Shortly after I turned sixteen, two formative experiences occurred on the same day. It started with perusing a book by Richard Nixon that, somewhat as an aside, suggested that perhaps the only viable way to end war was to end the financial incentives that lead nations to war. This simple statement struck me with its profound implications, and it started a thought process about the importance of financial incentives that has continued ever since.
Later that day, I went to purchase my first car insurance policy. The agent, whom I recall very clearly had an aquarium stocked with small-mouth bass in his office, set out three summaries of ―different‖ auto insurance policies on his desk and named the price for each, starting with the lowest price and ending with the highest. He then asked me which price I would prefer to pay. Assuming that he misspoke, I asked about specific differences in the policy, e.g. liability coverage amounts. The agent politely interrupted me and very clearly stated, ―…each policy is identical; each policy is for the state minimum liability coverage—but it just depends on how much extra commission you want the insurance company to pay me for selling you their insurance.
Being sixteen, I asked if the cheapest insurance policy paid him enough money. He said, ―Yes, that’s a fair deal,‖ and reached out to shake my hand to close our transaction. I walked away with a very practical lesson on discretionary pricing and how financial incentives may affect me personally. Growing up in a rural, small town in Ohio it didn’t occur to me until much later how unique (and for me, lucky) this experience was.
Discrimination, to some degree, has been illegal in the U.S. arguably since the enactment of the 14th Amendment over 140 years ago, and, especially with the Civil Rights laws of the 1960s, much legal and political progress has clearly been made. Nevertheless, people of color continue to pay more and often get less for some of the most basic and essential services that define modern American life.
Perhaps the best place to analyze this mismatch of legal ideals and cold realities is the recently collapsed mortgage market. People of color are more likely to receive a subprime home loan (in effect this means more likely to get a non-fixed rate mortgage), more likely to receive a prepayment penalty and pay higher interest rates than comparable white borrowers. And all of these terms and products unnecessarily increase the risk of foreclosure.