31 October 2018

Economists know that not all discrimination is bad


To an economist there are two types of discrimination: the sort that is worth worrying about and the sort that we positively desire. The distinction is not dissimilar to PJ O’Rourke’s observation that of course there are differences between men and women it’s just that sometimes they’re relevant – when making babies – and sometimes they’re not – when trading bonds.

The modern world hears the word discrimination and — indiscriminately — recoils in horror. The latest example is the claim that because modern advertising on tech networks discriminates between recipients and because discrimination is a bad thing, this approach threatens the future of the tech giants.

The mistake here is to not see the world like an economist and therefore miss the distinction between the two meanings of discrimination.

The argument, as posed, is that online ads discriminate over who they are shown to. Facebook, Google and the rest use the demographic and interest information they have to allow advertisers to show ads to those who might be interested in the products upon offer. Prostate cancer cures to men of a certain richness in years, nursing bras to women slightly less blessed with maturity and so on.

Now, it is possible, as varied tests have shown, for people to select their audience on different grounds. Don’t show ads for this apartment for rent to black people for example. Or these highly paid jobs to women. Some people even do this.

For economists, selecting upon some irrelevant characteristic – say, sexuality – is called taste discrimination. How some gain their jollies isn’t relevant to whether we should bake them a cake or not. Selection upon a relevant characteristic – say, sexuality – when deciding upon who to date, however, is rational discrimination. It’s entirely relevant to the decision in question.

We can — indeed, possibly should — ban that taste version but we’d be fools if we tried to eliminate the second and in doing so any kind of targeting whatsoever.

As the economist Gary Becker has pointed out, we already have a way of dealing with irrelevant “taste” discrimination: it’s costly. Imagine that employers would not employ as programmers women with young children. That would make women who could program and also had young children cheap because they’re being discriminated against. At which point there’s a vast profit to be made by employing them – cheaply, to write programs. That is exactly what Dame Stephanie Shirley did with FI Group, making a fortune in the process.

Becker himself pointed out that Jim Crow had to be enforced by the law as there were too many who could see the profit in breaching racist discrimination and that would break it down, the system.

We don’t have to quite buy this to see that there are still those two forms of discrimination. The challenge is combating one while keeping the other.

That the second is useful is shown by how the tech giants are doing nothing new at all. It always was true that things of interest to old men were advertised to old men – in, say, Playboy – while those of interest to young mothers elsewhere – Mother and Baby perhaps. Our modern world hasn’t changed the practice, only the detail of how it is achieved. For the obvious reason that such rational discrimination is highly useful. Here, we don’t waste resources on advertising things to people uninterested in them. This is also something we’re not going to change.

Online advertising allows us to discriminate more, better and to a finer granularity. That’s the economic advantage of it all, that we waste fewer resources getting to the target population. To throw this out over worries about discrimination over irrelevancies is to bring babies and bathwater to mind. We positively desire this greater efficiency.

True, we might not all buy the idea that markets themselves will ameliorate if not eliminate that unwanted selection of those irrelevant characteristics. But that then becomes a societal question, not an economic or technical one.

What is it that we should ban as taste discrimination so that we are left with that rational kind that so enriches? My list might be shorter than yours but we can agree on the distinction between the sort of discrimination that involves not renting flats to a certain race or religion and the discrimination involved in not marketing model trains to those with no interest in model trains.

Now all that needs to be decided is what belongs in each class.

Tim Worstall works for the Continental Telegraph and the Adam Smith Institute.