The Moral Hazard of Racism

Those on the left should more often use arguments about moral hazard. I’m not sure why they don’t.

I was thinking about this in a discussion about racism in the United States. I brought up a fact that is often mentioned in such discussions.

African-Americans (blacks) are more likely to be stopped, searched, and arrested by police. They are more likely to be given more charges by prosecutors, more likely to be deemed guilty by jurors, more likely to be sentenced harshly, and more likely to end up in prison. This is in particular true for drug possession, in spite of the fact that European-Americans (whites) are more likely to BOTH use AND carry drugs.

It just occurred to me that this is moral hazard. It isn’t just an issue of racism, which is definitely a major part of it. African-Americans are probably less likely to use and carry drugs for the very reason they know the police and entire legal system is targeting them. On the opposite end, European-Americans are probably more likely to use and carry drugs for the very reason they know the police won’t bother them and so there is a less likelihood of consequences.

Racism and moral hazard go hand in hand. Also, racism goes hand in hand with all sorts of other inequalities, especially classism. Rich white people are particularly less likely than other Americans to be stopped, searched, arrested, charged, brought to trial, and sentenced to prison. This is why rich white people feel little fear in committing the harmful crimes they are so often guilty of. This is moral hazard.

On a more basic level, take the example of shoplifting. I think it was Bill Maher who told an experience he had at a store. He was walking out the door at the same time as a black guy. The shoplifting alarm went off. The security guard detained the black guy and let Maher go without any questions. I can’t remember the entire story, but Maher realized that it was easy for white people to shoplift since all they had to do was to leave at the same time as a black person. Once again, moral hazard.

There are many ways moral hazard relates to racism. If you know that finding a job, getting a job, not being fired is all strongly influenced by your skin color/shade, you are going to feel less motivated about work. If you know that finding a nice house in a good neighborhood is influenced by your skin color/shade, you are going to feel less motivated about trying to move out of your poor neighborhood. On the other end of the equation, if you are a white person who knows they will get the benefit of the doubt and get privilege in numerous ways no matter what you do, you are going to feel motivated to take full advantage of all these advantages. A thousand other examples can be found in social science research. All of these relate to moral hazard.

Racism is bad for society, is bad for the economy, is bad for every aspect of life. It is even bad for whites, in the same way that wealthy people are also worse off in societies with high economic inequality.

That said, moral hazard is a tricky concept. There are reasons to being wary of using it without very careful thought about whether it is applicable. It’s more complex in terms of markets than most on the right would like to admit.

For more information:

http://www.newyorker.com/archive/2005/08/29/050829fa_fact?currentPage=all

http://market.subwiki.org/wiki/Adverse_selection_versus_moral_hazard

http://en.wikipedia.org/wiki/Moral_hazard

http://en.wikipedia.org/wiki/Adverse_selection

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