Poisoning the Well: Law & Economics, Business Development, and Racial Inequality

Abstract

The Law & Economics analysis of racial discrimination has impoverished our thinking about race. This legacy comes from its conclusion, reached early in its development, that laws prohibiting racial discrimination were unnecessary and wasteful. This controversial policy recommendation reflected an oversight, which, in retrospect, seems obvious, but which over more than three decades remained unnoticed by both adherents and opponents. Law & Economics built its flawed analysis of discrimination on the concept of "psychic" income. White workers and employers would experience psychic losses of income if forced by antidiscrimination laws to forego their preference for nonassociation with black workers. This analysis and the ensuing critical commentary failed to consider that black workers might experience psychic losses as victims of discrimination. When their losses and gains are considered, the economic analysis changes fundamentally. This error imposed real costs, because within the civil rights community, the original conclusion reached by Law & Economics, (which flatly contradicted the historical record), discredited economic analysis of discrimination. Other schools of economics reject the troubling assumptions that led Law & Economics astray, but the potential insights offered by these other schools have been lost. Business ownership accounts for too much wealth and power for real equality to exist unless a substantial black entrepreneurial group develops. Because discrimination has not been and cannot be prohibited in private commercial transactions, this group remains underdeveloped. Spurring the growth of this group requires interventions that meld seamlessly with existing market arrangements. Such a melding depends upon a sophisticated appreciation of how race affects market activity. We currently lack such an understanding, and without more attention to economic analysis, we cannot develop one, and real equality will remain a chimera.