Wrinkles in Rationality

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We're all, I'll presume, familiar enough with the economic argument that suggests that racism in hiring practices, because costly, is the sort of thing that gets weeded out in a free market (at least once you presume that the society as a whole is non-racist enough that, say, a store doesn't lose business by hiring a competent salesman who's a member of a disfavored minority). I like to think that's the case, since it tends to create, for wholly economic reasons, a feedback loop that reduces social racism: Even in the absence of vocal disapprobation of bigots, economic pressure is brought to bear, and the leveling there undermines the ethnic hermeticism that allows those attitudes to fester.

Ah… but. Sociologist Kieran Healy over at Crooked Timber points to a recent study on the employment effects of incarceration. One of the upshots is that, controlling for education and skills, you're better off as a job-seeker being white with a felony conviction than being black with a clean record. Which, barring some magical explanation for the disparity that doesn't involve employer bigotry, is fairly depressing.

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  1. To sum up what some others have already suggested: Assuming there is, in fact, racial employment discrimination going on, I want to see a study of how job performance is linked to race. If there is a performance disparity akin to the employment disparity, then the employers are certainly behaving rationally.

    (And that’s assuming that “rationally” means “making the most money”…it’s ironic and unfortunate that so many people belive that employers are morally bound to try to maximize monetary profit in most of their business decisions.)

  2. Jeff, if you’re still following this thread, would you please elaborate on what “statistical discrimination” is?

    If “statistical discrimination” has a disproportionate impact on blacks or other minority groups, isn’t that still a problem? And how do you think we should best address it?

    Thanks.

  3. I’ve never been much convinced by arguments rooted in the inefficiency of racism or slavery;they’re just so much fun for the ones on top that they’re willing to put up with losing productivity or market-share for a very long time…or, you could say that identity maintenance by out-group sanction is a very highly-valued good.

  4. The Austrians, at least, make no distinction concerning the “rationality” of any revealed preference. The idea of “rationality” in economic behavior is part of an “economic man” model that treats maximizing money income as the chief motivating factor. Racism, as much as charity and mutual aid, is an individual value choice that affects market behavior.

  5. I believe “statistical” discrimination is a showing of different outcomes over large groups of people. This is in contrast to intentional discrimination against an identified individual because of certain characteristics that individual may have (skin color, etc.).

  6. Stefan,

    The modern tycoon has very little time for racism between chomping his cigar, winding his pocket-watch, and securing his monocle so he can stare out the window of his oak panelled office at his smoke stacks and Irishmen.

  7. “There is certainly still a lot of racism in our society (and I suspect it’s always going to be a tendency in EVERY human society), but I believe that culture and values play a much bigger role than racism for most people.”

    Doesn’t this act as a feedback loop? Different cultural values feed racism, at least when the different values are held by people of visably different races.

    My mother-in-law, who emmigrated from Ecuador, was dissapointed by the lack of “white faces” (non hispanic whites, that is) in the new high school of her grand niece (who just arrived from Ecuador and only speaks Spanish).

  8. Julian,

    I wouldn’t get to depressed about this study. It is at best merely suggestive and suffers from two glaring problems.

    1) It’s a very small sample (4 applicants and 350 employers) performed in one limited geographically area (Milwaukee, WI).

    2) The study does not correct for well know differences in discrimination rates between urban areas and the suburbs. Many pair twin studies have shown that employers in urban areas associated with high levels of African-American crime discriminate strongly in favor of white applicants (regardless of the race of the employer) where as employers in the suburbs do not. The twin-pairs in the study were paired as criminal-record and non-record and not as White and Black. The White and Black pairs applied to different employers (150 for the white) and (200 for the Black). If the Black team applied to just a few more urban employers than the White team it would completely skew the results.

  9. Well, the essential problem is assuming that all interactions between humans boil down to economic interactions or relationships, but they don’t.

  10. Jeff:

    So what could it possibly mean to be “irrational”? What is an irrational agent? Would one need to be diseased, or somesuch?

    Further, how does it square with modern advances in Behavior Finance and Prospect Theory, showing that humans trying to do the best they can with what they have often means alot less than one might normally think – all humans have a great deal of blind spots, ranging from mental accounting to violating psychological invariance.

  11. Oh, and one more thing on neoclassical (or whatever) rationality: does it account for some agents intentionally going after other agents, ie, working against them? That is to say, how does it handle harming behavior such as malice and cruelty, jelousy, revenge/retribution, the nature of social norms and culture and conformance (such as, say, a culture which is rapidly – even if pointlessly – opposed to profit and wealth), and so on? And this isn’t neccessarily anything illegal, either.

    It would seem to me that there is simply no productive purpose for the principle of rationality, save only a placeholder for more accurate and full studies, models, and understandings of human behavior – and, as increasingly non-humans interact with and are a part of economic systems, other sorts of agents as well. Oh, and what about the “madness of crowds”?

    If it would be too much trouble to go into all that, is there a good book (in English) that deals with the subject?

    Thanks much for any insight – this has all been a recent bit of learning for me, from books like The Money Game, Against The Gods, and various psychology books over the years (like Influence: Science and Practice) πŸ™‚

  12. In fairness, an instrumentalist conception of rationality isn’t tautological unless you couple it with a really strong commitment to “revealed preference”… in which case it would be. Otherwise “irrational” just means “not taking the best means to one’s ends.”

  13. They must have controlled for affirmative action.

  14. If I ever do commit a felony, I want to get out and become Don King. Only with better hair.

  15. I am not sure if instrumental rationality
    should feel damned or supported by Julian’s
    defense. πŸ™‚

    My take on behavioral stuff is that it is
    telling us about the cognitive technology
    that people have available to try and reach
    their goals. That technology was not
    optimized by evolution for many of the tasks
    we perform today and it is also much more
    limited on many dimensions than what economists
    typically assume. For example, thinking is
    costly rather than costless.

    However, you can explain a lot of stuff with
    existing models; expanding them based on
    knowledge about the actual cogntive technology
    helps to explain more.

    I view the behavioral stuff as fleshing out
    neoclassical economics by telling us more
    about the technology, not as some kind of
    alternative. But that is just my view
    based on interest in this literature as a
    consumer. I buddy of mine in grad school
    (now a prof at U of Houston) did his
    dissertation on rational models of preference
    reversals. His work got me interested in
    the literature, and my thoughts owe a lot
    to his thoughts (which have likely advanced
    well beyond mine in the years since grad
    school).

    I am not sure I could point to a really good
    book on this … but would be interested in
    the suggestions of others. Good names in
    the psych literature are Daniel Kahneman,
    Amos Tversky and John Payne.

  16. Jeff Smith,

    It was not my intention, believe me, to set the Austrians off against a straw-man version of mainstream Economics. I believe in the labor theory of value (via Smith and Hodgskin, not Ricardo), and am currently engaged in a long-term project of attempting to rehabilitate it. So I am not one who believes economic history started with Bohm-Bawerk or Mises.

    In any case, it’s probably valid to say that self-interest tends to deter racism, by throwing in “ceteris paribus” as a loophole.

  17. This assumes all contending for the same jobs at the same time. What’s missing with regards Blacks is a base of Black owned businesses. All successful groups have or have had such a base. Black Americans used to have a base of small Black owned businesses but no more. The nearest thing extant may be government reservations like the Transit Workers in NYC or, for those with the good college degrees, foundations like Ford.

    Do a Thomas Sowell on ethnic dynamics in NYC and I think you’ll be amazed at how contemporary are his findings.

  18. Some quick remarks. I won’t be too tough
    since they cite one of my papers.

    1) The method here is an “audit pair study”.
    Two persons, selected to be “alike” take
    identical resumes (or identical but for
    crime in this case) and apply for jobs.
    This method is compelling in its simplicity
    but it has some potential problems.

    These problems are outlined in the notes 9
    and 33 of the paper, and in detail in the
    Heckman and Siegelman paper cited therein.
    (There is another version of that paper in
    the Journal of Economic Perspectives, which
    should be easier to find than the Urban
    Institute book).

    One key issue is that the researcher picks
    and trains the folks who are to be “alike”.
    If the researcher has a preferred answer,
    or if the “actors” used in the study have
    a preferred answer, subcoucious biases may
    result. That is probably less of an issue
    here, as many of the applications involved
    little personal interaction.

    2) The dependent variable here is getting a
    call back from a cold application in
    response to a newspaper ad. It is not
    wages or employment. Even if one takes
    the results at face value, the fact that
    blacks have to apply more often does not
    necessarily mean that they end up with
    lower wages or employment. Standard
    search models would suggest some effect,
    but the paper by Derek Neal and William
    Johnson in the Journal of Political
    Economy (also cited here) suggest that
    any such effects are not large.

    3. My own view is that most of what
    discrimination remains in the labor market,
    and there is clearly some, is “statistical
    discrimination” and not motivated by
    racism in the classical sense of not wanting
    to work with or buy from blacks. Another
    very interesting study (now well over a
    decade old) by Joleen Kirschenmann and
    Kathryn Neckerman interviewed employers
    in the Chicago area. They found that they
    had very sophisticated (and very illegal)
    statistical discrimination strategies.
    This included, for example, learning the
    zip codes of all the public housing projects
    and being happy to hire blacks not in those
    zip codes.

    Jeff

  19. One thing I forgot to say – focusing on the
    crime rather than the race aspect of the study,
    a big benefit to legalizing pot (at least) and
    cleansing the criminal records of all those
    convicted of non-violent marijuana related
    offenses is that it would make the labor market
    experiences of a lot of low-skill workers more
    pleasant, which could have all sorts of
    good effects.

    Jeff

  20. Indeed, it seems that success of group, ethnic or otherwise, can be seen from looking at ‘oriental’ immigrants, such as chinese. There was a stage of subservience, having no economic power of their own.

    The next stage is the development of coping and dealing with the dominate culture, such as developing ways to maintain confidence and self-identity (“they’re just afraid of what they don’t understand”) and avoiding being seen as a threat (such as forming their own communities, as with Chinatown – in the light of such things, an excercise for the reader is to consider various policies and practices of involuntary integration of disparate, different communities).

    The next stage, sometimes starting during the same generation, commerce and productive employment begins and becomes more developed amongst the community itself – starting, as all such things do, with working at home (self-employment), combining labor and cooperating with people in like situations, and forming small businesses that are more public oriented (ie, anyone can come in and buy something, just not close members of the community).

    The next stage is one which typically is of a parental-filial nature, where parents and family members urge and provide for (with their built up wealth and income) higher and more inspirational goals, through whatever prepatory mechanisms are available, to engage in more rewarding employment and such (throughout the ages this has taken the form of traveling abroad “to find a better life”, becoming an apprentice or finding a mentor, or going to school, college, and/or university).

    As the children who grow up into this environment become adults, they have grown far more accustomed and comfortable (or at least better understand) the dominant culture, and are capable of being productive and even accepted or welcomed in both cultures, rather than being an outcast from one or both (at least those who are successful, anyway). This is the multicultural environment, and, despite historical ignorance of critics, has existed for as long as humans have had distinct cultures and communities that interacted with one another. Other reactions are to reject one culture or the other entirely, and thus either become an outcast in one’s home culture, or stick tightly to the home community (much like the parents have/do). Some will end up rejecting both cultures and thus become outcasts of both, and often end up taking up the culture of some third community they might find (or create).

    The next stage, sometimes only occurring one generation later (the children of those who went through the previous stage), can be (and has been) one of affluence and relative harmony amongst certain communities.

    Now, if one takes this and then examines the history of blacks in america, one can find many places where this process has been destroyed, abused, prevented, and slowed, often by well-intentioned people who were actually trying to force this process or otherwise speed it up.

    This manifests itself in many ways, but one of the most socially unnacceptable is just how perfectly human (and sometimes even rational), supposed “racism” can be – and it has almost nothing to do with race itself. Perhaps one of the biggest problems with such things today is totally misdiagnosing the problem as being ethnocentrism or racism, when it is so often one of clashes of culture, and monoculturalism particularly. This manifests itself particularly clearly when working class blacks and whites are particularly intolerant of each other, utterly failing to notice that they are more similar to each other than most two groups of people are – most of their common experience is raising a family on a tight budget, dealing with their spouses, trying to raise their children “right” in a difficult environment, and overcoming being looked down upon by the “higher” classes, we well as typically being quite traditionally religious (often Christian as well). But this understanding is at least partly prevented by difference in appearance, language, and some social and religious customs (as with “black churches” and “white churches”).

  21. Oh, I forgot:

    WARNING: The preceeding post is rather long. :>

  22. Having grown up with very liberal beliefs about race, I went out of my way to hire blacks when I started running a business. In almost every case where I was able to hire a black person, the person’s job performance disappointed me very greatly. In most cases, the problems stemmed from very basic issues, such as radically different ideas about time/deadlines, honesty, and standards of excellence.

    I was frustrated about this, because it violated everything I believed about race. I couldn’t accept that the problems I saw were truly because of race, so I looked and looked for answers. The only thing I was ever able to figure out is that the problems are based in culture, not in race. I realized that the things which caused problems had NOTHING to do with the person’s skin, but EVERYTHING to do with the things they were taught by the culture in which they grew up. Their culture didn’t teach them that being on time was important. It taught them that dishonesty was OK as long as you didn’t get caught. And it taught them it was fine to do as little as possible instead of striving for excellence.

    (Just as an aside, it’s depressing for me to note that these same cultural values are becoming more and more prevelant in the broader society, which is making it harder to find the quality of people I could find even 20 years ago.)

    Most employers aren’t going to look at the “why” they have had trouble (to a disproportionate degree) with black employees. They’re simply going to believe there’s something inherently inferior about blacks, instead of realizing that they’ve been taught wrong values. Even if an employer DOES know this (as I do), I don’t have the time or inclination to hire people and retrain their values. It’s hard enough to run a business without having to deal with issues like that, too, so I hire people who I believe tend to have what I want. I’ve discovered that there is a TENDENCY for those values I want to be most pronounced in white people from small towns or rural areas. (Rural people can sometimes bring their own negative cultural/values baggage, but that’s a different subject.)

    NONE of this is to say that there is anything inherently wrong with black workers. It IS an indictment of the culture in which most of them grow up in this country. If you could reverse the cultures in which they grew up, I’m certain that you would find the opposite results.

    Some of the problems I see are apparently well-known in the black community, but they’re not widely acknowledged “officially.” One of my earliest indications was to discover what some blacks refer to jokingly as “CP time,” which is an old joke inside the black community about “colored people time.” (I can’t say how widespread it is, but I’ve found that more than half of the blacks I have asked knew what it meant. It might be regional in nature, though.) What it refers to is the notion that black culture sees time and deadlines in a different way, believing that being late is normal and acceptable, certainly nothing to strive to change.

    I’m posting this anonymously because it’s the sort of thing that some people will consider racist. If you knew my thoughts, you’d know that wasn’t the case. I WANT to hire more blacks, both for personal reasons and legal reasons. But the culture in which many blacks are growing up today is making that harder and harder.

    There is certainly still a lot of racism in our society (and I suspect it’s always going to be a tendency in EVERY human society), but I believe that culture and values play a much bigger role than racism for most people.

  23. What about controlling for age and tax rates? Blacks are a younger population and among all populations there is a negative correlation between youth and employment rates. Also, per-capita Blacks reside in areas with higher taxes more then whites.And, higher tax geographies tend to display lower employment rates.

  24. A coldly rational employer would be a fool to hire a black person (or a disabled person, an elderly person, or a woman) if an equally qualified white male is available. The reason is, of course, that it is much harder to fire someone in a “protected class” (such as a black, disabled, elderly, etc. person). If you fire a member of a protected class, you run a significantly greater risk of either a discrimination lawsuit, an EEOC inquiry, or both.

    This is a sadly predictable unintended consequence of collectivist thinking and identity group politics.

  25. “In particular, the Chineses who came to California in the 19th century, and the southeast Asians who came to America since the 1970s, typically include a sizable cohort of people who were middle class, educated, and urban. Many were business owners. This describes virtually none of the Africans brought here on slave ships.”

    When did the last slave ship land in North America?

  26. “. I believe in the labor theory of value (via Smith and Hodgskin, not Ricardo), and am currently engaged in a long-term project of attempting to rehabilitate it.”

    Are you also a member of the Flat Earth Society?

  27. Note on behalf of Kevin Carson: Yes, yes, he knows all about the whole Flat Earth thing – like he said, it’s a long-term project. πŸ˜‰

    I don’t even know what the labor theory of value is, just that the name sounds appealing πŸ™‚

  28. Don,

    I believe it was around 1800, though I’m not certain. Why do you ask?

  29. Kevin –

    Are you sure that is really a good use of your
    time? Julian is correct as far as the economics
    profession is concerned.

    Jeff

  30. Pluto,

    Nice narrative, but it leaves out an important detail; not all immigrant groups coming here bring the same resources. In particular, the Chineses who came to California in the 19th century, and the southeast Asians who came to America since the 1970s, typically include a sizable cohort of people who were middle class, educated, and urban. Many were business owners. This describes virtually none of the Africans brought here on slave ships.

    Rick,

    Any support for your contention that higher tax areas have higher unemployment? Taxachusetts is almost always a point or two lower than the nation as a whole. How about Oklahoma or Mississippi – how’s their low tax, low regulation, low public investment economic model working out?

  31. The labor theory of value? For real? I’ll confess, I’m a bit curious… I thought that was pretty much dead, buried, turned to dust, and recycled into plants several times over.

  32. Joe,

    Point is, not many of the blacks alive today arrived by slave ship. It isn’t clear to me that someone who ancestors were released from slavery cerca 1865 would be at a disadvantage relative to a Hmong villager who arrived in the US post-1975.

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