Do stores in low-income neighborhoods charge higher prices because of racism, or greed? That’s what some academics argue, but Tom Sowell points out that there are real economic factors that drive priciing decisions. The example below is about stores, but his IBD column also has a great example using financial services:
Low-income neighborhoods tend to have their own economic characteristics, one of the most salient of which is that prices tend to be higher there than in other neighborhoods. Intellectuals’ discussions of the fact that “the poor pay more” are often indignant indictments and condemnations of those who charge higher prices to people who can least afford to pay them. The causes of those high prices are implicitly assumed to originate with those who charge them, and in particular to be due to malign dispositions such as “greed,” “racism” and the like. …Among the underlying realities in many low-income neighborhoods are higher rates of crime, vandalism and violence, as well as a lack of the economic prerequisites for the economies of scale which enable big chain stores to charge lower prices and make profits on higher rates of inventory turnover in more affluent neighborhoods. But such mundane considerations do not present intellectuals with either an opportunity to display their special kind of knowledge or an opportunity to display their presumptions of superior virtue by condemning others. …With intellectuals who consider themselves knowledgeable, as well as compassionate, it would seldom occur to them to regard themselves as interfering with things of which they are very ignorant — and doing so at costs imposed on people far less fortunate than themselves.