One of the most compelling reasons against affirmative action is the principle of color blindness, that is, the idea that race is an irrelevant characteristic that should not affect higher education admissions or hiring decisions. Despite its intuitive appeal, this paper shows that adherence to this principle impedes economic efficiency when there has been past discrimination based on color. Past discrimination creates inefficiencies in the economy that persist across generations. Because of this persistence, race is not an irrelevant characteristic for firms and universities looking to hire or admit the best candidates. Affirmative action, not color-blindness, is necessary to reduce or eliminate these inefficiencies. This is true even if the firm or university can observe the economic status of the applicant. That is, affirmative action based on economic disadvantage does not eliminate the need for affirmative action based on race, even if one is only concerned about economic efficiency