BY Kevin

Scattered Thoughts on Diversity

Brad DeLong has an excellent post about his views of the value and propriety of diversity in higher education (and elsewhere). Although my disagreements with him are fundamental, I do respect his candor.

For a long time the federal government did not hold black people equal before the law. Instead the government tried to justify and aided in their enslavement, and then was used to segregate and discriminate against their descendants. We will never understand fully the impact this has had-- and will have--on black people.

Still, I don't believe government should perform a balancing act between "discriminating based on race" and "providing equality before the law" in order to rectify these past wrongs. I don't think it's within the proper sphere of government to punish some people--no matter how lightly--for the wrongs of others.

But those are my political views, not my economic views--which have a very different character (and are very spotty).

The economist inside me wants to know how much people value diversity--in their friendships, in their communities, for themselves, and for their children. The Supreme Court of the United States has declared that:

Today, we hold that the Law School has a compelling interest in attaining a diverse student body.

The Law School’s educational judgment that such diversity is essential to its educational mission is one to which we defer. The Law School’s assessment that diversity will, in fact, yield educational benefits is substantiated by respondents and their amici.

Just how large is this compelling interest? To whom go the benefits? I want dispassionate, nonpolitical talk on the costs and benefits of diversity. Why aren't parents rushing to demand that their kids have diverse educations, if large benefits are to be gained? Do people not see what is good for them? How can we quantify these benefits?

We speak of diversity as if it were something different than integration, but it isn't. Allegedly, it's good quality education when we have students with different backgrounds and different views to join together socially and economically. We want different people to learn from one another. We want them to have intellectual exchange, to shoot the breeze, to network, and to compete directly against one another.

But through Affirmative Action we seem to assume that if students are not part of integrated schools, they will not pursue diversity outside of school. That may be very true. But if there are enormous benefits to diversifing one's students and employees, friends and associates, why do we need public universities to do this for us?

One answer is that most people associate with those around them, and do not actively seek diverse companionship. They don't see the benefits of diversity; they think that education--sans diversity is where the real value is to be secured. Why do students pursue top schools, regardless of their diversity? Diversity is not a criterion in the US News & World Report college rankings. In fact, we might think it odd to consciously pursue a racially and ethnically diverse group of personal associates. (Whites consciously looking for blacks, and blacks consciously looking for whites.)

To resolve this problem, we require the government to forcibly integrate institutions. Given that many (most?) white and black people (now) admitted to a particular school or university do not really care about the race of those they attend school with, who is upset at such forced integration? Only those denied entry compared to a pure merit system file lawsuits.

But how did we get to valuing--wanting or needing or whatevering--diversity? Is diversity a final consumption good, or an intermediate good? If intermediate, how do we know diversity can get us what we really want? Are the perceived social and economic benefits of diversity actually forecasted returns on current investment?

Just exactly how much do *we* (whoever that is) value diversity? What are the costs and benefits of specific individuals consuming (or investing in) more--or less--of it? We always hear about the benefits of diversity, but what about its costs? Many speak of diversity as if only the government could provide it (even though I don't think there is a clear demonstrated case that current markets undersupply diversity.)

Who is the low-cost provider of diversity in educational experience? Affirmative Action by goverment fiat in government controlled areas has turned out to be a very contentious way to increase the quantity of diversity, but I don't know about cost issues.

As economists, let's look to see who demands diversity, and how much they are willing to pay to get it.

UPDATE: Stephen Karlson has a roundup of econoblog thought on diversity.

UPDATE #2: Porphyrogenitus writes about collective compensation:

don't pretend this is what America is and what real Americans do or should do as a general principle.

6/24/2003 05:38:46 PM
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BY Kevin

Private Retail Security & Individual Rights

Last week Andrea Elliot of The New York Times wrote a curious article entitled "Stores Fight Shoplifting With Private Security". It stated that advocates of civil liberties are now concerned with improper detention and coercion of those accused of shoplifting in retail stores. T&B thinks there are valid concerns regarding such issues, but the article takes a narrow and unhelpful perspective on private security and individual rights.

Private security operations in the retail world, like those in gated communities, amusement parks and sports stadiums, have grown in number over the last three decades yet remain largely shrouded from public scrutiny.

There is a clear conflict of interest between making "the public" fully aware of security operations, and having security operations that work. Granted, private security operations are not directly regulated by the government. But does that mean that such operations are "shrouded"--i.e. intentionally or willfully hidden--from those who inquire about them?

Well, yes! Of course security is kept secret!

Retailers don't want to reveal to criminals their exact procedures, and don't want to announce to good customers that they also run a detention facility. Retailers already have a hard (and costly) time balancing a secure environment with a comfortable one; people want to feel safe, but may not enjoy knowing that they are watched. Most people like having a secure environment, but armed uniformed officers make terrible window dressing--in many (but perhaps not most) neighborhoods.

What advocates for civil liberties are really concerned about though is what happens when stores detain alleged shoplifters. Some stores offer an accused shoplifter the opportunity to pay hefty damages instead of being turned over to the police. Many offenders choose to pay immediately, and then go home without a criminal record, but with far thinner wallets. This helps pay for store security operations and punishes the shoplifter--or at least the poor-quality shoplifter.

This seems like an pretty efficient private legal structure to me.

But what about one's rights while detained? Can't the accused always demand that the store call the police--especially if they think that they are wrongly accused?

On the one hand, stores have an interest in protecting their business. But on the other hand, security guards have neither the training nor the same legal obligations as police officers and the danger of interfering with individual rights is huge."

Private security can legally interfere with individuals only to the extent that they do not violate actual existing legal obligations. But both 1) the level of legal obligations, and 2) the potential to interfere with individual rights is higher with police--who have the power to arrest for any number of activities. Private retail security is not concerned with anything you do outside of their stores. Police are concerned with a far broader range of activities. The relative danger of interference--the power to interfere divided by the strength of individual rights obligations--in my mind is greater for police than private security, but it might be smaller in some cases.

The article cites several cases in which private security had wrongly identified and/or detained individuals; these cases were resolved for large sums of money in civil court, and the cases were closed.

Frankly, I do not see what the problem is here. Sometimes mistakes will be made, and a formal public legal structure exists to recompense those wrongly accused.

And the beat goes on...

6/23/2003 10:46:16 AM
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BY Kevin

On the Benefits of Obesity

This morning Fox News interviewed a professor who demanded that the government do something about the costs of obesity; it seemed that he advocated warning labels for Big Macs, and sundry interventions to scare people into health.

Now, long-time readers of T&B will know that when someone mentions costs--I think benefits.

The costs of obesity cannot be doubted, and should not be belittled. Moreover, they can be perceived without sophisticated measurement techniques. Total costs that include loss of quality of life, reduction in life expectantcy, increased expenditure on healthcare for the obese and other economic drains sum to about $100 billion annually. People--280,000 annually--die becuase they're too fat, have clogged arteries, etc.

I know this sounds weird, but there must be benefits of obesity. In the very least, obese people enjoy eating. Before we rush to regulate fatty foods, in a crusade to lower the costs of obesity, we should take account that obese people enjoy eating. But this benefit is not easily quantifiable. When a proponent of dietary central planning tells me the costs of obesity in lost output and enjoyment of life, I want to know the annual per person cost and annual per person benefit.

I write these words with personal experience in mind. For a long time I have been on a running program to keep myself slim and in shape. As a child I was obese, and I didn't like it one damn bit. However, I really enjoyed eating--and still do today.

What are the data? About 40 million adults are obese in the US. This means obesity *costs* the US $100,000/40=$2,500 annually per obese adult. How much does the average obese person enjoy eating all those extra fat calories? That is, how much would an obese person have to be paid in exchange for not overeating? $100 annually? $1,000? $2,500? More?

Shouldn't we know this before spending money on regulations that might make people worse off--from their own point of view?

6/20/2003 10:49:31 AM
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BY Kevin

Some Regrets

Herbert Spencer is best known to economists as an advocate of extreme laissez-faire. This characterization, unlike the accusation that Spencer was a social darwinist, is largely true.

But how did such a staunch advocate of economic liberty feel about the results of economic progress? In a little piece Spencer wrote entitled "Some Regrets", included in the collection Facts and Comments, we find an older Spencer disgusted with the perception that economic progress means solely an increase in consumption, and regretting what development does to the quality of human life, to nature, and to the remants of past human civilizations. Some extensive quotations follow:

I detest that conception of social progress which presents as its aim, increase of population, growth of wealth, spread of commerce. In the politico-economic ideal of human existence there is contemplated quantity only and not quality. Instead of an immense amount of life of low type I would far sooner see half the amount of life of a high type. A prosperity which is exhibited in Board-of-Trade tables year by year increasing their totals, is to a large extent not a prosperity but an adversity. Increase in the swarms of people whose existence is subordinated to material development is rather to be lamented than to be rejoiced over.

...

Intrinsically, a state in which our advance is measured by spread of manufactures and a concomitant production of such regions as the “Black Country,” looking as though it had lately been invaded by an army of chimney-sweeps, is a state to be emerged from as quickly as may be. It is a state which in sundry respects compares ill with the past, and is far from that which we may hope will be attained in the future.

One of its evil results is the threatened submergence of those still-remaining traces of a life which, though ruder and simpler, left men some leisure in which to live.

This over-running of the old by the new strikes me afresh with every summer's sojourn in the country, and deepens my regret.

...

While in some respects we may envy posterity, we may in one respect pity them. This disappearance of remnants and traces of earlier forms of life, intrinsically picturesque as well as picturesque by association, will deprive them of much poetry which now relieves the prose of life. Everywhere it is the same. Egypt, made like Europe by railways, steamboats, and hotels scattered along the Nile, will soon cease to excite the feelings proper to its antiquity. Modernized Rome is losing all likeness to Rome as it was even fifty years ago. And here around us the romance of the past is being extinguished by the dull realities of the present. Of course we shall bequeath many remains of existing civilization; but it may well be doubted whether they will be as interesting as those which old times have bequeathed to us.

I grew up in the endless suburban tracts of Nassau County, NY. These tracts did not displace the remnants of an historical culture--the local native American populations leaving few ruins. In many ways childhood was a "dull reality"--devoid of extensive nature; but life was far more interesting in new ways Spencer failed to predict (and probably could not easily conceive in the late nineteenth century).

6/18/2003 07:49:43 AM
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BY Kevin

The Quantity and Quality of Healthcare

The rising per-capita costs of healthcare get a lot of press, but I never see anything on the per-capita quantity and quality of healthcare consumed by Americans. But data on healthcare costs are meaningless without knowing the health benefits that are actually sought and obtained. After all, the total per capita costs of healthcare could be rising becuase of one or both of two reasons: (1) a unit of healthcare is becoming more expensive, or (2) people are consuming more units of healthcare per capita.

I want to know "What is the quantity and quality of healthcare consumed per-capita in the United States? How has that changed over the past 100 years?" However, my searches have come up with little aggregate data on quantity, but some on quality. (I do not specialize in health economics; such data probably do exist, but I don't know where to find them.)

What I found is that while a unit of healthcare is more expensive than it used to be, it is also far more effective than a unit 100, 50, or even 25 years ago. A good general read on the increasing effectiveness of healthcare (though I disagree with many parts) is David Cutler's 20 page chapter The Health of the Nation.

Effectiveness accounts for both the increased per-unit cost of healthcare, and the increase in quantity demanded. The increase in per capita quantity demanded comes from mainly from continual medical care of those previously treated, and kept alive and healthy, by more effective care.

Simply put, we are spending more on healthcare because it increases the quality and quantity of human life. We spend more on healthcare now than ever before not because we need it more than before but becuase it it is more effective than it has ever been. We have high-cost means of prolonging life that never before existed. Instead of blood-letting we have heart bypass and angioplasty. Older people who consume a lot of healthcare, are still around becuase of the increased effectiveness of healthcare; a century ago our elderly would have been long dead.

Let me repeat: increased consumption of healthcare, and the increased total, per-capita cost of healthcare, has come about because of increase in the effectiveness of healthcare.

But in fact, it is probable that the real quality-adjusted cost of many types of healthcare has been declining! Public perception is wrong! In their NBER paper Pricing Heart Attack Treatments David Cutler et. al., provide evidence that heart attack treatment costs have been declining in real terms, although they cannot generalize across other types of healthcare.

6/13/2003 10:57:26 AM
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BY Kevin

Tyler Cowen on Radio Television Diversity

The Volokh Conspiracy keeps expanding--most recently with GMU economics professor Tyler Cowen. Tyler's first post argues that the recent FCC decision to increase the percent of radio frequency in a given area that can be controlled by a single owner from 35% to 45% will have a negligible impact on radio diversity.

This had me very confused. So I googled the recent FCC changes, and found that the 35% to 45% numbers reflect television ownership--not radio ownership. According to USA today:

Rule [for Radio ownership]: A broadcaster may own five radio stations in a market with fewer than 14 radio stations and as many as eight in a market with 45 stations.

Change: Caps will be maintained. But the FCC expected to redraw the boundaries of some markets to prevent situations that have let some broadcasters own most or all the radio stations serving some small towns.

Where this exists now, current ownership may continue, but the owner may not sell them as a package unless the buyer is a small business.

So it looks like there has been little change in the radio market regulations... except:

While the FCC deregulated television guidelines, it re-regulated radio broadcast guidelines by placing new Arbitron geographic limits on market designations, General Manager for Cascade Radio Group Rick Staeb said. The new Arbitron markets will decrease market areas and further limit the amount of radio stations a company can own in each area, Staeb said.

That being said, his observation that satellite radio--not broadcast stations--provides real diversity is well taken.

6/10/2003 05:37:01 PM
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BY Kevin

So Much to Cut, So Little Time

A while back, Kevin Drum of CalPundit requested that those who want to cut Federal government spending specify what they would like cut--with a special emphasis on, and bonus points for, spending cuts that would have a bloody personal impact on the cutting advocate.

Let it be known that I don't advocate a simple spending cut, but a public beheading. However, this is for State spending, not Federal.

I'm in the Ph.D. economics program at George Mason University--a government-run university in Northern Virginia. The state of Virginia actually pays me to study at the University. So I would like for the Virginia state government to fully eliminate my fellowship and my tuition waiver--and, for good measure, I would like to see my entire University privatized.

Bring on the guillotine!

UPDATE:I forgot to give a hat tip to Arnold Kling.

6/9/2003 09:28:18 AM
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BY Kevin

Do you feel Castro's Pain?

Poison of HispaLibertas does. In Spanish, Poison comments:

Ya lo ven, nunca llueve a gusto de todos, un día estás tan tranquilo en tu isla, condenando a muerte a disidentes, y al día siguiente una "camarilla mafiosa" se dedica a ningunearte en el terreno político. Pobrecito, si es que es un incomprendido. Desde aquí animamos al señor Castro a que alivie sus penas tirándose al mar desde lo alto de un acantilado.

and a very rough English translation:

They already see it, it never rains to likings of all, one day you are so calm on your island, condemning dissidents to death, and on the following day a "gangster power group" dedicates itself to make you nothing in the political land. Poor soul, he's just misunderstood! From here we inspire Mr. Castro to alleviate his pains by throwing himself to the sea from the top of a cliff.

Poison links and comments on this Libertad Digital report on European political--not economic--sanctions of Cuba. The report's first sentence, though, I found disturbing:

La Uniòn Europea ha anunciado este jueves una serie de sanciones políticas contra el Gobierno cubano a raíz de las "deplorables medidas" recientemente adoptadas por las autoridades de La Habana que violan las libertades fundamentales y el derecho a la vida

The EU anounced this Thursday a series of political sanctions against the Cuban government for the deplorable methods recently adopted by Havana that violate fundamental liberties and rights of life.

Recently!

T&B holds economic freedom to be just as vital as freedom of speech. The level of both has been appalling since the Castro regime installed itself in 1959.

Anyway, the EU has invited dissidents to national celebrations and will limit visits by Cuban government functionaries. Also, it is nice to report that pointless economic sanctions will not be enacted.

6/8/2003 06:03:58 PM
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BY Kevin

Much Freer Trade with Chile

Jeffrey Sparshot writes in the Washington Times:

The United States will sign a trade agreement with Chile today, setting the stage for Congress to vote on the first two free-trade pacts negotiated by the Bush administration.

Amazingly, what exactly this trade agreement entails is not specified in the article. The author identifies the political interests supporting or opposing the treaty. He also notes that Chile has "relatively strong labor and environmental laws", which were some of the sticking points in previous freer-trade agreements.

But what impact will the treaty have on the economic relationships between citizens of the US and Chile?

The text of the agreement can be found here--all 24 sections and three annexes. For a brief summary click here.

Let me outline:

1. All tariffs and quotas on all goods will be eliminated immediately or after a four year transition period--without exception
2. However, the rest of the treaty discusses more fair and open trade--but not free trade-- for services
3. It provides clearer legal protections for all sides--protecting investments, enforcing patent law and fighting piracy
4. However, it also provides for what it calls Competition Policy--protecting U.S. firms against "Anti-Competitive and Monopolistic Behavior"--which really means giving a sure foothold for US companies to abuse Chile's regulatory structure, and for politicans to extort more payouts

6/6/2003 12:52:40 PM
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BY Kevin

Driver's License vs. Official "Photo ID"

T&B's opinion is that Sultaana Freeman should not be forced to have her face photographed to obtain a driver's license. [T&B has stored somewhere his father's old NY state driver's license--without a photo!]

However, a driver's license without a full face photograph should not be considered a valid "Photo ID", which is now required to enter all sorts of places, like the Pentagon and private office buildings. Let her have a license without the photo; the State shall find out that it does not need her photo on the license, but Ms. Freeman will find out that she does need it on an official ID.

6/4/2003 12:22:04 PM
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BY Kevin

NYC Tour guide licensing

The Angry Economist (Russell Nelson) has posted in sequence two apparently unconnected rants discussing basic economic analysis. The first argues that "Governments cannot make wise economic decisions because they have no basis for comparison" of the costs and benefits of the decisions they make. The second argues against the licensure of New York City tour guides, on the basis that such job-specific regs are against the economic interests of everyone except those who become tour guides under the entry restriction.

I heartily agree with his general conclusions in both essays, and think their general ideas can be connected.

I can think of several solid reasons why some people will have difficulty accepting that licensure is bad social or economic policy. Perhaps the most potent reason for (stricter) licensure is if the NYC government discovers that tour guides are not selling the city as much as they could. Visitors either displeased with the quality of their guides, or unimpressed with the landmarks they have visited, or convinced that they have already seen everything important, may not return as frequently, and may not give positive reviews to other potential visitors.

This means poorly-trained tour guides will result in fewer Broadway theatre-goers who eat fewer meals in restaurants, and fewer visitors who leave donations at the Cathedral of Saint John the Divine. And this means fewer tax receipts for the NYC government... One could argue that this implies that the costs of licensure to a few excluded tour guides and spread among a throng of tourists are outweighed by the benefits to the city.

However, this argument assumes that:

1. the city government discovered without acutally doing anything on its own that tour guides weren't up to snuff
2. it was able to make reasonable estimates about aggregate social welfare with and without licensure
3. it wanted to maximize social economic wealth or income.

All the above assumptions are debatable. First, the city doesn't just spontaneously discover it wants to regulate an industry. Usually some interest inside the industry (or competing with it) brings the evil results of free-entry to the attention of the city administration. Second, the city has no basis for calculating the costs and benefits of intervention as measured by the tour guides, tourists, and city businesses. Third, as Russell points out, "People will say, not what is best for society, but what is best for them." Remember, city administrators are people too. There is little reason to expect that government is acting in the best interests of the city as a whole.

However, economic theory be damned, NYC just made the tour guide test harder. I suggest reading the sample problems (scroll down). Note the hilarious discrepancy between the rudimentary knowledge acceptable before the change and the detailed historical knowledge expected afterwards. I tend to think these examples are rigged to make strict regulation look better, but that's just my cynicism.

UPDATE: This post mysteriously disappeared from the main page for a few hours... hopefully, it decides it wants to stay permanently.

6/3/2003 12:45:40 PM
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BY Kevin

Yo blogueo, ¿tú blogueas?, ¡ellos bloguean!

I recently found out that in Spanish blogs are called bitácoras, which Google translates as binnacles. The Oxford English Dictionary tells me that a binnacle is "A box on the deck of a ship near the helm, in which the compass is placed." Presumably, if I had read Moby Dick, "Thrusting his head half-way into the binnacle, Ahab caught one glimpse of the compasses, " I would have known this.

I'm fortunate to still be able to read in Spanish, after years of not speaking or reading it, although right now scholarly conversation is out of the question. I don't know much about the blogosphere en español, so I will be searching for and linking to the best bitácoras economías I can find.

6/2/2003 05:10:26 PM
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