National Community Reinvestment Coalition president John Taylor points to “racial disparities in mortgage lending” in Baltimore as reason enough for government to force banks to make more loans to blacks (“In Baltimore, few home loans for African Americans,” Jan. 2). Although nowhere does Mr. Taylor ask why such disparities exist, it’s safe to assume that he blames racial bigotry – which likely explains his lack of qualms about forcing banks to make more loans to blacks.Yet disparities in mortgage lending are almost certainly not the result of bigotry. Here’s why: whenever mortgage applications are denied because of bigotry against prospective borrowers, opportunities arise for other mortgage lenders to profitably serve those borrowers. So for such borrowers to remain unserved requires not only that all banks (including all banks owned by blacks!) are run by people so bigoted against blacks that they willingly forego profits in order to indulge their bigotry, but also that all entrepreneurs in the world with the financial means and connections to create new banks either remain ignorant of the discrimination practiced by existing banks or are themselves so bigoted against blacks they, too, stubbornly refuse to increase their wealth by seizing the profits that are available by extending mortgage loans to blacks.None of these conditions is plausible – which means that disparities in mortgage lending will never be eliminated by government diktats fashioned on the naïve assumption that these disparities are caused by bigotry.Sincerely,
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Government is likely to grow faster and with more sharp teeth and tentacles if the public believes that most problems (real or imaginary) are caused by bad guys.
The above originally appeared at Cafe Hayek.