Caricature and parody is used in stories to teach principles. Get dwarves, bloodthirsty orcs, wicked dark elves, noble paladins and the like are fantastic abstractions. Why are the elves evil? Because of what they do. Not because of their race. They're insular and incestuous and wicked, with no regard for life, and can't afford to show empathy because their culture is that way. The rare "good" dark elves demonstrate the failure of racism, the power of culture, and it's the contrast of real world ideas and these fantastic abstractions that offer up value to players. The stories and adventures gain real meaning that can translate to real life empathy and problem solving.
Eliminate the caricature, "balance" everything, and you eliminate the point of playing. If there are no differences between anything, all the races and classes and cultures and types of characters are mechanically equal, there are no more roles to play.
It's got nothing to do with real world racism, and the failure to differentiate between real life and fantasy, or the presumption that players can't, is as insulting and ideologically stupid as the satanic panic morons.
