What the Donald Tokowitz Scandal Demonstrates

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The Donald Tokowitz (a.k.a. Donald Sterling) scandal that’s been all over the news recently demonstrates how free-market competition punishes discrimination, i.e., the economics of discrimination.  As Ludwig von Mises wrote in Human Action (the chapter on “Work and Wages”), an employer who exploits employees by paying them significantly less than their marginal product (their contribution to his revenues) creates a profit opportunity for a competitor (or another business that is not a direct competitor).  If a man can produce $1000/week in revenue for an employer who pays him only $100/week, then a competitor can lure the employee away by say, doubling his salary to $200 and still profit by $800/week.  Then another competitor will do the same, and another . . . in a free, competitive market.  This is why there is a strong correlation between marginal (i.e., additional) productivity and wages.

According to news reports, just about everyone in professional basketball, the Los Angeles NAACP, and many in L.A. have known for years that the crude jerk Donald Tokowitz, who changed his name to “Sterling,” has made myriad public comments that disparage blacks and Mexicans.  The recent blabbering that got him in so much trouble is nothing new.   Nevertheless, competition forced even him to pay dozens of black athletes, and hardly any white ones, millions of dollars a year to play for the L.A Clippers.  If he had not done this, the pathetic Clippers would have been even worse than they have been over the past thirty years, and would probably have disappeared altogether from the NBA a long time ago.  No civil rights law forced him to make millionaires out of so many young black men; business competition did.

The withdrawal of advertisers such as CarMax and State Farm from the L.A. Clippers after the scandal broke is another example of how the free market responds in today’s world to what is perceived as employer discrimination, even if only rhetorical.

6:43 am on May 1, 2014