Does Racism Pay?

So Ron Paul says he wouldn't have voted for the Civil Rights Act.  I will sidestep the tedious argument about whether Ron Paul is racist by pointing out that in a free society, important principles often conflict, and that important principles can lead one to support policies even if they have bad outcomes on some other dimension.  It is left as an exercise for the reader to determine whether Ron Paul would have opposed the Civil Rights Act because he's a racist, or because he thinks freedom of contract is very, very important.

However, Doug Mataconis has an interesting post on the extent to which Jim Crow forced businesses to discriminate:

But for a different outcome in The Slaughterhouse Cases and The Civil Rights Cases, the entire system of mandated racial segregation known as Jim Crow would have been under direct legal assault at the time of it's birth.

It's also worth noting that Plessy v. Ferguson involved a Louisiana law that was designed to prevent the Pullman Company from offering equal seating options to blacks. That, in fact, was the entire purpose of Jim Crow laws. Even if, for example, the Woolworth's in Greensboro, North Carolina had wanted to serve the four black college students who sat down at their lunch counter on February 1, 1960, the laws in place at the time told them that they couldn't. Racial segregation in the South wasn't a product of the free market, it was the product of a state imposing racial prejudices under the threat of criminal prosecution. For that reason alone, it was a violation of the 14th Amendment and the Federal Government was entirely justified in trying to bring it down.

Now, none of this means that racism didn't exist in the South. Obviously it did, otherwise Jim Crow never would have been imposed in the first place. However, by passing these laws it's fairly clear what that the intent of the Southern legislatures was to prevent the newly freed blacks from participating in the economic life of the South by denying them access to jobs, business opportunities, and trade while at the same time denying them access to the polls so that they wouldn't be able to have their voice heard at the state capital. At the same time, it prevented other whites, as well as businesses from other parts of the country, from any efforts to break down the walls of segregation.
Which leads me to contemplate the counterfactual: what if we'd passed the Civil Rights Act without Title II and Title VII?

After all, Gary Becker has shown that discrimination (in hiring, and in serving customers) is very costly.  The fact that the South felt it needed laws to enforce discrimination is telling; it shows that they were worried about defection.  It's possible that a Civil Rights Act without those titles would have ultimately had similar effects:  slower, almost certainly, but without the damage to liberty of contract, and probably with much less controversy.  Or expensive, intrusive legal apparatus.

On the other hand, while I would certainly like it to be true that markets will eventually produce a good outcome without this sort of coercive intervention, that doesn't mean that it is so. Economically irrational attitudes can be extremely persistent (see, extended warranties).  And you don't even have to be that irrational to get de-facto discrimination; even a very modest preference for being around people like you will cause almost perfect sorting into discrete groups.

On the third hand, we saw this sort of sorting with Irish and Italians and many other ethnic groups, and in the end, we also saw the ethnic definition of "people like you" fade over time.  So I don't know.  But it's worth thinking about whether the most controversial component of the Civil Rights Act was actually necessary to its aims, then or now.