David R. Henderson  

Donald Sterling and the Economics of Discrimination

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What I find interesting about the case of Los Angeles Clippers owner Donald Sterling is how well it illustrates Gary Becker's insights on the economics of discrimination. Becker pointed out that the market makes people "pay" for discriminating on racial grounds. The white person who refuses to hire a black person who is more productive than a white employee (assuming the same wage for each) will find himself doing less well economically than if he hired the black person. Linda Gorman, in her article on Discrimination in The Concise Encyclopedia of Economics, lays out this insight nicely.

How does that apply here? Well, it seems fairly obvious that Donald Sterling is a racist. But you couldn't tell that by looking at the race of the players whom he has paid big bucks to hire. So, however foolish he might have been--tip for budding racists: don't make racist comments to a young lover whom it's clear you don't trust, and, even better, DON'T GO CHEATING ON YOUR WIFE--he was not so foolish as to try to win basketball games with an all-white roster. Indeed, take a look at the Clippers' payroll. The top 3 players alone made in salary this season a total of over $46 million while the payroll for the whole 18-person roster was $73 million. And guess what race these top 3 are.

In other words, the market disciplined Donald Sterling. In hiring players, he didn't discriminate against black men. Doing so would have been too costly.


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CATEGORIES: Labor Market



COMMENTS (23 to date)
Steve Reilly writes:

Since he once expressed a wish to field a team of "poor black boys from the South ... playing for a white coach" I don't think he needed the market to discipline him into doing so. And anyway, it seems there was a market failure in housing: http://sports.espn.go.com/nba/news/story?id=4187729

Precinct Captain writes:

This is a nice post regarding the economics of discrimination, but I would just point out that whether the market disciplined Sterling into hiring black players or not, did it for team executives? In some cases it possibly did since many basketball operations executives are former players and the pool of players/former players is largely African American, but we (or at least I) don't know that it did so for business operations executives.

I would also like to note that is compatible to be a racist and employ people of a race of which one holds racist views. In fact, this type of racism, in which certain groups are seen only as useful for particular labor functions, is prevalent throughout American history. Just because the money earned by and celebrity status of Clippers players is a lot higher than groups who faced such views in the past does not mean that this function of racism is not occurring.

David R. Henderson writes:

@Steve Reilly,
Since he once expressed a wish to field a team of "poor black boys from the South ... playing for a white coach" I don't think he needed the market to discipline him into doing so.
That WAS the market disciplining him. That illustrates my point, Steve. Read the Gorman article.

Terra writes:

To further your point, Sterling apparently discriminated against paying white players.

Through the years, his racism has been sometimes subtle and often overt. For those failing to understand why a racist like Sterling never preferred white players, it cut to the heart of his stereotypical stances on athleticism and strength and talent. Mostly, he's never loved paying white players. In that way, he has an absolute plantation prism with which he sees players: He always preferred long, strong, physical players. To him, that's a basketball player: Big, black and strong.

When Sterling became reluctant to honor Rivers' sign-and-trade agreement for J.J. Redick, there was a belief race played a factor. As one league source said, "He thought it was too much to pay for a white player."

Yes, Sterling didn't want to so easily part with Eric Bledsoe, despite Rivers telling him they could never afford to pay Bledsoe in restricted free agency next summer. That was part of it, yes, but those who knew Sterling – who had history with him – believed largely that his disdain for paying $7 million per year for a white player caused him pause.

Massimo writes:

@Steve Reiley, a market failure in housing? Refusing to rent to good tenants costs money, refusing to rent to problem tenants saves money. Markets will punish landlords who use race to avoid good tenants, but reward those who use race to avoid problem tenants.

Jean Robin writes:

Thank you for sharing these thougts. However it seems to me that Blake Griffin, n°2 on the list, is white.

awp writes:

Reilly,

The rent controls and quantity controls (zoning) ,prevalent in Californian cities, make it so that there is a surplus of applicants for any one housing unit, allowing a racist to discriminate without cost. This is included in any standard principle's discussion of drawbacks of price floors and ceilings.

john hare writes:

So am I a racist for observing that younger white men don't want to do the type construction that I do? 25 years ago I worked mostly white men. 15 years ago I worked mostly black men. Now I work mostly brown men. 10 years from now, I'll probably have a purple crew or something. As a contractor, I get paid for getting the job done, not by what the crew looks like. In any given time period I will hire the best available to me. So at any given era, I will look like I am discriminating against someone.

Side note. I've done well by hiring the race that is getting the short end locally. Play fair and pay decent wages and it is amazing how smart and productive those (racial slur)s can be.

EriK writes:

Jean Robin,
Blake Griffin has a Haitian/Black father and a mother of European descent. If he is like President Obama, he would check African American on his census form.

KPres writes:

Don't say "markets", only other libertarians will hear that. Say "institutions" if you want more effect.

INOW, this incident gives away the lie behind the claims of widespread "institutional" racism. Donald Sterling would probably love to have an all-white team, but because capitalist institutions work against racism, he couldn't.

Pajser writes:

The example of discrimination is the film industry: pretty actors are overrepresented, although few roles require physical beauty. It is not racism, but it is a discrimination. It appears that if consumers discriminate, then employers will discriminate as well. Discriminators pay the price - they watch movies with worse actors - but it does not change much.

John Jenkins writes:

@Precinct Captain

Google Elgin Baylor. He was the long-time Clippers GM, who is black, and who when finally fired, claimed racial discrimination was the reason for his firing.

Elgin Baylor is, I think, the consensus #2 worst GM in NBA history (behind Isaiah Thomas), whose performance as an executive was so bad he could not make a racial discrimination claim stick against a man who was then known to be an out-and-out racist.

It does not appear that the Clippers' executive offices engaged in discriminatory hiring (in fact, the league has on several occasions recognized the organization for its minority hiring. I cannot explain why the Clippers operated this way, but the club's record was adequate enough to secure an in-demand minority head coach and Chris Paul through free agency.

Jean Robin writes:

Thank you Eric but if is not an information, it is a supposition.

David R. Henderson writes:

@Precinct Captain,
I would also like to note that is compatible to be a racist and employ people of a race of which one holds racist views.
Exactly. That is my point. The market disciplines racists to discriminate less than otherwise.

Jody writes:
Precinct Captain - I would also like to note that is compatible to be a racist and employ people of a race of which one holds racist views.

Henderson - Exactly. That is my point. The market disciplines racists to discriminate less than otherwise.

Per prevailing social thought, you can be a racist when you believe that a race is superior at a particular task - therefore you hire them for it. See Stirling and black basketball players or the stereotypical advice of hire a Jewish lawyer. Indeed, Stirling seemed to actually disproportionately avoid hiring white players (see Reddick).

Further, under this school of thought, you can be a racist even if you have a general affinity for people of a particular race.

Or as a notable blogger often writes, noticing things is racist.

Joel Aaron Freeman writes:

Great point, David.

In the future, anytime someone claims that economic discrimination would be rampant without state intervention, I will use Sterling's roster as counterargument.

Pablo writes:

I don't think he picked his roster measuring talent over "race". He, as was posted earlier, picked his roster based on his fetish of race. I am probably one of the few people who does not believe in "race", at least in any sense useful for the general public. Most of the time people say race they are referencing culture. But in this case I believe he was talking about the deluded notion he calls race and he engaged in unmerited discrimination. This type of discrimination, like the article explains, is often costly to agents in a free market. But our country is not a complete free market and the targets of unmerited discrimination are often agents with the least amount of economic freedom (especially with the huge amount of money in political organizations and government, which make the relative costs of doing business cheaper for wealthy people). The NBA looks a lot like a monopoly to me, they have used eminent domain to build basketball arenas, they have no basketball league competing for air time or fan base in the United States of America and I am willing to bet a lot of those arenas see public money in the form of tax breaks. I think there have to be a different set of economic rules for any firm that has monopoly power, or is "too big to fail", or otherwise compromises a mostly free economic system with disproportionate leverage. The scope of any individual or firm's freedom must match their responsibility and some resources maybe stewarded by private agents, but must keep the public interest front and center. Even if they (the NBA) were not, as I see it, restricted by these particular set of rules and they were just another firm it is likely they would/should take action just to protect self interest, since he did alienate a portion of the customer base. But to be honest, there are so many issues of economic liberty which are being trampled here that it is hard to make any judgement with any accuracy about what the costs of his views were or were not. Whether it is the support that many local governments offer the NBA or the asymmetry of information which halts competition, at some point it is beneficial to reflect on what Isaac Asimov wrote: "Never let your sense of morals get in the way of doing what's right". It is likely everyone is better off now that the NBA has taken action.

Tim writes:

@Pablo

I crack up any time someone tries to say this league or that league is a monopoly.

While it's true that the NBA is the only game in town for elite basketball, they are far from being the only place that an elite athlete can perform for millions of dollars. They are also not the only place that the masses can pay money to watch elite athletes perform.

Over time athletes have tended to migrate towards the dollars. Do you ever wonder why heavyweight boxing has fallen so far in the US? Do you ever think that watching 250lb. linebackers on Sunday getting paid MUCH more than they did 30 years ago, might have something to do with it?

Now of course today's football players cannot go ahead and learn how to play soccer (sport of the future since 1979!) at anything bordering an elite level. But today's youth, who will grow up to be tomorrow's elite, most certainly can start down that path, and that kind of long-term competition and outlook is one of the HUGE reasons why the NFL has finally addressed concussions (especially at the youth level), it wasn't just the millions in lawsuits. When mothers across the US stop letting their kids play football the sport begins its death spiral.

Tracy W writes:

@Pablo:

The scope of any individual or firm's freedom must match their responsibility and some resources maybe stewarded by private agents, but must keep the public interest front and center.

Yes, that's why we have private property rights, to align incentives so that making a profit serves the public interest. This is the wonderful thing about markets, as Adam Smith said: "It is not from the benevolence of the baker that I get my bread."

And it's noticeable that over the long haul allowing more resources to be "stewarded by private agents" is far better at meeting the public interest than having them run by the government.

I am probably one of the few people who does not believe in "race", at least in any sense useful for the general public.

You'r right about being one of the few people. I was rather amazed when I was pregnant and the midwife at the NHS hospital asked us a whole list of questions not merely about our families' medical health but about our ethnic make ups. The difference was made very obvious. I was inclined to think like you before then, but that experience made me re-evaluate my Bayesian priors.

Steve Reilly writes:

@awp,

Yeah, reading the article on Becker, I see it mentions a distinction between competitive markets and noncompetitive ones. (Thought I added this comment last night; guess not.)

KLO writes:

Sterling chose an obviously incompetent GM in Elgin Baylor, because Baylor would work for peanuts (he was consistently among the lowest paid GMs for years) and would not complain too much about how cheap and controlling Sterling was (the Clippers played in a glorified high school gym for years). The fact that Baylor was a beloved former player and was one of the few black GMs in a sport dominated by black players made Baylor--and by association Sterling--much less susceptible to criticism.

Sterling's whole approach as owner has been to free ride his way to wealth on the backs of other owners and the league. His hiring Baylor, a man whose race and prior association with the game made him nearly immune to harsh criticism, was a large part of this strategy. This does not establish that Sterling is racist, but nor does it prove the contrary proposition. Sterling is clearly a person who understands the salience of race, and he is not above using it to get his way, as he had so many times in the past.

Jeff Stark writes:
'Becker pointed out that the market makes people "pay" for discriminating on racial grounds.'

There are a lot of very talented white players both in the U.S. and Europe; enough that you could probably field a competitive team in the NBA with only white players. If there is a large enough group of people who, for whatever reason, prefer to watch a white only team, then a team owner could theoretically make a profit by servicing that preference. In fact you could view that as servicing a niche market (and plenty of businesses make money doing that). So in this sense the market will make people, gladly, pay for discriminating on racial grounds because it satisfies their preference.

I don't think free markets inherently promote or discourage racism. And I think libertarians sometimes undermine their case by saying so. Racism is a cultural phenomenon not an economic one. In a free market, market actors will be free to engage in any activity, racist or otherwise, where they can make a profit. Whether they actually do depends on the preferences and willingness to pay of those they trade with. Under certain conditions racism will be detrimental to turning a profit. However, if enough people have racist attitudes, then racism could be profitable.

So the question becomes, what is the best way to solve the problem of racism? Is it ok or even effective to use force to try to fix what is inherently a cultural problem? I think those are the questions libertarians are better off addressing rather than whether the free market discourages racism.

NZ writes:

A few points:

1. Related to Jeff Stark's comment, libertarians often make the erroneous assumption that racism (especially racist behavior) is always irrational. In view of human evolution and history, I would guess that in most cases it is not: race is one of the most visible things about a person and it is the go-to determinant of group identity, which carries with it factors like trust and cooperation. It is no accident that in most situations the first division people create for themselves is along racial lines.

2. There appears to be little acknowledgment in this discussion that racism is not binary. I agree that Sterling is racist, but not that he is a racist. If there were racist percentiles where 100 means you are the most racist person in whatever group is being counted, then just on my admittedly limited information I'd guess Sterling is probably somewhere in the 60s or 70s for white Americans, in the 50s for Americans generally, and in the 40s for all living persons.

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