I think we need to define PC-ness.
Politically correct
? adj
demonstrating progressive ideals, esp by avoiding vocabulary that is considered offensive, discriminatory, or judgmental, esp concerning race and gender
Collins English Dictionary - Complete & Unabridged 10th Edition
2009 © William Collins Sons & Co. Ltd. 1979, 1986 © HarperCollins
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Key line: "avoiding vocabulary that is considered offensive, discriminatory, or judgmental, esp concerning race and gender". Political correctness is about not offending people. This is a good thing from an individualistic persective, because if you don't offend people, they tend to like you more. Ergo, people who like you have more potential to benefit you than people who don't like you.
This phenomenon has been labelled political correctness because, as well as helping some minorites reclaim their identity, it also helps a given politician to offend the least amount of people possible, and thus get the maximum amount of people to vote for the given politician (after policy, ideology, etc.).
Racism and sexism are bad for "races" (see people with "black" skin) and genders (see female) who have been historically repressed or are currently a minority. The goal with political correctness is to replace words that have offensive connotations with words that do not. The offensive connotations of words such as "******", "retard" and "******" come from the contexts in which they have been historically used. "******" was used by people trying to seriously deride people who had a different skin colour from, for having that skin colour. Retard has been used as an insult. Likewise, so has "******".
But this is where we hit dead-end. Why should people be offended? After all, why would a homosexual person be offended by being called "******", which effectively meant "homosexual" anyway? The simple answer to this question is the minority status of the offended groups.
Minority groups, put simply, are outnumbered by majority groups. If the label for their group, e.g. "retard" for mentally impaired people, starts becoming used as a label for bad things (e.g. "that movie was so retarded"), then they lose their sense of identity to a denotion for bad things in general. When your label becomes an insult, the insulting part of the label comes from the connotations attached to it by the minority. Eventually, it came to the point where calling a mentally impaired person "retarded" became insulting, not because it wasn't apt in a technical sense, but because of the implications attached to it by wider society. Thus, another label, free from these connotations was created.
Using the term retarded, although apt to describe things that are broken or disfunctional (by definiton of the word), was also the term for a minority group. The best thing that political correctness can do is to pick labels for minority groups (if labels must exist at all), that do not also correspond with negative things, whether the negative things are implicit or explicit. If over time the word begins to gain negative connotations, then the label should be scrapped. Sticks and stones do break bones, but words can attack something even more important without physically hurting a person. The mind.