" treatment for all types of minorities.

However, efforts to end discrimination are confusing at least as often as they are good. For example, affirmative action adds to the social rifts that it attempts to eliminate. Who can trust the achievements of racial minorities if these achievements have been subsidized by lower standards or extra financial support? What member of the racial-majority does not feel at least a twinge of jealousy or resentment towards racial minorities who have access to scholarships or services entirely based on their ethnicity or skin color?

Even anti-discrimination policies aimed at clear and present discrimination (rather than at inequalities resulting from the injustices of the distant past, as in the case of affirmative action) can have unexpected and profoundly negative consequences. As discussed previously, legislation against discrimination in the auto insurance industry can result in a higher auto accident rate.

Anti-discrimination discrimination in America takes many forms, most of which are not based on race. America tried to counter discrimination by the free market against the rapidly shrinking agricultural sector by offering costly agricultural subsidies to help farmers stay in business. Why wasn't a subsidy established for the shoe-polishing industry, which was shrinking at about the same time? NO FAIR! America tried to counter the poverty of old people by establishing social security. What about security for the 30 yrs old white male who appears fit and ready to work but has a bizarre mental disorder that makes him incapable of focusing on a task for more than five minutes at a time and therefore he ends up homeless? NO FAIR! America tried to counter the geographic discrimination imposed by nature upon New Orleans by pumping billions of dollars of federal aid into the city. Where was the federal aid for the city of Detroit, gutted by the storms of the free markets? And where is the federal aid for all the poor families in West Virginia who have lost their homes to termites? NO FAIR!

In summary, the expensive bureaucracy of governmental response to hardship in America is based on a confusing array of discriminatory anti-discrimination programs. In order to receive government aid, an individual must identify with some well-established need group. You get favorable treatment from the government only if you risk losing your job in the right industry (agriculture and a couple others), if your are part of the right ethnic minority (African American or Hispanic but probably not Jewish), if you are losing your home to a major national disaster (and not just a run-of-the-mill tornado or termite attack), if you are old and feeble with a long career behind you (but not if you were always too feeble to have a career), etc.

So what? Would it help if the government quit giving aid entirely? Absolutely not. (In fact, the exact level of government spending on aid, which arguably should be higher or lower, is completely unrelated to the issue at hand). But it would be nice to see an end to the blatant anti-discrimination discrimination. Here is the most important thing: EVERYBODY who undergoes poverty and hardship has an equally valid reason for it. One might claim that some people deserve the hardship they face, but this view is thankfully falling out of vogue as society becomes aware of the great extent to which upbringing and genetics shape our lives and personal decisions.

Therefore, as a rule of thumb, federal aid should be distributed approximately equally to everyone who is poor or in need. If your annual income is too low, the government should provide a subsidy on your earnings regardless of what sector you work in. If you are out of work, the government should pay you at least enough for you to survive at a uncomfortable level of subsistence, regardless of whether your inability/unwillingness to work is due to an obvious physical ailment or a mysteriously ailing mind. If you are sick and too poor for medicine, the government should offer you the same level of health care subsidy, regardless of your age or particular ailment.

Give me back some of that old-time discrimination, the kind that is created by forces of nature, the kind that is created by unlucky (or lucky) genetics, the kind that arises through free (and, arguably, the most "natural") market forces. Instead of fighting with nature by creating a never-complete and horribly loopy web of counter-discrimination measures aimed at every possible type of natural discrimination, we can set a foundation for an equitable society by offering equal aid to all our poor.

The Economics of Auto Insurance and Discrimination

Car insurance companies base insurance premiums on factors such as your driving record, age, and gender. How do they get away with discriminating based on gender? Why should my premium be based on my gender and not just my driving record? And suppose that statistical studies show that black men have a much higher risk for car accidents than white men. If it is OK for insurance companies to make me pay more just because I am a man, then why shouldn’t they charge me even more for being a black man?

Some people support anti-discrimination legislation for the auto insurance industry to ensure that rates are based strictly upon an individual’s driving record and possibly some other factors that the individual has some control over, such as geographic location. Is there any reason why we should allow the auto insurance industry continue its sexist (and potentially racist) discrimination practices?

A knee-jerk economics argument in favor of refraining from instituting new regulations on the insurance industry might run as follows. It is a fact that men, on average, are more dangerous drivers than women. Observe that insurance companies who charge males higher premiums than they charge females are providing an incentive for fewer men to drive and more women to drive. In theory, this should result in fewer men (but more females) on the road, which means the roads would be populated by safer drivers, on average. Statistically speaking, then, we could expect accident rates to fall. This would be a obvious benefit to the economy.

It is unclear how relevant this argument is for the US economy, where the price elasticity of demand for car insurance could be very low. In other words, it is possible that substantial changes in the insurance premiums would not substantially influence the mix of male and female drivers on the road. (It should be possible to estimate this elasticity with existing data.)

Assuming for the moment that discriminatory insurance pricing does not lower accident rates by changing the mix of drivers on the road, it is very possible that anti-discrimination laws for insurance have a low cost, and that the societal benefits of equal treatment for all groups far outweigh the economic costs.

But even if we conclude that anti-discriminatory laws are desirable, it is unclear how well they can be meaningfully enforced. Often it is possible for an insurance company to discriminate against a protected group without explicitly naming the protected group. For example, if there is a rule that insurance companies must not include gender in their calculations, they might start including height. Since men tend to be taller, setting higher premiums for tall people would generally accomplish the goal of charging higher rates for men.

One surprising example of how institutions can get around anti-discrimination laws is provided by Central Michigan University. After the state of Michigan passed a ban on giving preferential treatment in scholarship funding to specific racial groups, the CMU came up with a creative way of getting around it:

http://www.cmich.edu/diversity_MCRI_Reviews.htm

“Undergraduate admissions has, in the past, focused mailings about certain scholarships on students who are members of ethnic and racial minority groups. The applications for these scholarships are available to all students at College Nights and are prominently displayed in the Admissions Office lobby area, but have been sent only to students who are members of ethnic or racial minority groups. In future, these mailings will go to all students who reside in a zip code area from which the university wants to enroll more students because students from this area are underrepresented in the student body.”