Monthly Archives: April 2014

Liberals Need to Pivot on Race Conscious Affirmative Action

Justice

Justice

This post was inspired by a story about vocal opposition in California to a proposed bill restoring race conscious affirmative action (AA) in public university admissions.  Public opposition came mainly from groups representing parts of the Asian community.  Just as I started writing about this story, the U.S. Supreme Court announced a decision to uphold a Michigan voter approved measure over-turning that state’s race conscious AA policies.

This may be a bit confusing, so let’s state it another way. In 1996, Californians voted to ban race conscious college admissions.  When Democrats in the State Assembly sought, recently, to pass a bill over-turning the 1996 measure, segments of the Asian population strongly opposed it, fearing it would lessen their access to public higher education in California. Just a few days later, in a separate set of events, the U.S. Supreme Court upheld the right of voters in Michigan to over turn that state’s race conscious college admissions policies.

The Supreme Court story was of course not buried on page seven. It was in headlines across the nation. The California story, while front page in the LA Times and Sacramento Bee, received much less attention in the rest of the country.

The California story merits at least equal time.  It is a vivid reminder just how divisive AA policies have been since they moved from being “process based” to “outcome based,” and, at the same time, race conscious.  When it turned out that positive, well intentioned affirmative actions to level the playing field and equalize opportunity, produced disappointing results, AA became more result oriented, and openly race conscious. To many, including some liberals, AA took on the flavor of the very injustices it was designed to eradicate.
Result and race conscious AA split not only liberals and conservatives, but (further) fragmented the Democratic Party coalition of working class whites and poor minorities.

The California story, together with the Supreme Court decision a few days ago in the Michigan case, suggests that much more consideration needs to be given to race neutral, and potentially more effective, alternatives to race conscious AA.  An obvious candidate is socio-economic based AA.  Socio-economic based AA allows factors such as parental income and education to be used in hiring and college admission decisions, along with test scores, GPA and other ‘merit” based factors.

In a 2003 decision, Grutter v. Bollinger, the U.S. Supreme Court upheld the limited use of racial criteria to achieve diversity in college admissions. That decision was not overturned in the recent Michigan case.  The controversial policy received qualified support in the highest Court in 2003, albeit with a razor thin, 5-4 margin.

Nonetheless, since AA became openly race conscious, it’s been painfully difficult to argue that the practice is not, paradoxically and oddly, in conflict with the history and laws that are the foundation of the racial civil rights movement: The constitution’s equal protection clause, the plain language of the 1964 Civil Rights Act, Martin Luther King’s iconic and stirring words about judging people based on character rather than skin color, and decades of toil by Jewish civil rights advocates to eliminate the scourge of  (often transparent quotas) in the admissions policies of elite universities.

There is surely an Orwellian quality to arguing that in order to remedy the effects of race discrimination, we need to pursue some form of race discrimination; like the argument of the Vietnam era military officer who said “we had to destroy the village in order to save it.”

The California and Michigan stories also raise this question: “Why is resistance so strong among many liberals to race neutral remedies for inequality, poverty, and lack of opportunity — even to an idea like socio-economic based AA, which has already shown great promise. Why have so many liberals, Democrats, and black civil rights leaders doubled down on race conscious AA, rather than turn to arguably more effective and surely less divisive solutions?

Perhaps because they feel under siege.  They probably are!  It’s hard to be conciliatory or magnanimous about the current Supreme Court’s decision eroding the 1965 Voting Rights Act, or about shameful efforts by states to make voting more difficult. When you think you’re in a war, you feel compelled to adopt the same uncompromising posture as the other side, or perish. Sadly, civil rights advocates may be right about all that. Equally sad, that is precisely how wars escalate.

But the motive of voters who want to repeal race conscious AA, especially ones in very blue states, like California and Washington, are complex. Many probably felt they were taking a pro “civil rights” stance when they voted in Michigan to ban the policy. The Washington State “anti affirmative action” measure which won voter approval in that “blue” state had this question for voters on the ballot: “Shall government be prohibited from discriminating or granting preferential treatment based on race, sex, color, ethnicity or national origin in public employment, education, and contracting?”  Why would a solid liberal, pro civil rights voter not answer that question affirmatively?  That’s the core of the conundrum and paradox here; and the Orwellian aspect of race conscious AA.

Not that AA based on socio economic factors is without principled or legal draw backs.  The most obvious objection is that it (too) is contrary to “merit” based hiring and admissions. Why should a student with a 3.0 GPA and an SAT score of 500, whose family is poor, be chosen over an applicant from a rich family with 3.9_700 credentials?  That’s a good rhetorical question. But if you favor actions to reduce poverty, inequality and lack of opportunity, for people of all races, as I do, it’s a lot easier to accept and defend an approach that doesn’t destroy a village in order to save it.

What’s more, according to a respected Century Foundation study, many public universities have been able to maintain or exceed black and Latino student enrollments by using income as a factor in admissions, including in some states where (race conscious) affirmative action was banned.

Talking with Duncan Hunter and Darrell Issa About the Minimum Wage

Capitol Building; the Other Washington

Capitol Building; the Other Washington

Every cent and precious time spent by progressives in California that is not dedicated to voter registration and turnout is a questionable use of resources for their cause. Put another way, the top three strategies for their agenda should be: (1) voter registration and turnout, (2) voter registration and turnout, and (3) voter registration and turnout; with emphasis on the Latino population. Everything else should be on a back burner, at least so far as 2014 is concerned.

This is neither rocket science, nor an especially original insight. But, I make a point of it because here in the San Diego area, where I live, I see national and local groups right now devoting a lot of effort to advance progressive (liberal, Democrat) causes, like the minimum wage, immigration reform, climate change, economic inequality, or health insurance, by spending a lot of time trying to change hearts and minds.

That is of course admirable. How can anyone question focusing on the issues in an era where attack ads are the main tool of political campaigns. I realize that many activities related to voter registration and turnout are more appropriate and effective the closer you get to the election date; and that getting “your” voters excited about an issue is one way to get them to the polls.

But, if I was directing strategy for progressives in San Diego County, I would seriously question whether a letter writing campaign to Representatives Duncan Hunter and Darryl Issa, asking them to support a higher minimum wage, is worth more than a laser beam focus to register voters; even accepting that October/November is a ways off.  I would err (greatly) on the side of turnout; the rest takes care of itself.  Besides, the California hourly minimum wage is already scheduled to rise to $9.00 per hour starting July 2014; and to $10.00 in 2016; just ten cents below the President’s proposal.

The needle on Latino turnout has a lot more room to move than the one on policy, either for elected officials or (already registered and engaged) voters.  Latinos represent a large percentage of the population in California, but a much smaller proportion of registered and participating voters. For the state as a whole, Latinos accounted for nearly 40% of the population in 2012, but just 20% of voters. In off year elections, the Latino segment of the voting population tends to drop by about 5 percentage points. About 75% of Latinos in California voted for Democrats in 2012.   Again, there is much more room to move the needle on voting participation than policy.

If progressives here persist in their idealistic plans to engage Messrs. Hunter and Issa directly on issues like minimum wage or the President’s overall economic agenda, I would advise they skip the arguments about why those policies are good for the economy.
Skip that entirely, and appeal to their conscience about the workings of representative government.  Just (respectfully) request they, and their caucus colleagues in the House, allow an up or down vote on matters like minimum wage, immigration or an infrastructure bank. Just an up or down vote on bills coming over from the Senate.

That approach hasn’t got much more of a chance to affect Hunter’s or Issa’s votes than the issue oriented discussion, but at least it shows some sophistication on the advocates’ part,, and thus the capacity to be formidable down the road.  Progressives should devote the  freed-up resources to the three things that matter most: turnout, turnout, and turnout; not necessarily in that order.

If conservatives want my unsolicited advice on strategy in San Diego — the advice to progressives was also unsolicited —  I would point to the recently successful Faulconer mayoral campaign in San Diego,  Faulconer downplayed his Republican affiliations and appealed to moderates.  Democrats were not able,  as they were in 2012,  to turn out the Latino vote.   Of course, it didn’t hurt that the election was being held to fill the vacancy caused by a Democratic mayor who was accused of serial sexual harassment.   Nothing that R’s can do strategically to induce that set of circumstances.  My own take was that the reputation of the deposed mayor was less of a factor in the race than weak Latino turnout,  compared with 2012; and an inexperienced opposition candidate.

 

Oh, BTW, Crushing Student Debt is a Huge Drag on the Economy

The Long Road to Solvency

The Long Road to Solvency

The outstanding debt held in student loans, estimated at over one trillion dollars, is now the second largest class of debt held by consumers — second only to home mortgages. The dangers posed by this debt may not be as great as the mortgage debt and its role in the ensuing financial system crash of 2008. But it is consequential for the economy, not to mention it’s devastating personal effects.  You can read about the dimensions and find the relevant data here.

While this news isn’t “buried,” in the sense I’ve been using the term here in Page Seven, it does not receive the attention it deserves by economists or business writers as a major factor in the sluggish recovery, or in the prospects for long term growth. Nor is it prominent in the scripts and talking points of the two major ideological camps as they battle each day in the propagandist news.

Why not?

In the case of the economists and business writers, student debt is an old story, part of the economy’s ether. Even for the professional analysts, a factor needs to be new or in flux or at a turning point, for it to count in discourse. Yes, student debt, as a partial explanation for the slow recovery and predicted future doldrums, has received recent attention in Forbes Magazine, NPR, and by the Federal Reserve. That’s pretty hefty. But check out the analysis of the monthly job and GDP numbers, even in these three venues, and there’s hardly a mention of it. Its just there, in the background.

As one major news agency said, reporting on the April 2014 Federal Reserve study of student debt, “policy makers on the Federal Reserve’s interest-rate setting panel have for the first time [emphasis added] identified high student debt burdens as a risk to economic growth.

For the two parties and the feuding ideological camps, the answer is different. Not necessarily in order of importance, here are some of the reasons student debt is not receiving much attention in the daily media wars:

-There is plenty of blame to go around for the student debt crisis; both parties, in their own ways, have stressed upward mobility for all through education and have made it easy to obtain loans.

-It’s not clear how youth electoral turnout and voting would be affected by more attention to the problem; or how to blame the other side in a way that doesn’t backfire at the polls.

-“Education and training” is central to the core ideologies and opportunity scripts of both parties.

-The old higher education/post secondary establishment depends heavily on revenue from government backed student loans; they have plenty of clout in the states and in local congressional districts.

-The newer, private, for profit education institutions (many are diploma mills), which are even more dependent on easy loans, and amongst the most irresponsible in promoting debt, are off limits to criticism……at least by conservatives.  After all, these assembly line programs are privatizing education!  Genuflection goes here. By the way, most of this is “faux privatization” (see my earlier post), since the solvency of these education vendors relies on government financial aid and guaranteed loans.

Liberals sometimes also tread lightly on the new diploma mills, which make it easier for low income people (with ample loans) to acquire a credential online, at home, in the evenings, while still working to support a family. Something to be said for that. But at what price?

So, why is student debt such a large drag on the economy? The answers are not mysterious. If you have large debts to pay, as far as the eye can see, you are going to postpone getting married, having a family, buying a home, furnishing it, and adding the deck and sun room. Indeed, when your student debt is high, you won’t qualify for a home loan in the first place, even if you have a good and serious plan to pay off both.

What is worse and more damaging to the general economy in the longer run, is that you won’t be saving much, even if the high income promise of your degree is fulfilled. When the national savings rate is impaired, it has large consequences for interest rates, investment and economic growth.

By the way, almost all of the data you see showing that education levels have significant effects on lifetime income, fail to discount the gains by the amount of the crushing debt.

 

High Speed Trading: Is “Rigging” Different from Illegal?

Thank you to my friend and colleague, LN, who pointed me in directions leading to this article.

A Tesla Device to Speed Up Buy and Sell Orders?

A Tesla Device to Speed Up Buy and Sell Orders?

The publication of Flash Boys: Wall Street Revolt  by Michael Lewis, and a recent companion article in the New York Times Magazine,  blew any cover, that might have remained,  off nefarious high speed trading (HST) tactics on Wall Street.  HST has been controversial for years. Many traders and financial experts argue that HST firms, using proprietary technology to conduct trades in milliseconds, win commissions and guaranteed profits at the expense of average investors.  Others say HST contributes to market volatility and heightens the risk of meltdowns, such as the “2010 flash crash.”  But most critics and regulatory bodies have stopped short of saying these practices are illegal. Even Michael Lewis was careful to avoid that label.

Lewis, however, says the market has been “rigged” by HST firms.  He uses that term, along with closely related ones, like “manipulative.”  So, how different is “rigging” from “illegal?”  New York state Attorney General Eric Schneiderman, whose office has jurisdiction over many Wall Street firm activities, thinks there may not be a difference.  At least he’s asking about it.  Schneiderman announced an investigation, which he amusingly described as “Insider Trading 2.0.”   That’s a clever line, but “Insider Trading 10.40” might have been closer to the truth. We passed 2.0 about 30 years ago.  Then last Friday, U.S. Attorney General Eric Holder confirmed an FBI probe into the practice.  Better late than never.

Why legal authorities haven’t moved sooner to investigate HST and related practices is mystifying.  Maybe it’s the same reason it took the Justice Department several years to start prosecuting the folks who brought us the 2008 financial collapse?   And that effort has been tepid at best. I suppose it has something to do with waiting till the 2012 elections were over, or for the economy to gain some traction.

Come to think of it, that should have been the title of Lewis’ book  — “From the Wonderful Folks Who Brought You the 2008 Economic Collapse.”

Lewis’ book and article document that high speed traders gain a lot of their advantage through a practice called “front running.”  This doesn’t refer to Seattle sports fans who embrace any sport in which “one of us” is in first place.  (Recall when Seattle went gaga over Thoroughbred Horse Racing when Seattle Slew came along). I digress. If I can add any value to this discussion, I will try to explain the stock brokers’ version of  “front running” in terms that don’t boggle the mind.

Let me first offer a dictionary style definition.  “Front running” is the practice of a stockbroker executing customers’  trade orders on stocks it also happens to own, taking advantage of this advance knowledge of pending orders, and then using that knowledge to gain an advantage in its own trades.  When orders previously submitted to a broker by its customers are large enough to affect the price of a stock, the broker gains a distinct advantage. The front running broker either buys for his own account (just before filling customer buy orders that drive up the price), or sells  (just before filling customer sell orders that drive down the price).  All of this uses technology approaching Einsteinian limits on the speed of light.  It requires that much speed to work.

If “front running” still doesn’t register, let me offer a hypothetical.  Suppose a broker receives an order from a customer to buy 400,000 shares of Hoboken Tool and Dye (HTD),  but before placing the order for HTD, the broker buys 20,000 shares of the same stock for his own account at $100 per share. Then,  the broker places the customer’s order for 400,000 shares, driving the price up to $102 per share. This, allows the broker to (instantaneously) sell his (20,000) shares for, say, $101.75, generating a significant profit of $35,000 in just a short time. Where does this easy $35K come from?   This $35,000 becomes a part of the additional cost of the customer’s purchase to support the broker’s own trading. By the way, its not written anywhere in the bible, constitution, or Adam Smith’s Wealth of Nations, that stock brokers ought to be allowed to make their own trades.

A reminder: This has nothing whatever to do with allocating capital efficiently, to the most valuable, highly demanded, and productive activities.  Its a game that has nothing to do with the real economy.  Why a Tea Party-er would support a candidate in a Southern primary who opposes congressional regulation of such practices, I have no idea. (Yes, I do, but that awaits another post).

As one smart Wall Street analyst put it, ” How can this not be illegal?   Put the practice next to the sweeping anti-fraud language of the 1934 Securities Exchange Act.  It states that “it is unlawful for any person……to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange……any manipulative or deceptive device or contrivance in contravention…..of rules and regulations [adopted]……in the public interest or for the protection of investors.”    As another long time Wall Streeter notes, “it is difficult to characterize the chiseling of unsuspecting investors through high speed computer algorithms as anything other than chronic manipulative theft at millisecond intervals.

The fact that a high-speed trading firm called Virtu Financial recently disclosed that it lost money trading only one day in the past five years,  suggests certain traders enjoy considerable—and maybe illegal—advantages.  You think?  Check out the Investment Watch analysis.

I’ve posted earlier about HST,  pointing out that it accounted for anywhere between 50 to 70 percent of trades in U.S. exchanges…..but flew in the face of classic capitalism. Lewis agrees with that position.   “From the point of view of the most sophisticated traders,” Lewis says in his NYT article, “the stock market wasn’t a mechanism for channeling capital to productive enterprise but a puzzle to be solved.” “Investing shouldn’t be about gaming a system,” he says, “It should be about something else.”

 

Lack of Proximity Between Money and Speech — Not A Factor in Court’s McCutcheon Decision

SONY DSCThe U.S. Supreme Court today issued another ruling, in the vein of Citizens United vs. FEC, which further deregulates monetary contributions to support political activities. The case is McCutcheon vs. FEC.

In McCutcheon, the Supreme Court today struck down restrictions in federal law on the aggregate contributions individuals may make to candidates, political parties and committees. The decision did not strike down limits on contributions to individual candidates for President or Congress, set now at $2,600 an election.

Chief Justice John Roberts said the aggregate limits “intrude without justification on a citizen’s ability to exercise `the most fundamental First Amendment activities.” Further information is available here.  Critics of the Court’s decision in Citizen’s United said the decision involved (inappropriate) judicial activism, was a usurpation of powers that (more properly) reside in the political branches, and was the antithesis of conservatism, in that it over turned decades of law, passed with bi-partisan support. Supporters said the Court repealed regulations that stood in the way of the free exercise of political speech, performing its function to enforce the first amendment to the Constitution.

More concretely, critics of Citizens said the Court’s reasoning, that corporations should be treated as persons for purposes of first amendment, free speech, rights, was without basis or precedent.  However, even opponents of Citizens, found it more difficult to challenge the Court’s equation of money and speech, under the particular facts of that case. In Citizens, the plaintiffs were actually trying to fund speech – they wanted to air a film critical of Hillary Clinton, and to advertise the film during television broadcasts. Regulations at the time got in the way.

One can offer many good arguments questioning whether corporations are persons. But it’s more difficult to argue that spending money to directly air a political viewpoint on television is conceptually different from paying to print a pamphlet or buying the soap box and megaphone for the guy on the downtown street corner.

Though McCutcheon involves individual, rather than corporate, spending on “speech,” there is no apparent proximity between the money and speech. Even if you think that was a mere fig leaf in Citizens, it’s altogether gone in McCutcheon. The plaintiff in McCutcheon wanted to make more (general, indiscriminate) contributions to candidates and political committees. He felt constrained contributing to just a few candidates.  Not a word in his argument for funding a movie, a book, pamphlet, or soap box.