Economics tells us that racial discrimination is expensive. Yet social psychology suggests that humans nonetheless tend to mistrust those whom they identify as outsiders. As a result, governments can exacerbate this mistrust and thereby encourage costly discrimination by creating or maintaining official race-based definitions of out-groups and differential outcomes based on race.
This article reviews evidence from economic and legal history to argue that not only did U.S. governments incentivize and even mandate racial discrimination, but these acts tended to reinforce racial mistrust as time went by. Segregation became more strict, not less, from the end of Reconstruction until the mid-20th century, largely because of growing and self-perpetuating state action. Discrimination created its own constituency.
Some skeptics of the civil rights movement have viewed racial discrimination as an essentially private matter that did not warrant the extensive state intervention. This view is untenable. Although certain measures passed in the name of black civil rights still raise serious legal issues in light of strict constitutional construction, the civil rights movement also dismantled a wide variety of even more troubling measures. Most of these can be characterized as straightforward impediments to the freedoms of movement, trade, and association.
Although, if given a free market and a neutral state, economic incentives will tend to work against racial discrimination, American history has never witnessed a neutral state. Instead, and until the mid-20th century, the market incentives that might have worked against discrimination were repeatedly frustrated. Recent historical scholarship, notably from left-leaning scholars, has done much to show the depth and surprising recentness of state support for discrimination.
As a result, even those not ideologically on the left can rethink the civil rights movement as a complex set of tradeoffs that moved the United States from one type of interventionism to another, much more benign one. On the whole, state intervention into the lives of ordinary citizens shrank in this area of life, rather than grew. Although libertarian and conservative intellectuals of that era viewed certain developments, notably the Civil Rights Act of 1964, with great alarm, this alarm was badly misplaced.
Discrimination and the State
Opposing racism isn't a difficult call. Economists tell us that discrimination is inefficient (Becker 1971). Worse, racism is a collectivist idea that doesn't sit well with other deeply seated American values. Recent American history has seen the rollback of discriminatory practices to a degree that might have been hard for previous generations to imagine.
Yet some questions remain: Wasn't racial discrimination basically a private affair? Did we really have to enact federal laws and regulations to end it? Many of these laws dictate how people run their businesses and associations, and these restrictions are problematic to say the least. Even if we do find discrimination wrong, isn't it a private wrong? Why wasn't private moral force enough?
Such questions, while serious, can be difficult to ask. Many on the American left have dismissed libertarianism as an unserious political movement or even as a form of crypto-racism precisely because it raises them. Admittedly, many of the characteristically libertarian concerns about property rights, employment at will, and the freedom of contract have often been echoed by individuals and groups of questionable character. Yet this is no reason to reject these concerns out of hand, and it is worth continuing to consider the problem of discrimination in ways that do not simply concede the necessity of coercion in combating it.
One answer is that even until relatively recently, the state itself mandated and incentivized discrimination. In recent years, a growing revisionist literature, often sympathetic to the political left, has exposed this tendency even in popular initiatives like the New Deal (Quadagno 1994, Brown 1999). …