As with the other query, Christine knew the credit manager would feel his way warily. Part of his job–equally important with preventing fraud–was not offending honest guests. After years of experience a seasoned credit man could usually separate the sharks and sheep by instinct, but once in a while he might be wrong–to the hotel’s detriment. Christine knew that was why credit managers occasionally risked extending credit or approved checks in slightly doubtful cases, walking a mental tightrope as they did. Most hotels–even the exalted ones–cared nothing about the morals of those who stayed within their walls, knowing that if they did a great deal of business would pass them by. Their concern–which a credit manager reflected–involved itself with a single basic question: Could a guest pay?
This is from Arthur Hailey, Hotel, 1965.
Linda Gorman covers this principle in “Discrimination,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.
READER COMMENTS
Thaomas
Jul 8 2019 at 8:59am
This is right as far as it goes, but it does not address discrimination arising out of the desire of other customers to discriminate (arguably the public accommodation problem in the South in the ’50’s.)
Jon Murphy
Jul 8 2019 at 11:30am
It does. The argument is not that, in a market society, there would be zero discrimination. The argument is that, in a market society, discrimination is more costly. Thus, it reduces the likelihood of discrimination. If the benefits outweigh the costs, discrimination may still happen. But you increase costs, you decrease discrimination on the margin.
Phil
Jul 9 2019 at 1:21am
I agree with this in principle: A focus on demand certainly can remove the focus from skin colour, gender, sexuality, religion, or any of the other nonsense factors of discrimination.
Libertarians are much too quick to claim this as a unique benefit of the market. One of the great advances of the 20th century was the development of many government services provided equally to all citizens – most specifically, justice, and the right to vote. It is far from obvious that “the market” has ever done anything quite so impressive. It certainly *can* be a force against discrimination, but whether or not it *has* been a force for equal treatment is a question to be answered historically and empirically.
The principle is definitely right, though. No argument there.
Jon Murphy
Jul 10 2019 at 9:04am
Well, markets cannot provide a right to vote since markets do not rely on voting, so that’s something of an unfair comparison.
Regarding governments providing “justice,” you’ll need to be more specific about that. Justice, depending on your philosophical bent, has many definitions. In a traditional liberal tradition, markets do provide justice (see JR Clark and Dwight Lee’s article here). Adam Smith writes a lot about how markets foster virtuous and just behavior among various peoples.
Further, it’s not obvious to me that the history of 20th Century politics, especially in the US but elsewhere as well, should be seen as providing equality for all people; just the opposite, in fact. Much of the legislation passed in the beginning of the century and still on the books, things like minimum wage, labor standards, immigration restrictions, etc. were designed and passed with the explicit purpose of overriding the equality of the market. You had Jim Crow, Japanese detainment camps, the draft, blacklisting Communists, forced sterilization, prohibition, the War on Drugs, bans on interracial marriage, just to name a few. Big movers that overturned that legislation was not the political process but the judicial process: Brown v. Board, Roe v. Wade, Obergefell v. Hodges etc.
Phil H
Jul 10 2019 at 2:11pm
“Big movers that overturned that legislation was not the political process but the judicial process”
Absolutely, that’s what I meant. I was using “government” in the widest sense there. Rule of law, delivered through the courts, has been critical in reducing discrimination, and in supporting fair markets that can reduce it still further.
Jon Murphy
Jul 10 2019 at 2:39pm
Ok, but you really want to be extremely careful, because as we see those are cases where the market was providing “fairness,” governments stepped in to stop markets, and then (if we’re defining courts as government) government stopped and allowed markets to operate again. Thus, it can lead to the erroneous conclusion you draw, that governments at times are better in promoting “fairness” or justice or equality than markets.
David Seltzer
Jul 9 2019 at 4:17pm
Personal note. I was a market-maker on the CBOE in the late 70’s.It was known that some traders were openly anti-semitic. I knew their names. Yet, I traded with them knowing who they were and they knew my heritage.The simple economic lesson, both of us, the semite and the anti-semite benefitted mutually from those transactions.
Tom West
Jul 17 2019 at 10:32pm
What about “rational” discrimination where some visible characteristic correlates with the likelihood of being able to pay? A market economy may make irrational decisions more costly, but it can justify statistically rational discrimination that does incalculable long term harm to society as a whole.
Close evaluation of human beings might produce superior predictive results, but the the reality is that many businesses build no such relationship and could easily find discrimination based on race or gender profitable in a variety of contexts.
Which is why I consider laws prohibiting discrimination a necessity even if we assume a no irrational discrimination at all (and there is no shortage of irrational discrimination).
Comments are closed.