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How racial-equity based legislation lead to unintended consequences for those it intended to help

In 2021, President Joe Biden signed executive order 13985, which has come to be known as the Equity Action Plan. In 2023, he built upon this with executive order 14091.

Altogether, this plan has the purpose of “further advancing racial equity and support for underserved communities through the federal government." And part of the orders has led to various government agencies putting forth their own equity plans, including ones newly released for the 2024 fiscal year.

Overall, this wave of government policy attempting to achieve equity ranges far beyond the economy, but the focus here will remain on the economic aspect. The original executive order is said to be responsible for economic legislation such as the Inflation Reduction Act and the Infrastructure Investment and Jobs Act, displaying the real impact it has already had. The more prominent question lies in how this commitment to government intervention, for the sake of achieving equitable outcomes in the economy, will play out in the future. 

What is equity? According to the government's executive order 14091, “‘Equity’ means the consistent and systematic treatment of all individuals in a fair, just, and impartial manner.” With this being said, the actual nature of policy that seeks to achieve equity requires unequal means for achieving an equal outcome, as they see certain groups as having been historically disadvantaged, which justifies them being helped now. A more accurate description of how the government approaches equity is given by the USDA Secretary, Toress Small, who says, “Equity takes a willingness to speak up and find solutions when resources aren’t reaching people who need them most.” The most commonly distorted question in this context is: Why couldn’t these people acquire said resources? The government will say that there has been a history of oppression and even modern, unequal treatment that has created a need for their intervention. More specifically, they would say minorities have been prevented from building generational wealth and still face bias that has hindered their social mobility. Even if we presume that this is the case, it does not mean that this is the primary factor, meaning there are other variables that have played into the lack of social mobility in minority communities. So when the government ignores the other factors that have resulted in poor economic standing for minorities, the money and resources they dedicate to them do not have significant impacts on said standing. Instead, we see inflation and resources that have gone to waste. 

In opposition to what the government has pushed, a promising strategy for attacking a lack of equity is increasing economic freedom rather than intervention. Empricially, research such as Yongin 2014 and Ohanian 2020 has demonstrated that greater government size is negatively related to income equality while it’s positively related to economic freedom. The basis for this is that the government consistently imposes regulatory barriers on the market, which creates the problems they are trying to address. A commonly noted issue associated with equity is that minorities have trouble starting businesses compared to others, which legislation like the Minority Business Development Act of 2021 has attempted to address.

The problem is that the difficulties of starting a business can be largely associated with the difficulty of attaining government licensing or approval, paying large amounts of taxes, being forced to pay a certain wage, as well as following any other rules that only impose greater time and financial burdens. And instead of limiting these barriers, the government would rather reach out a helping hand to minority businesses. But we run into the aforementioned problem of race not necessarily being the primary factor in the modern economy. If a minority-owned business is not succeeding, it is likely because of business-related variables, not racially-tied ones. At the end of the day, the economy is about supplying demands and being efficient; it does not matter who the supplier is. When the government props up minority businesses, they are interfering with the competitive market in determining which businesses are producing efficiently to fulfill consumer demands.

When any equity legislation is enforced, they are taking resources from one place and putting them somewhere else on the basis of their centralized judgment, rather than allowing the mechanisms of the market to decide where these resources are most valued.


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