11.24.2008

ANOTHER VIRTUE OF COMPETITION

The Economist recently profiled a fascinating study on racial discrimination and competition. Competition doesn't eliminate discrimination, but it does penalize it; and the study found that by deregulating banks in the US, 22 percent of the racial gap (i.e. the difference between wages, controlling for education and experience) had been "competed away."

In our haste to blame financial deregulation for our current financial crisis, let's not add to the problem by restricting competition in a way that reverses reductions in the wage gap between blacks and whites that can be explained by discrimination. And in our noble attempts to fight discrimination with such direct tools as education and affirmative action, let's not forget the important role that a free market can play in creating a level playing field.
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