Scoring Affirmative Action

Jeremy Levine, writing for the outstanding Social Science Lite, has this to say about his uncle’s brush with reverse discrimination:

According to my uncle, his interviewer immediately apologized as he entered the room. ‘Look, I hate to say this,’ the interviewer said. ‘But there’s no way we’re going to be able to hire you. If you were a woman or black, I’d hire you on the spot. You are totally qualified, but we’ve got to fill our quotas.’ Naturally, my uncle was none too pleased, commenting plainly (but forcefully) that acts of “reverse discrimination” are unfair. I did my best to defend affirmative action policies, discussing their historical necessity, noting their negligible affect on white male employment, and even waxing philosophical about the entitlement associated with staking claim and ownership over falsely constructed “spots” in colleges or the workforce. It was all to no avail, though. Cliché as the phrase is, my uncle was “passed up” for the job, and there wasn’t much I could say. …

See, claiming reverse discrimination is a lot like recounting your golf score. It’s always the one or two bad rounds that leave the deepest, most painful impressions. You always remember the bogey on the 9th hole, but never the birdie on the 10th. Somehow, the abundance of good holes are taken for granted, while the one or two missteps are amplified and taken as indicative of the entire round. Sure, my uncle remembers getting passed up for the job with the University of Michigan—an event that (probably) happened the way he said it did. But, in the process of recounting this single experience, he forgot about a lifetime of job interviews in which he directly benefited from his whiteness or his gender.

I’m a fan of affirmative action, but Levine’s scoring system rubs me the wrong way. By this metaphor, we can simply tally up the successes and failures of two individuals – one white, one black – and, when their “life scores” are equivalent, we will know affirmative action has succeeded. Correspondingly, so long as their “life scores” – educational attainment, success in the labor force, wealth accumulation, etc. – remain different, we know just what to do: slap a handicap on the “higher-scoring” individual that would level the playing field. That would be the crude affirmative action program which had tripped up Levine’s uncle.

With apologies to Keva Silversmith, sometimes golf isn’t the sport most metaphorically applicable to life. In the case of affirmative action, I think we’re dealing with something more akin to a poorly-run powerlifting meet. One competitor shows up armed with a singlet and a pair of Chuck Taylors; another – in the latest quintuple-ply squat suit, spring-loaded bench shirt, and knee wraps that could contain a small nuclear explosion. Both are expected to perform their best on the platform. At the end of the day, the geared lifter blows the raw lifter’s total out of the water. Now what?

The geared lifter in this example is the archetypal “privileged applicant,” and his equipment stands for all the accoutrement of privilege. The raw lifter, if you will, is then the “underprivileged applicant,” and the difference between the lifters’ scores is – well, you can figure it out. In any case, here’s the issue: obviously, pitting the two against one another as is is unfair to the latter. What is not so obvious is how we might overcome this unfairness. Here’s what won’t work:

1. Stripping privilege away from the privileged applicant. It’s impossible, from a public policy standpoint, to retroactively “cancel” privilege. It might work in theory, but there is no practical way to do it.

2. Forbidding the privileged applicant from drawing on his privilege. Again, another option that sounds nice, but even in the most ruthlessly objective selection processes, privilege has a way of giving its holders a boost.

3. Handicapping the privileged applicant in the selection process. This is the instance of reverse discrimination that Levine recounts. The problem is that, unlike golf, life offers no clear way to identify the right handicap for each player. Here the powerlifting counter-metaphor comes in handy: no one knows how much supportive gear adds to lifters’ totals, since this number depends on many different factors. Hence, perfectly fair competition of geared against raw lifters is not practical, since any handicap on the former is bound to be inaccurate and arbitrary. This goes double for affirmative action programs. We can tell that (most) white applicants have advantages over (most) black applicants that have nothing to do with their qualification for the position. But what we can’t tell is just how big this advantage is for any specific white applicant – let alone “white applicants” as a group. That’s why, at the end of the day, the specifics of many affirmative action programs are indefensible: these programs are written from a general aim to overcome privilege, rather than from specific information about the advantage privilege confers.

For all this, can we even have affirmative action programs that are both fair and effective? I believe so. The key is to honor the principle of fair treatment. It is not fair to turn an applicant away on the basis of his race, no matter how this would affect the year-end Diversity Report. On the other hand, it is perfectly fair to assist underprivileged applicants before, during, and after the selection process, that they might accumulate at least some of the advantages enjoyed by their more-privileged co-workers. By extension, it is perfectly fair to target underprivileged communities to help their members with education, job search, homeownership, and so on.

I suspect that many other supporters of affirmative action won’t like my take on it. They might rightly point out that this offers no guarantee of equal opportunity – to say nothing of equal outcome. But they would forget that equal opportunity isn’t as simple as having the same golf handicap. Under the reign of equal opportunity, everyone would have more or less the same shot at success, but owing to time and chance, some individuals would still come out way ahead. Regardless of how it is written, the successful affirmative action program will be that which preserves this individual variation in outcomes, while minimizing (in this case) the corresponding racial differential.

Let Them Eat Cabbage

For an atheist, Christopher Hitchens sure does put a lot of faith in predestination. It’s not the kind about going to heaven, though; Hitchens believes that Bill Clinton need not have visited North Korea to secure the release of journalists Laura Ling and Euna Lee because – get this – the North Koreans were going to release them anyway. In the man’s own words:

The two young women were picked up in March and released in August. That means they spent almost half a year in the North Korean prison system. Yet to judge by the photographs of them arriving back on U.S. soil, they were in approximately the same physical condition as they had been when they were first unlawfully apprehended. … Ling and Lee had obviously not been maltreated or emaciated in the usual way that even a North Korean civilian, let alone a North Korean prisoner, could expect to be. The logical corollary of this is obvious. The Kim Jong-il gang was always planning to release them. They were arrested in order to be let go and were maintained in releasable shape until the deal could be done. …

As of last week, and as the result of a huge investment of time and energy and prestige and forced politeness, we can now claim to have reduced the North Korean prison population by exactly two, and they were going to be released anyway. In return, we have immensely gratified and flattered the man who kidnapped them and who makes a daily mockery of international law. There was even “remorse” expressed. But guess by whom? Not by the slave master who makes his territory impossible to enter and impossible to leave. A lousy day’s work.

I don’t write much about foreign policy in this space, mostly because of my ignorance in these matters. However, even I can tell that Hitchens’ reasoning is patently stupid. First, Hitchens forgets that the role of government is to serve and protect its citizens – not least when those citizens are held captive in a hostile foreign country. By his own admission, Hitchens had been to North Korea. I doubt that if he had been detained, we would have gotten from him a heroic statement directing his government to forfeit rescue efforts. Pending any evidence to the contrary, I conclude that Hitchens views imprisonment by a brutal dictatorship as bad for Christopher Hitchens, but okay for his compatriots.

This brings me to the second point: Hitchens’ baseless conclusion from Ling and Lee’s appearance that they were going to be released anyway. No one knows what the North Koreans would have eventually done with Ling and Lee. It is plausible that they have not been as mistreated as they might have been so far precisely for the reasons Hitchens identified. However, it is naive – especially of a curmudgeon like Hitchens – to assume that this treatment would have continued indefinitely. If and when the North Koreans ceased to see the journalists as an excellent bargaining chip, nothing would have prevented or even dissuaded them from shipping the two to a labor camp.

Finally, Hitchens’ tone suggests that he favors either ignoring or bullying the North Korean government. Neither of these measures have succeeded in the past: when bullied, North Korea only grew more antagonistic; and when ignored, it staged dangerous, belligerent stunts to regain the world’s attention. I may not know anything about foreign policy, but I think there is a better way to deal with North Korea: reciprocity from the moral high ground, as famously articulated by Ho Chi Minh* at the start of the Vietnam War:

Everything depends on the Americans. If they want to make war for 20 years then we shall make war for 20 years. If they want to make peace, we shall make peace and invite them to tea afterwards.

* I am not arguing that Ho held the moral high ground, only that he had claimed it.

The bonuses next time

Sir Charles at Cogitamus wins Best Extension of the “Invisible Hand” Metaphor. He also has a good post on the implications of public anger at the AIG bonuses and their recipients:

For years we have been fed the bullshit notion that our economic system provided “pay for performance.” rewarding greatly those who most deserved it. When one was so gauche as to engage in “class warfare” and criticize the compensation of CEOs and Wall Street titans, and the growing gap between them and the average worker, we were lectured to by the Randroids and libertarians, the business press, and most of all, by Republicans, that this was simply the invisible hand briskly stroking the deserving organ of commerce.

The AIG situation stands as a wonderfully emblematic moment, a veritable tsunami washing away this illusion. It is but one of many instances in recent years where business elites have chosen to enrich themselves despite their all too verifiable failure. But it is one so stark, so brazen, so jaw-droppingly, gob-smackingly outrageous that it has created a public furor that could be transformative if used correctly. Coming as it does on the heels of Madoff and Stanford, Lehman and Bear Stearns, the stock market meltdown, the real estate bubble, the grotesque manipulation of exotic financial instruments by our financier-illusionist class, the public has simply had enough. They are afraid and angry, bitter and put-upon.

It would be nice if the bonuses were the thing that finally broke public support for the vast injustices and inequalities of the American economy, but I am not as optimistic as Sir Charles on this point. It is true that Americans are outraged about the bonuses, and that their outrage has even prompted the government to action. Nevertheless, as more huge bonuses to managers of failing organizations loom on the horizon, there seems to be little popular resentment of the idea of million-dollar corporate bonuses as such.

It is important to distinguish between anger at bonuses given out “undeservedly,” and anger at inflated corporate pay in general. The outrage over the AIG bonuses is likely a mixture of these two different sentiments. Some people are outraged because “the notion that the ‘masters of the universe’ class is in any way worth what they are paid or otherwise worthy of our esteeem and admiriation” has not yet been destroyed by economic realities. Others, I believe, are only upset at the bonuses because their recipients didn’t earn them this time. This latter contingent would not have cared one bit what executive pay was like if the economy were in (seemingly) good shape.

Sir Charles “want[s] Obama to take advantage of this moment and use it as a cudgel with which to achieve progressive economic ends.” Inasmuch as curbing inflated executive pay is central to American progressive hopes, it is essential that these “winter progressives” (those favoring redistribution only when times are bad) do not turn on the policies they support today because AIG, Fannie, or any other business is making good profits tomorrow.

First, they came for the economists…

Jim Manzi is one among many commentators on the economic crisis who is using it as an opportunity to question the discipline of economics:

If Mankiw’s list is the best economics can do, it sure seems like a naked emperor moment to me. Where’s the beef?

My challenge would be simple: please list 14 useful, non-obvious predictive rules that economics provides that have survived rigorous, replicated falsification trials.

If you were to provide this challenge to physics or biology, it would be easy to come up with 1,400. Hence, human invention of aircraft, space travel, mobile phones, antibiotics, vaccines, MRI scans, the internal combustion engine and so forth. This – not the attempt to create pressure on public officials to support the policy preferences of most economics professors – is why actual science education is so important.

Manzi is not alone. While public sentiment and political action are pulling in the direction of Keynesian interventionism, the discipline of economics is still rolling on the track laid down by the neoclassical gang. The Times’ Patricia Cohen writes:

Prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.

The failure of economics to respond credibly and quickly to the unfolding crisis has led some, Manzi among them, to criticize the field as a whole. In comment threads such as these, Joes of all trades have emerged to put in their two utils about how economics is wrong, useless, or “not real.” Some choice quotes:

The sole determinant of everything in economics is human behavior, meaning that economics is a farce.

Economists serve a useful role in society. They help fill an oversupply of endowed chairs at prestigious universities, they give “street cred” to the usury of bankers, and they are able alchemists for the aristocracy.

Economics is not a science. It’s not even even a pseudo-science. It’s like trying to quantify lust or rage in the form of equations. Your rants about your fellow economists are of that of a shaman accusing animists of being ignorant.

Most economists are in the propaganda business. That includes evidoers Greenspan and Bernanke. Economists must bear blame for this crisis.

In the words of a Chick tract, when it came to economists foreseeing or averting the economic crisis, somebody goofed. But this should not condemn the entire enterprise of economics to the scrap heap. Whatever its faults have been in recent years, economics can still claim at least these few defenses against swarming critics of the discipline as such.

1. Social science is complex. Recall Manzi’s “challenge” to economics: Manzi congratulates “real” science – that is, the physical sciences – on producing “useful, non-obvious predictive rules.” Why, Manzi asks, can’t economics produce such rules, too? Distilling reality into predictive rules is hard, and it likely gets harder as academics lop off greater and greater slices of reality to explain. By virtue of being “purer” than the social sciences, the hard sciences have limited themselves to explaining increasingly limited portions of reality, and even here their job isn’t done yet. So the least “pure” social science has before it the grandest task: to model systems which have been studied by layer upon layer of “purer” hard sciences. Thus, if economics hasn’t come up with infallible laws yet, perhaps it is because of the inherent complexity of markets and market behavior.

2. Social science is probabilistic. The above suggests that given enough time and effort, economics will produce infallible laws. This is not entirely reasonable. Any useful (i.e., sufficiently simple) social scientific theory will have to be probabilistic, even given perfect information about how its subject works. Thus, economic theories cannot say that A will lead to B, but only that all else being equal, A will lead to an increased likelihood of B. Contrary to Manzi’s standard for theories, any social scientific theory can therefore be falsified (in the strict sense), given enough trials – but this fails to describe either its accuracy or usefulness.

3. Social science dramatically alters that which it studies. Social science is complex and probabilistic in large part because its effects on its subjects are so profound. People are not bacteria in a petri dish – they are consumers of social science as much as they are its subjects. Manzi asks economics to produce rules that are non-obvious and predictive. Well, obviousness is a matter of perception – what is obvious to one is questionable to another, and impossible to a third. In economics, mercantilism was an innovative theory that became obvious and was later discarded. How many of the “obvious” things Manzi knows about the market had to be codified and disseminated by economists? And as for the predictive quality of economic theories, such theories exists in a complicated feedback loop with the phenomena they study, with successful or famous theories introducing great distortions in the social reality. To wit, just because a certain economic theory has predictive power today, it may not necessarily have such power in the future, once word of the theory gets around to workers, consumers, investors, or the government.

The badge of a Ph.D. in economics should not shield its wearers from well-deserved criticism. However, disagreement with a particular thinker or theory should not be cultivated into a rejection of economics as a discipline.

(h/t to beeveedee)

The bailouts next time

Matt Zeitlin proposes a tiered system of regulation for financial institutions, on the premise that the biggest banks should not be taking huge risks just to make the wealthy wealthier.

So, looking forward to how we want to regulate the financial sector, a few things seem obvious.

One, impose a simple rule on financial institutions. Either, you can be big — so big that your insolvency would threaten the collapse of the world economy — and not do anything risky or you can be small and do whatever the hell you want. Another way to thread the needle here would be to require banks like Citigroup, or anything that’s “too big too fail,” to pay into a super-FDIC, essentially to buy bailout insurance, so that if and when they need to be bailed out, it’s not a huge, sudden expense on the taxpayer. Or you simply let hedge funds do all the exotic stuff and tell banks to, well, be banks. Or, hell, you could just not let financial institutions get too big. For example, you could say that investment banks have to be partnerships and not let them become publicly traded companies (and thus get so big) or, on a smaller scale, just limit how much leverage can be used.

The merit of this proposal (or similar proposals) lies in how well it matches what the general public expects of banks. Many bank customers are just looking for a place to park their checking account, and may not necessarily care if their savings account earns .05% instead of .06% interest. What people do care about is 1. not losing their money, as in the Great Depression, and 2. not seeing billions of tax dollars go to prop up tottering banks, as in the present crisis. On a macroeconomic scale, however, bans on risky investments for large banks might depress economic activity, since less money will be moving around in high-risk transactions. High economic growth is, unfortunately, correlated with high risk, and the challenge of regulating financial institutions lies in striking a good balance between fostering growth while inhibiting risk.

I think the best part of Zeitlin’s suggestion is the “super-FDIC” for the biggest banks – the ones most likely to serve the general public rather than niches of well-educated, risk-loving investors. A super-FDIC (an FDIC on steroids?) would offer a bank and its customers increased financial security, in exchange for prohibiting the bank from using deposits in unacceptably risky ways. Mandating membership in such an institution for banks above a certain size would be a nightmare: legislating the cutoff line and policing banks who might cross it from year to year would be just two likely difficulties in that scenario. However, a better approach might consist of letting banks above a certain size voluntarily join this ULTRA FDIC, and encouraging that member banks advertise their membership to their customers. This tweak to Zeitlin’s proposal does not eliminate entirely the plan’s dampening of economic activity, but it seems to achieve the goal of risk reduction in a way that might be more agreeable to legislators, and less constraining of capital.

Rational irresponsibility

Matthew Yglesias is catching flak for suggesting that “irresponsible borrowers” should not be made to suffer for defaulting on their mortgages. Yglesias writes:

I just don’t see how more than a tiny fraction of [the blame for mortgage defaults] could possibl[y] adhere to our electrician or teacher or secretary who’s decided, basically, that the financial services professionals and government regulators know what they’re doing. Now, could she have known better? Sure. She could have been reading Dean Baker and Paul Krugman and others. The idea that this lending was all being undertaken on a false premise that a nationwide housing bust was impossible wasn’t a highly guarded secret. I was, for example, familiar with the chart above and with the analysis suggesting that a bust was, in fact, likely. And I believed that analysis. But at the same time, I write about U.S. public policy debates for a living. If there’s a dissident line of thinking that, despite its general unpopularity, is popular among left-of-center economists—well, that’s the kind of thing I know a lot about. But our nurse? Why would she know?

The conservative response has been to chide Yglesias for “discounting the common sense of borrowers” and putting it above borrowers’ ability to “understand their own situation”. By this line of reasoning, some of the default mortgages were taken out by people who knew they could not pay them down. The irresponsibility of such behavior is beyond question, and thus should not be rewarded in any homeowners’ bailout.

Or so it seems. Beneath its surface of common-sense, this argument amounts to stating that when it comes to homeownership, no (sizeable) risk is acceptable. One should take only a mortgage one could afford, or, better yet, afford twice over. Never mind that homeownership can mean attaining economic, social, and cultural capital – you know, capital that gives future generations a chance to climb up the SES ladder.

In business, finance, investing, and allied pursuits, risk-taking is typically rewarded and hailed as the engine of progress, even when it involves seemingly irresponsible decisions. Recall that Warren Buffett, the living embodiment of calculated and successful risk-taking, advised Americans this past October to invest in tanking stocks. His advice is worth recounting at length:

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Buffett wasn’t talking about investing in a home, of course, but signing up for a presently-unaffordable mortgage does not seem so distant from buying up stocks in the midst of an economic downturn. In fact, less than two years ago, Peter Coy at BusinessWeek reported that the best mortgages for homeowners were the most “toxic” ones – assuming homeowners could act rationally. In at least one form, shouldering “irresponsible” risk in one’s mortgage was considered by the financial establishment a reasonable investment. Viewed through the broader prism of inequality, taking on risks to become a homeowner can be construed as perfectly rational given the immense advantages which have historically accrued to homeowners and their descendants.

There are two reasons not to punish the “irresponsible” contingent of beleaguered homeowners struggling to pay their mortgages. One is the mix of empathy and consumers’-rights principles Yglesias invokes. The other reason, obscured by the first, is that the pursuit of homeownership, however risky, might be as close as real-world economic actors get to rationality in an environment where owning a home is the best and quickest path to the good life. “Rewarding irresponsibility,” in this case, becomes the much more sensible “rewarding rationality.”