Wednesday, December 29, 2004

Are You an "Austrian"?

Well, I'm 95-percent "Austrian" according to my score on a 10-question quiz at the website of the Ludwig von Mises Institute:
Your score is: 95 / 100.

Each question is followed by an Austrian School answer (10 points), a Chicago School answer (5 points), a Keynesian-Neoclassical School answer (2 points), and a Socialist answer (no points)--all broadly defined....

1. What is the correct economic status of private property?

A. Property is at the heart of most serious inequalities and oppressions in modern civilization. Only by regulation, transfer payments, redistribution of property, and common ownership can society arrive at fairness, justice, and human dignity for all. Socialist answer

B. Property is a naturally arising relationship between human beings and material things. Property and enforceable property rights make possible economic calculation, a wider and more productive division of labor, and therefore increasing levels of prosperity. Indeed, civilization itself is inconceivable in absence of private property. Any encroachment on property results in loss of freedom and prosperity. The Austrian answer.

C. Property is central to prosperity and economic growth. Accordingly, it is of the utmost importance that the state, or more abstractly the law, maintain and modify the bundle of property rights in such a way as to allocate transactions costs in such a way as to promote maximum growth and economic efficiency. Property does not arise naturally, but is the end product of the legal system. Chicago answer

D. Property is an important component of our social system but its status as a "right" is contingent. It must be subject to regulation and modification for the general good. The state must intervene to prevent abuses of economic power, even at the cost of reducing traditional prerogatives of owners. Keynesian/Neoclassical answer

Your answer: B
The Austrian answer.

You chose the Austrian Answer!

2. What is money and how does it originate?

A. Money can emerge from barter, but private interests will probably not develop it to suit the needs of a modern economy. We need central banks to sustain the financial sector. Efforts to manipulate the economy using the money supply will at best fail, and at worst cause severe problems. Monetary authorities should not increase the money supply at their discretion. They should increase it at a steady rate, matching the long term growth rate of the economy. Chicago answer.

B. Money is a vehicle for exploitation that distorts real values. Money is neither necessary nor desirable, but is an arbitrary artifact of history. Social progress will lead to revolutionary social changes, including the elimination of money. This will end exploitation and result in a society that aims at satisfying real values, instead of aiming at private financial profit. Socialist answer

C. Money always emerges out of barter. The difficulties of finding trading partners under barter systems results in the emergence of commodity monies. Durable, portable, and divisible commodities, like gold and silver, typically fit the bill as money best. Money and related institutions emerge as an unintended consequence of self interested trading. The evolution of such institutions is best left to the competitive market forces that created them in the first place, as governmental intervention will result in inflation and other distortions. Austrian answer.

D. Money is a creature of the state. Sound monetary institutions require planning and a central bank. Central banks can also stabilize markets. Central bankers can counteract booms and busts in the private sector by expanding the money supply during recessions and slowing it during booms. Public control of the institution of money is key to running the economy. Keynesian/Neoclassical answer

Your answer: C
Austrian answer.

You chose the Austrian Answer!

3. What is the proper method to conduct research in economic science?

A. The economist should not mimic the behavior of the natural scientists, because the social sciences involve human beings. Human action is characterized by intentional behavior, which involves the rational use of means to achieve desired ends. The very subject matter of economics—capital goods, money, wage rates, etc.—is not defined by physical or chemical properties, but instead by the mental or subjective attitudes that human minds take toward these things. Consequently, the proper method for an economist is to start with self-evident axioms—such as that people try to achieve the highest utility at the lowest cost—and logically deduce conclusions from them. The Austrian answer.

B. Like the physicist, the economist (if he wants to be scientific) should construct a precise model that yields quantitative predictions about economic variables, such as GDP and unemployment. Then the economist should test those predictions against the actual data as collected by statistical researchers. At any given time, the best explanation or "theory" of a certain economic phenomenon is that model which yields the best fit between predictions and actual data. The Chicago answer

C. The question is misleading; economics cannot really be scientific in the conventional sense of the term. In physics we have fixed "laws" that are the same in every society and every time period. In contrast, there are no fixed laws in economics. The economist might study a certain historical episode and conclude that, say, rent control didn’t achieve its objectives when it was tried in Manhattan after World War II. Nonetheless, it may still be true that rent control could work in Paris in 2004 if the people in charge take care to avoid the mistakes of the past. There is no distinctly Keynesian answer; this is the position of the historical school.

D. To be scientific, we need to modify the traditional economistic approach of viewing society as nothing but a collection of atomistic, egoistic individuals. In reality, human beings consider themselves to be part of a greater social whole. A more fruitful avenue of research would be to study the complex groups with which people identify, whether class, race, or sex. Such an analysis would reveal the undeniable power of relationships in society, and give a much better understanding of economic events than typical, simplistic economic models. The socialist answer.

Your answer: A
The Austrian answer.

You chose the Austrian Answer!

4. What is the reason for the interest rate, and should it be regulated?

A. Interest payments compensate investors for their loss of liquidity when they sink cash into a business project or lend it out for a certain period; the interest rate is the price of liquidity. Interest is a monetary phenomenon, not a "real" one (as the classical economists thought). Modern economics recognizes the role of expectations or what might generically be called "confidence in the future." For example, if the interest rate jumps from 5% to 10%, this does not mean that people have become more oriented towards present consumption; it could simply reflect heightened anxiety about the economy. Government manipulation of the interest rate is certainly one of several tools needed to smooth economic fluctuations, but by itself this approach is relatively impotent. If everyone fears a worsening recession, employers will not hire more workers or build more factories, no matter how low the interest rate is pushed. Keynesian answer

B. Interest payments are a return on capital, and the interest rate in equilibrium equals the marginal product of capital. The situation is perfectly analogous to labor, where the wage rate equals the marginal product of labor. There are various technological recipes yielding output at various future dates, and consumers have preferences for consumption at various future dates. On the margin, present consumption will be preferred to future consumption, and an extra unit of capital invested will yield an increment in output (available in the future) that just makes the consumer indifferent between consuming now or waiting an additional unit of time and consuming the higher yield made possible by the productivity of capital. The government should not meddle with interest rates, for the same reasons that the government should not meddle with wage rates. Chicago answer

C. "Interest" is just a codeword for profit; a capitalist earns interest when he spends less on wages and raw materials than he earns from selling the final product. This surplus value arises from the exploited workers hired by the capitalist. Under the wage system, workers are paid the bare minimum they need to survive, even though the full product of their labor far exceeds their compensation from the employer. In this respect, the wage system is no different from traditional slavery, where the slave owner keeps the product yielded by his slaves’ toil, and from this fund only "pays" them enough to maintain their bare survival. Obviously interest is a barbaric feature of capitalist societies, and will disappear once the system of wage slavery is overturned. The socialist answer

D. Interest payments reflect the higher value of present goods over future goods. Other things equal, everyone wants to consume sooner rather than later. The current price of a computer might be $1,000, but the price of a claim to a computer delivered in one year would currently sell for less than that, say $900. An entrepreneur might invest $900 in labor and raw materials in order to sell a product next year for $1,000; his implicit interest return is due to the fact that the factors of production represent technological "claims" on future consumption goods, and thus their current price (the $900) is less than their ultimate sale price ($1,000). Obviously the government need not interfere with the market interest rate, since it merely reflects the subjective premium individuals place on a marginal present good over a marginal future good. The Austrian answer.

Your answer: D
The Austrian answer.

You chose the Austrian Answer!

5. What is the economic impact of saving?

A. In normal times, saving is not economically harmful but in a recessionary environment it can cause the economy to spiral downward. Saving reduces consumer spending and may not be translated into investment spending because of investor pessimism. This will reduce total demand in the economy and lead to unemployment. One way of
Keynesian/Neoclassical answer

B. The vast accumulation of wealth within select classes and families creates an economic oligarchy that shuts out those who cannot gain a foothold within the economic system. Inheritance taxes, and taxes on dividends, are essential to a society that values equality. After all, the yield from vast bank accounts really amounts to unearned income. No society can tolerate some people living off interest while others live paycheck-to-paycheck off the meager sums offered by minimum wages. Socialist answer

C. Saving (which means forestalling current consumption) is essential for capital formation, but there is no socially optimal ratio of consumption to saving that should predominate in society. It all depends on the social rate of time preference, that is, the extent to which people prefer goods sooner to later. Individuals may choose consumption over investment or vice-versa. Government intervention can skew these choices, subsidizing or taxing savings or consumption or both. In order to have the mix reflect the most economical choices, government should have no policy toward saving, even in the case of saving for old age. The Austrian answer.

D. There is no investment, and hence no economic growth, without saving. For this reason, the encouragement of saving should be an economic priority. Inflation discourages savings, which is a major reason why a policy of stable money should be the central-banking policy. Empirical studies show that saving takes place over the life-cycle of individuals. Miscalculations can occur, which is why the government might need to encourage private retirement accounts, a system that is more efficient than Social Security because it yields higher returns. The Chicago answer.

Your answer: C
The Austrian answer.

You chose the Austrian Answer!

6. What is the source of economic value?

A. Physical objects such as a banana or an automobile do not possess intrinsic economic value. On the contrary, only a human mind can attribute value to such items, and only then do economists classify them as goods. An object is valuable only because there is at least one human being who believes that this object can help satisfy his or her subjective desires. For example, even if a particular root cures cancer, if no one knows this fact, then the root has no economic value, and people will not trade money for it. Consequently, value is caused by an individual's subjective desires and his or her beliefs about the causal properties of a particular item. The Austrian answer.

B. The value of a commodity is equal to the amount of total labor used in its construction. If one bicycle has the same market value as, say, 500 eggs, then we can write 1 bicycle = 500 eggs. In what does this equality consist? Obviously the bicycle is not "equal" to the eggs because of any of its physical properties. If we examine the matter carefully, we will conclude that the one thing that the two have in common is the amount of labor used in their construction. The socialist answer.

C. The value of a good is determined by the interdependence of supply and demand, or what might be called the interaction of cost and utility. In contrast to some schools of thought, which try to explain value on the basis of utility alone, the correct approach is that of Alfred Marshall, who realized that economic value is due to both subjective preferences and to objective technological conditions. To see this most clearly, consider that if the costs of production go up for a particular good, in the new equilibrium its final price must be that much higher. Chicago answer

D. Economic value is a complex matter that cannot be explained through simple formulas. To understand why the people in a particular society value some things more than others, we must study their culture and history. For example, a Native American tribe might have valued a particular animal as sacred. The white Europeans, of course, did not share this value system and thus slaughtered the animals. The same is true of a good or service on the market. Historical School (there is no distinctly Keynesian answer to this question)

Your answer: C
Chicago answer

For optimal results the answer must be: A
The Austrian answer.

7. What causes the business cycle?

A. Variations in the money supply cause GDP growth to deviate from its general trend. Absent these variations the economy is relatively stable. Variations in the money supply cause inflationary booms and crashes. Lags in the adjustment of wages with these cycles mean that financial booms and busts will entail significant changes in unemployment rates. Chicago answer

B. Competition in the face of declining profits and increasing monopolization generates increasingly large crises under capitalism. Capitalists invest in labor saving devices to keep unemployment high and wages down. Competition leads to falling profit rates and crashes. Some capitalists will then get good deals on capital from bankrupt capitalists, raising their profitability for the moment. However, the tendency of capitalism to reduce profit rates will lead to further unemployment and another crash. Socialist answer

C. Expansion of the money supply artificially reduces interest rates. This causes a boom in consumer and investor spending. With businesses thinking longer term, and consumer thinking shorter term, a discoordination emerges in the economy. The time relationship between saving and investment, production and consumption, is disrupted. Market processes reveal that many investments are not really profitable but instead are clusters of errors. Businesses then liquidate these investments, causing a recession. Austrian answer.

D. Booms begin in excessive optimism, often prompted by technological shifts, resulting in speculative frenzies. Deficient total spending then causes recessions/depressions. When total savings exceed total investment, total spending on goods falls. This decreases the demand for labor to produce these goods. Then pessimism among business investors leads to insufficient aggregate demand and economic hard times. Keynesian/Neoclassical answer

Your answer: C
Austrian answer.

You chose the Austrian Answer!

8. What causes economic growth?

A. A balanced relationship between aggregate demand and aggregate supply is the leading determinant of economic growth. Because private markets cannot always provide this, stable institutional environments are necessary. The public sector plays a vital role in securing economic growth by providing a framework of legal and financial institutions. A variety of public-sector efforts such as low-interest rates and subsidies may also play a positive role. A limited amount of regulation is necessary, but this is not necessarily true. Chicago answer

B. Private consumer demand is not enough for economic growth. Overall private spending is often too little, too manipulated by business, and rife with choices that overlook social priorities. Consumers may save too little or too much. This sometimes makes public deficit spending necessary to stimulate the economy. Also, private spending fails to supply public goods. Public spending in such areas is necessary for economic growth—particularly in education, infrastructure, and scientific research. Keynesian/Neoclassical answer

C. The capitalist process causes economic growth, but this is a non sequitur. While capitalism is the most productive system, the distribution of wealth under capitalism is wrong. Whole classes of citizens are left out. Capitalists take advantage of workers by paying them the lowest possible wage instead of the value of their labor. So capitalism delivers the goods, but to the wrong addresses. What we need are workers' democracies where productivity can go hand-in-hand with a more just distribution of wealth. Socialist answer

D. The source of economic growth is mutually beneficial, voluntary exchange. Within the exchange economy, consumers spend part of their income on goods and services to satisfy their most immediate wants. This drives current production. Consumers save part of their income according to their less immediate wants. This drives entrepreneurial investment in future production and leads to the development of sophisticated capital markets. Private contracts, competition in markets, and private institutions that allow for capital investment and accumulation are all you need to attain optimal economic growth. Austrian answer.

Your answer: D
Austrian answer.

You chose the Austrian Answer!

9. Do markets create and sustain monopolies and what should be done about it?

A. If the history of capitalism shows us anything, it is that it leads to business concentration. With fewer and fewer firms dictating the terms, the result is ever higher prices combined with ever lower wages. Unions and antitrust enforcement have had some measure of success in curbing this, but neither institution goes far enough to counter the trend toward monopoly within market settings. We must also question the idea that competition itself should be a policy goal. Most often, it is socially wasteful and a slogan repeated by monopolists to justify exploitative behavior. The ideal of cooperation between all, a truly democratic economy, should be the ideal. Socialist answer

B. The market tends to generate monopolies of varying sizes and types. Business should not be permitted to exercise monopoly power in pricing. It can be detected by various formulas comparing costs with output price according to a perfectly competitive model. Geographic monopolies may not be as important as they once were due to advances in transportation technology. What we face today are a variety of technologically driven monopolies, such as the example of Microsoft shows. Still, regulators need to be constantly on the lookout for businesses that attempt to employ market power, enriching themselves at consumer expense. Competition needs rigorous enforcement. Keynesian/Neoclassical answer

C. Economists of the classical school were right to define a monopoly as a government-grant privilege, for gaining legal rights to be a preferred producer is the only way to maintain a monopoly in a market setting. Predatory pricing cannot be sustained over the long haul, and not even the attempt should be regretted since it is a great benefit to consumers. Attempted cartel-type behavior typically collapses, and where it does not, it serves a market function. The term "monopoly price" has no effective meaning in real market settings, which are not snapshots in time but processes of change. A market society needs no antitrust policy at all; indeed, the state is the very source of the remaining monopolies we see in education, law, courts, and other areas. Austrian answer.

D. Monopoly regulation has caused more harm than good by protecting particular competitors, not competition. Some types of regulation against trusts are based on flawed models that fail to understand that some firms gain market share solely because of their products' desirability to consumers. Most cited cases of "path dependency" turn out to be mythical. What is left for regulators to do? As Adam Smith said, they should prevent business conspiracy, blatantly predatory behavior, and otherwise assure a level playing field leading toward genuine competition. Finally, some goods lend themselves to being best provided by monopolies, e.g. courts and defense. Chicago answer

Your answer: C
Austrian answer.

You chose the Austrian Answer!

10. What is the role of equality and inequality?

A. Equality is a term that properly relates to mathematics but not to social science. Human beings are unequal in their endowments, opportunities, and will to achieve. Unequal does not mean inferior or superior; it merely means different. Differences are the very source of the division of labor, and, within a market setting, lead not to conflict but cooperation. While differences should be celebrated, property owners have every right to treat people unequally because it is owners that bear responsibility. Legislators, however, should not have any concern for bringing about equality of result or opportunity, either between individuals or groups of individuals classified according to any criterion. The only place for equality concerns the law, which should treat all individuals the same without regard to their station in life. Austrian answer.

B. It is a great mistake to make equality of result a policy goal, because egalitarian legislation can kill incentives to improve. Punishing the rich is self defeating, even for the poor striving to make their way. Equality of opportunity, however, is something different. It something everyone merits by their very dignity as a human being. Thus should a nation strive for quality educational institutions, institute a limited inheritance tax, and otherwise assist those who, through no fault of their own, lack the means to gain entry into the division of labor. Once these institutions are in place, we will find that the forces of market competition will achieve egalitarian goals through predominately voluntary means. Chicago answer

C. Inequality is an intrinsic feature of a social structure that is mired in a prejudicial overhang from the long and shameful history of the manner in which Western society has treated women and other minorities. The prejudicial impulse, rooted in the spirit of conquest that gave birth to Western capitalism in the first place, is a form of violence and yet part of the corrupt infrastructure of the market economy itself. If the owners of capital were left to their own devices, excluded groups would remain so in perpetuity, so society had to act to restrain them. Full equality will continue to elude us, so long as we have a society that treats people as goods to be bought and sold, and so long as we make a god out of private property. Socialist answer

D. The modern emphasis on equality is the great policy advance of the last century. No longer does the political and economic system exclude women and minorities from participation but rathers include them as a matter of law. These groups tend to be artificially undervalued by the "invisible hand" of the market, which is why there is a role for anti-discrimination and public-accommodations law. The welfare state, too, has benefited society by insuring that the benefits of rising wealth are spread throughout society, so that the rich do not become richer at the expense of the poor. We've come a long way, but we still have a long way to go. Keynesian/Neoclassical answer

Your answer: A
Austrian answer.

You chose the Austrian Answer!

Tuesday, December 21, 2004

Race, Intelligence, and Affirmative Action

In "Affirmative Action: A Modest Proposal," I began by writing about the findings of a study which

shows that the income of a Korean orphan who was adopted in the U.S. between 1970 and 1980, through a process of random selection, is about the same regardless of the income of the adoptive parents. On the other hand, the income of the biological children of the same parents is highly correlated with the parents' income; that is, low -income parents tend to produce low-income children, whereas high-income parents tend to produce high-income children....

I went on to say this:

...The obvious implication of these findings is that intelligence (and hence income) is a heritable trait, one that remains differentiated along racial lines (a consistent but controversial finding discussed here, for example). Thus the findings give further evidence, if any were needed, that affirmative action policies -- whether government-prescribed or voluntarily adopted -- tend to undermine the quality of workplaces and educational institutions. (I am speaking here of the quality of effort and thought, not the value of workers and students as human beings.)

A reader objects -- sort of. He begins by saying:

[T]here's a flaw in your guest blogger's logic. He takes the adoption study as evidence that intelligence is a heritable trait and thus passed through racial lines (fine). He then says since affirmative action rewards racial minorities who may be less qualified (fine), that affirmative action tends to undermine quality of work.

[H]is conclusion may be correct, but is only tenuously related to the first premise. he seems to be saying that, on average, if you give preference to minorities, the quality of work will suffer, because on average minorities are less intelligent....

Let's stop right there and take things one step at a time. What I said is that intelligence "is a heritable trait, one that remains differentiated along racial lines (a consistent but controversial finding discussed here, for example)." There is less controversy about the persistence of the racial differential and more controversy about race, per se, being the underlying cause of that differential. For a sample of the controversy, go to the linked article and follow the many links in the article. One of those links leads to a statement by Charles Murray, co-author of the infamous The Bell Curve, who says in a footnote:

Intelligence is known to be substantially heritable in human beings as a species, but this does not mean that group differences are also heritable. Despite our explicit treatment of the issue, it is perhaps the single most widespread source of misstatement about The Bell Curve.

How is it that intelligence is "substantially heritable" and yet "group differences" may not be heritable? Here is Professor Richard E. Nisbett of the University of Michigan, a noted opponent of the notion of inherent racial disparity:

Estimates of heritability within a given population tell us nothing about the degree to which differences between populations are genetically determined. The classic example is an experiment in which a random mix of wheat seeds is grown on two different plots of land. Within either plot, the environment is kept uniform, so the height of the different plants is largely or entirely genetically-determined. Yet the average difference between the two plots is still entirely environmental, because the mix of genotypes in each plot is identical....

In other words, there's a school of thought that a racial group that starts out "behind" because of environmental causes (e.g., nutrition and exposure to education and other experiences that "stretch" the mind) stays behind, even as the average intelligence of all racial groups seems to advance over time (a phenomenon known as the Flynn effect). In any event, inter-racial differences in intelligence seem to be real and persistent, and racially related genetic causes cannot be ruled out. (Again, refer to this article.)

The distribution of those differences does not follow the pattern supposed by the reader, who goes on to say this:

[I]f I understand the studies correctly, they say that each race has members that represent the full spectrum of intelligence, and that it's only on average that the scores are lower.

I'm not sure that the reader correctly understands the distribution of intelligence and its implications for the labor market. Let's say there's a pool of 200 "typical" black applicants and 1,200 "typical" white applicants for a "typical" job that requires an IQ of 100. (I use 200 blacks and 1,200 whites because the 1:6 ratio reflects the relative numbers of blacks and whites in the U.S. I take an IQ of 100 because that's about the mean for whites, whereas the mean for blacks is about 85. IQs are assumed to be normally distributed around those means, with a standard deviation of 15 IQ points.) Now, of the "typical" applicants for this "typical" job, only 32 (16 percent) of the blacks would have an IQ of at least 100, whereas 600 (one-half) of the whites would have an IQ of at least 100. Thus the ratio of qualified blacks to qualified whites would be about 1:19 for the "typical" job.

Bump it up a notch and set the intelligence qualification at an IQ of 115. Then, only 5 (2.5 percent) of the 200 black applicants would qualify, whereas 192 (16 percent) of the 1,200 white applicants would qualify -- a ratio of about 1:38. In other words, it gets harder and harder to find qualified blacks as jobs require more intelligence (not to mention specific kinds of education and training). So, it's irrelevant that there are some blacks at the higher end of the spectrum of intelligence. Why? Because there are proportionately few of them, and fewer still who have the requisite education and training for the kinds of jobs that are associated with high intelligence (e.g., astrophysics, computer engineering, advanced mathematics).

To look at it another way, take 200 randomly selected blacks and 200 randomly selected whites: 100 of the blacks and 168 of the whites would have an IQ of at least 85 (a ratio of 1:1.7); 5 of the blacks and 32 of the whites would have an IQ of at least 115 (a ratio of 1:6.4).

The black-white difference in average intelligence is meaningful, despite what the reader seems to think, because it reflects a significant difference in the distribution of intelligence. University slots and jobs that require at least average (white) intelligence can't be filled in proportion to the number of blacks in the population, or in proportion to the number of black applicants, without tending to dilute the quality of universities and workplaces. (Again, I am speaking of the quality of effort and thought, not the value of workers and students as human beings.)

That leads me affirmative action, about which the reader says:

Thus [because there are some blacks at the high end of the spectrum of intelligence], affirmative action can be structured in such a way as to give special preference to the higher-achieving members of any minority, who face the difficult task of not being stereotyped by the lower scores of their fellow minorities. I.e., If a white person and a black person have the same or nearly the same qualifications, then you pick the black person.

Yes, as I have just shown, there are blacks at the high end of the spectrum of intelligence, and those blacks are courted assiduously by universities and employers. Why? Because universities and employers are anxious to demonstrate their commitment to affirmative action, diversity, racial equality, or whatever you want to call it. What better way to do that than to admit or hire the "best and brightest" blacks, which is a relatively risk-free proposition for universities and employers. What happens to those blacks who aren't in the higher reaches of the spectrum of intelligence? Well, that's where affirmative action, as most Americans know it, kicks in.

Here's how it seems to work at universities: Blacks get preferential treatment for being black, to the extent that universities can concoct and defend affirmative-action plans that allow them to give preferential treatment. Sometimes a university fails (as in Gratz v. Bollinger), and sometimes it succeeds (as in Grutter v. Bollinger). But if there's a prevailing tendency among the left-dominated universities of the United States, it's to allow blacks to meet a lower standard of intelligence, thus displacing some whites who would have made better students and, eventually, better employees. So, at universities, affirmative action isn't just about "picking the black person" who has "the same or nearly the same qualifications."

What about affirmative action in the workplace? Here, I speak from long experience. (See my credentials.) Affirmative action, in theory, is supposed to be about hiring and promoting regardless of race, among other attributes. As an example, here's the Department of Labor's summary of its guidelines for federal contractors and subcontractors:

Each contracting agency in the Executive Branch of government must include the equal opportunity clause in each of its nonexempt government contracts. The equal opportunity clause requires that the contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment, without regard to their race, color, religion, sex or national origin....

It doesn't say "If a white person and a black person have the same or nearly the same qualifications, then you pick the black person," as the reader would have it. What it says, in effect, is this: Faced with two equally qualified candidates for hiring or promotion, you can't discriminate against a black person or a person who belongs to any of the other protected groups. To act in the way that the reader suggests would amount to blatant discrimination in favor of black job candidates over white job candidates, and that's facially illegal, even though universities sometimes get away with similar discrimination in the name of "diversity."

Nevertheless, what happens, in practice, is what the reader suggests, and then some: If a black person seems to have something like the minimum qualifications for a job, and if the black person's work record and interviews aren't off-putting, the black person is likely to be hired or promoted ahead of equally or better-qualified whites. Why?

  • Pressure from government affirmative-action offices, which focus on percentages of minorities hired and promoted, not on the qualifications of applicants for hiring and promotion.
  • The ability of those affirmative-action offices to put government agencies and private employers through the pain and expense of extensive audits, backed by the threat of adverse reports to higher ups (in the case of government agencies) and fines and the loss of contracts (in the case of private employers).
  • The ever-present threat of complaints to the EEOC (or its local counterpart) by rejected minority candidates for hiring and promotion. Those complaints can then be followed by costly litigation, settlements, and court judgments.
  • Boards of directors and senior managers who (a) fear the adverse publicity that can accompany employment-related litigation and (b) push for special treatment of minorities because they think it's "the right thing to do."
  • Managers down the line learn to go along and practice just enough reverse discrimination to keep affirmative-action offices and upper management happy.

The following case, about an employee who was victimized by reverse discrimination, illustrates just about everything I've said about the practice of affirmative action in the workplace:

A Federal Aviation Administration employee recently settled an employment discrimination case where he said he was passed over for promotions because of his gender and race.

Michael C. Ryan of Toms River, N.J., who worked at an FAA research and development facility as a GS-14 manager, said that between 1995 and 1997 he was denied eight promotions to GS-15.

After complaining to the FAA, Ryan went to the Equal Employment Opportunity Commission. Nine years later, a formal consent order gives Ryan, a 28-year FAA worker, the managerial and supervisory position he wanted. The order also begins a three-year agencywide policy review intended to reform FAA's affirmative action policies.

Ryan, a white male, said he was qualified for the promotions he applied for at the William J. Hughes Technical Center in Atlantic City, N.J., but was passed over by people with less experience because he was not a woman or a minority. During the trial, Ryan's attorney, Hanan Isaacs, argued that four of the seven minority candidates who were promoted were not selected using merit principles, including one person that Ryan trained who had 13 years less seniority.

According to Isaacs, the 22-day trial showed that the candidates were promoted ahead of Ryan so that minority and women promotion quotas could be met. Isaacs said FAA's 1988 affirmative action plan, which called for "a workforce that looks like America by 2000," started to go afoul when it compared the racial and gender composition of technical positions to the general population rather than to the minority composition of the comparable workforce.

Isaacs said that an unwritten but well publicized "50-50" policy" required FAA managers to promote women and minorities at least 50 percent of the time in order to get career and financial incentives. This type of affirmative action has no end-plan and perpetually discriminates against nonminorities, Isaacs argued.

Ryan was offered a settlement a year ago that would have given him back pay - which could total about $100,000 - and the promotion, but Isaacs said Ryan refused because he wanted to see the agency's policy change.

John G. Larsen, a FAA senior policy analyst, testified during the trial that the agency was not in compliance with the law after 1992 and that its affirmative action program would "almost always come up with the appearance of under-representation."

Larsen, a 36-year FAA employee, said that after a 1995 Supreme Court ruling which found that preferential treatment based on race almost always is unconstitutional, even when it is intended to benefit minority groups that suffered injustices in the past, the agency's affirmative action policies became illegal.

He said the FAA refused to conduct a review requested by the Clinton administration following the ruling that would have brought the agency back into compliance with affirmative action laws. "The culture of the agency was one, in my opinion, that did not entertain challenges or disagreement ... and nothing changed," Larsen said.

The agency did not admit liability in the settlement, but did agree to start a three-step comprehensive review of its programs and policies on hiring and promotion to put them into compliance.

A Justice Department spokesman said the department was happy to resolve the nine-year-old case. He said that with the assistance of the court, the department was able to reach a settlement that is fair to both parties and upholds the FAA's commitment to ensure a workplace free of unlawful discrimination of any form.

That's the real, illegal, world of affirmative action. And here is the price tag:

Because of affirmative action -- and legal actions brought and threatened under its rubric -- employers do not always fill every job with the person best qualified for the job. The result is that the economy produces less than it would in the absence of affirmative action....

[A]ffirmative action reduces GDP by about 2 percent. That's not a trivial amount. In fact, it's just about what the federal government spends on all civilian agencies and their activities -- including affirmative action....

Moreover, that effect is compounded to the extent that affirmative action reduces the quality of education at universities, which it surely must do. But let us work with 2 percent of GDP, which comes to about $240 billion a year, or more than $6,000 a year for every black American....

So, the reader has it about right when he says, in his closing sentence,

It may be true that in practice affirmative action tends to downgrade quality....

But he glosses over the high price we pay for affirmative action, in dollars and divisiveness. And then he closes with this:

...but this [downgrading of quality] doesn't follow necessarily from the heritability premise, and I find [the guest blogger's] attempt to use this to bolster his argument inflammatory and intellectually dishonest.

The downgrading of quality -- and the price we pay for that -- follows directly from the demonstrable premise that affirmative action -- as it is practiced -- puts race ahead of quality in the selection of students and workers. Putting race first affects quality because of the unequal distribution of intelligence between the races, as intelligence is usually measured. The cause of the unequal distribution of intelligence may be controversial, but as far as I can tell there is no settled science in the matter. The notion of inherent racial differences in intelligence is still on the table, and it carries with it stark implications for the long-term success of blacks in an economy that increasingly demands more intellectual skills and fewer physical skills.

Therefore, it isn't "intellectually dishonest" to raise the issue of inherent racial differences in intelligence. Nor is it "inflammatory," except to those who -- unlike me -- are unwilling to review dispassionately the evidence on all sides of the issue. But dispassion is hard to come by in any discussion of race or affirmative action. That is why I offered my "modest proposal" -- which I mean to be taken seriously. It cuts through all the cant and controversy about race, intelligence, and affirmative action. Here it is, again:

...End affirmative action and give every black American an annual voucher for, say, $5,000 (adjusted annually for inflation). The vouchers could be redeemed for educational expenses (tuition, materials, books, room and board, and mandatory fees). Recipients who didn't need or want their vouchers could sell them to others (presumably at a discount), give them away, or bequeath them for use by later generations. The vouchers would be issued for a limited time (perhaps the 25 years envisioned by Justice O'Connor in Grutter), but they would never expire.

That settles affirmative action, reparations, and school vouchers (for blacks), at a stroke....

Favorite Posts: Affirmative Action and Race

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