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The Economics of Discrimination

By Robert P. Murphy

"Remember they weren't called Jim Crow 'best practices,' but were Jim Crow laws." Last May, Kentucky senatorial candidate Rand Paul said that he could not endorse all of the Civil Rights Act because it interfered with business owners' private property rights.1 Since then, pundits have been discussing business discrimination, but many of them are ignorant of the teachings of economics on the subject. As Gary Becker first explained systematically,2 the free market contains automatic penalties for the odious practices that most people have in mind when they deplore "discrimination." Ironically, it is powerful governments that historically commit the worst injustices against unpopular minorities. Before exploring the economics of discrimination, we first need to distinguish the term from several related ones. For example, racism, bigotry, and prejudice refer to someone's beliefs; they are mental phenomena. In contrast, discrimination refers to an action. The two often go hand-in-ha...

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