Liberty Matters

Further Reflections on Systemic Racism

If one begins with the belief that systemic racism undergirds the entire U.S. political and economic system, that goes hand in hand with the notion that market outcomes should not be trusted to play fair or solve problems related to systemic racism. Instead, those affected should wait for the political process to play out, becoming passive participants in a tedious political system that relies on a thread of hope:  if certain people are elected, and if they do what they say, and if the policies pass, only then will my life improve. This type of pessimistic outlook must surely impact results of a recent 2023 Wall Street Journal poll, where just 36% of Americans think that the American Dream- “if you work hard, you will get ahead”- still holds true. In 2012, 53% believed it to be true.[1]
The writers of these essays take a different tack: for the most part they explain behavior through the lens of a traditional economic model: choices are made under constraints, or in some cases, barriers to entry. There is a general theme- where systemic racism exists in crime or housing, the antidote is to re-evaluate government policies and regulations.  Persuasively argued, the authors show that time and time again, governments have instigated and perpetuated systemic racism rather than dissolving it. The antidote is a clearer-eyed understanding of how deregulation and markets can solve many of these problems by allowing individuals more freedom to pursue their own goals and dreams.
Claudia Kramer suggests that differences in crime between Black and White people are partially explained by differences in poverty rates, education, and income. These lead to more limited opportunities and a lower opportunity cost of committing crimes, using the well-known Becker model. Her explanation thus focuses on barriers to employment as one of the root causes. The source of those barriers, she argues, is government regulations that create disincentives to work in the social welfare safety net or make it difficult to get access to business credit because of burdensome financial regulations.
Ray DeGennaro identifies that the collapse of the two-parent household is directly tied to a rise in poverty, increased drug use and poor education achievement, that leads to higher crime rates. He notes that our welfare system encourages single parenthood through penalizing childcare and food stamp (SNAP) benefits once a single mother marries. This disproportionately affects Black families, leading to persistent gaps in earnings and wealth. Government programs, meant to help, again are one of the roots of the problem. Harold Black notes that discrimination against qualified minorities for mortgage loans would be “foolish” in today’s competitive market environment, since it would lead to lower compensation for the bank. The large differences in homeownership rates between Black and White families is a product of past FHA federal policies that explicitly forced Black people to live in certain neighborhoods. Craig Richardson notes that this, along with urban renewal policies, resulted in longstanding isolation of Black neighborhoods, disconnected from an economic network of jobs and places to shop. Lastly, Wilfred Reilly helpfully points out the limits of structural racism in explaining economic differences, with Asian-Americans being the highest prospering group in the United States despite having faced discrimination of their own.
For all the persuasive arguments and statistics presented by the authors in these essays,  racism and discrimination are exceedingly difficult to measure in practice. In most regression analyses, racism is “measured” by what’s in the error term, i.e. what’s left over after controlling for a series of observable differences not correlated with race. In other words, there is no variable for “racism.”
For example, if there is a White-owned house and a Black-owned house, and they have the same square footage, bedrooms, bathrooms, neighborhood and lot size, a lower market price for the Black-owned home could be used by some scholars as a measure of systemic racism in the housing market. But it could just as easily be unmeasured quality differences, such as higher-grade amenities in the White home.  The debate over the unmeasured then becomes a claim rather than solid evidence.
The danger of using broader measures of structural racism to explain all differences in economic outcomes is that it creates a metaphorical lead blanket wrapped around an individual, potentially leading to a sense of powerlessness and lost hope. While racism and discrimination certainly exist, the approach employed by these essayists allows for hope, encouragement and upward mobility based on individual freedom and initiative, while mindful of the serious headwinds that may occur along the way.
[1]  Cited in Lawler, Dave. “Americans think the American dream is dying.” Axios, 11/25 at