Ducks and Economics

I think Rand Paul is absolutely right when he defends the ability of people to engage in private, consensual relations, even if the content of those relations is offensive and wrong, like racism. He is however absolutely incorrect by extending this analysis to businesses like Whitworth’s, and here’s why.

I tend to think of laws against racist business practices in the same way I think of building codes, or food safety regulations. This is because a business implicates more than just the business owner and a customer; the community that the business exists in provides legal sanction for that business’s operation, and with that legal sanction is attached the variable requirements for building safety and good conduct that individual communities deem important and necessary for the operation of business. Regulations preventing racist business practices are no different from the health code or zoning laws in some important ways: they have a branding function that implicates both the business and the community the business is situated in, and they create dangerous environments that require intervention by law enforcement. It is not unreasonable that a government seeks to actively curate a city’s image (to enforce voter-expressed preferences) and regulates the business climate with that in mind, nor is it unreasonable that government should seek to prevent the public disorder that inevitably follows racist practices. I would add that regulations should also be content-neutral as a matter of fairness, but stipulation doesn’t meaningfully change my argument.

I could say alternatively that racism by businesses has serious negative externalities in practice and I’m ok with government regulation on those grounds.

So I think that Rand Paul, as much as I like his robust defense of civil liberties, is guilty of being delusionally naive about these questions.

Here is a couple of other worthwhile reads from Volokh Conspirators Ilya Somin and David Bernstein on the subject.