Affirmative action: What did the Court really say?

                                    Protesting California's 1977 Bakke decision.  Source: Wikipedia

Most news reports that I've seen of today's Supreme Court ruling striking down colleges' current policies of affirmative action, got it wrong. The Associated Press, upon which everyone relies unluckily for fast and accurate coverage, wrote that the Supreme Court had "struck down affirmative action in college admissions, declaring race cannot be a factor...."  CBS News, the well-known modeling agency, said the Court had "ruled that it was unconstitutional for universities to consider race during the student admission process, marking a major setback for affirmative action policies that have been in place for five decades." Pretty tight for a 30-minute newscast. Does anyone at CBS edit? Farthest from the mark was the White House.  According to The New York Times, President Joe Biden blasted the Supreme Court as " 'not...normal,' " and he "urged colleges and universities to continue to try to create diversity on the campus by taking into account the hardships that their applicants have faced in their lives." Which is exactly what the Supreme Court said.  

The Court said that race could be an admissions criterion but not the criterion.  Colleges could use race to diversify the student body, but they had to design the plan carefully. What would be the goals of affirmative action? How would the college reach them? How would it know when it was there, and when it was time to quit?

This is not a new approach for the Court. It goes back to the Bakke decision of 1978.  The Court's problem with Harvard today is that it does not think that Harvard takes its guidelines for affirmative action seriously. Harvard's policy seems close to a quota system.

Here's a quick and dirty summary of the syllabus in the decision written by Chief Justice John Roberts.

When reviewing applicants, Harvard first evaluates nonracial criteria and submits a list of qualifying applicants to a final board for review. Only then is the race of the applicant revealed. The board chooses applicants to ensure that their racial makeup is about the same as in the year before.

The Court didn't like this approach. It accepted previous rulings (especially Bakke, particularly Justice Lewis Powell's opinion; and Grutter in 2003) that colleges could use race in admissions to ensure student diversity if that would improve education. But they had to meet several standards.

First, it had to explain why it wanted a diverse body and to show that it satisfied this purpose. Harvard listed such vague purposes as training future leaders. These goals could not be measured, so one could not determine progress towards them.

Taking it to the limit  

Even if the college could measure the goals, it might pick the wrong way to try to reach them. For example, was it useful to lump all Asian students into one category? Didn't the Indians differ from the Chinese?

Second, the Court has said that colleges could not use race in a negative way. But in Harvard's policy, admitting another Hispanic student, say, would block another Asian-American student. That was a negative consequence.

Finally, the Court has said that a policy to achieve diversity had to end someday (I presume, when the student body is diverse). But Harvard's policy had no clear ending. It just perpetuated the current racial makeup of the student body.

Many news stories took out of context the last sentences of the syllabus. Here is the full passage: "...Nothing prohibits universities from considering an applicant's discussion of how race affected the applicant's life, so long as that discussion is concretely tied to a quality of character or unique ability that the particular applicant can contribute to the university. Many universities have for too long wrongly concluded that the touchstone of an individual's identity is not challenges bested, skills built, or lessons learned, but the color of their skin. This Nation's constitutional history does not tolerate that choice."

In other words, the college can consider the applicant's race when her ability to overcome racial hurdles strengthens the school (which of course is always true). But skin color alone should not determine admission.

Thus the Court did say that a college could consider how an applicant coped with race. So I guess her essay will become crucial in admissions decisions.

I agree with reporters that this ruling will transform higher education -- in Central Asia, in fact, as well as the United States. That's why they should, you know, read it. -- Leon Taylor, Baltimore tayloralmaty@gmail.com

Notes

For useful comments, I thank Carlos Alberto Alcalde, Nicholas Baigent, Annabel Benson, Mark Kennet, and Mark Loewenstein.  

References

CBS News.  June 29, 2023. Supreme Court rules against affirmative action in college admissions - CBS News

Michael D. Shear.  "This is not a normal court": Biden denounces affirmative-action ruling.  The New York Times. June 29, 2023.  Biden Slams Supreme Court Ruling on Affirmative Action - The New York Times (nytimes.com)

Mark Sherman. Divided Supreme Court outlaws affirmative action in college admissions, says race can't be used. Associated Press.  Jue 29, 2023. Supreme Court live updates: Court ends affirmative action in colleges | AP News

Read the Supreme Court Decision - The New York Times (nytimes.com)

How to endanger a bank

 

                                    This and two dollars might get you a cup of coffee.

Last week’s coup attempt in Russia showed that the dollar rules Central Asia.  Prigozhin’s jaunt raised questions for the public about whether the Kremlin could survive, and whether the Russian economy would crash. This would have been curtains temporarily for Central Asia, because it prospers partly by selling to Russians under the table, defying Western sanctions. It was no shock to see the tenge weaken sharply relative to the dollar. Over the weekend, the exchange rate of tenge per dollar jumped from 445 to 450.

The commercial banks in Kazakhstan, at the behest of the central bank, try to shore up enough dollars to defend the tenge. They limit the flow of dollars out of the country. But there is a right way to do this and a wrong way. The banks do it the wrong way. They impose a daily limit on dollar withdrawals on the owner of the bank account, not on the account itself. 

For example, I have two checking accounts at Bank CenterCredit. As far as I know, the bank does not publish its withdrawal limits. But with a little experimenting, I find that it has a daily limit of about $500 on the two accounts put together.

This doesn’t rock.  Deposit insurance should be calculated on each account. (A word of explanation for the financially innocent. With deposit insurance, the National Bank of Kazakhstan reimburses the deposit owner for losses up to the limit of the insurance.  Suppose that you lose 2 million tenge in your account because your bank burns down; and suppose that you have insurance for 1.5 million  tenge.  Then the government will pay you 1.5 million tenge.  You’ll have to swallow the remaining loss of 500,000 tenge.)

 

Withdrawal symptoms

 

Why limit dollar withdrawals?  Well, someone whose account is mainly uninsured is likely to panic at any sign of trouble and withdraw all of his funds.  This is because he knows that insurance can’t cover his huge loss. When a lot of such depositors withdraw their money at the same time, the bank will collapse, because it has few dollars on hand. It has lent most of them out, to profit from the interest payments. The bank relies on the natural inflow and outflow of dollars to ensure that it has enough cash on hand at any time to satisfy demands for withdrawal. But a bank run can overwhelm the usual inflow of dollars.  That's what happened in March to Silicon Valley Bank in California—triggering bank runs, or at least bank jogs, around the world.

So, the government insures a certain number of dollars per account. This encourages you to spread your money across several accounts so that you can insure more of it.  The government likes this, because it reduces the risk that you will lose all of your eggs by putting them in one basket. And for the same reason, diversifying your accounts is good for the bank.

In Kazakhstan, the insurance limit is 10 million tenge for tenge-denominated accounts and 5 million tenge for dollar-denominated accounts. These limits are for all accounts of a particular depositor at a particular bank. The limit across all banks for a particular depositor is 20 million tenge.

 

Dollar discrimination

 

Kazakhstan pays less insurance for a dollar account than for a tenge account. Probably this is meant to encourage people to hold tenge rather than dollars. This boosts the demand for the tenge at the expense of the dollar, thus reducing the exchange rate of tenge per dollar and thwarting the long-run trend of the tenge towards depreciation. But perversely, for someone who has already decided to hold dollars, it insures a small share of the dollar account, which can encourage runs on such accounts.

In the US, the limit is $250,000 per bank for a particular depositor. This encourages her to set up deposits at several banks, further diversifying risk. The Kazakhstani limits do the same thing. Intriguingly, Kazakhstan won’t insure deposits in Islamic banks.

Kazakhstan’s restriction on the total amount drawn by the account owner, not on the amount drawn from a particular account, mystifies me, since it encourages bank runs. But Kazakhstani finance is always a mystery. Not a who-dun-it but a who-lost-it…. –Leon Taylor, Baltimore, tayloralmaty@gmail.com

 

References

 

Deposit Insurance System in Kazakhstan | Electronic government of the Republic of Kazakhstan (egov.kz)

The road to famine in Syria

                                        Refugees in Syria on the Iraq border, 2013. 

                                      Photo: Lynsey Addario, The New York Times.

Syria has slipped from our news radar. That Arab leaders are welcoming President Bashar al-Assad with open arms may suggest to Westerners that things are all right.  They’re not. Syria is a victim of Putin’s War.  Russia and Ukraine have long been leading exporters to Syria.  And the spikes in oil and grain prices provoked by Russia’s invasion of its western neighbor pummel Syria, which imports half of its oil and a third of its grain. Since 2019, the price of vital foods has grown twice as fast as unskilled wages. Last summer, “only 15% percent of households reported enough income to satisfy essential needs, and close to 50% had to, which sell assets to make ends meet,” reported the World Bank’s Syria Economic Monitor.

We need solid estimates of how rapidly prices are rising in Syria, if only to avert famine. A common way to guesstimate inflation in poor countries is to calculate the price increase in common purchases such as meat, then extrapolate. This approach makes sense, and the United Nations’ Office for Coordination of Humanitarian Affairs (OCHA) uses it. But the method overlooks that people try to avoid high prices. If meat costs too much, they will buy more bread. This is especially likely when key prices like fuel are doubling every year. So the guesstimate may overstate inflation severely in ostensible hyperinflations. Humanitarian agencies may respond by sending money to places where it doesn’t do the most good.

Another way to estimate inflation is to use a little economics.  Of course, the amount that Syria spends on goods equals their market value.  Let’s take this one step further.  The amount spent is the number of Syrian pounds (the nation’s currency) multiplied by the number of times that each pound is spent. If we have 10 pounds and spend each one twice, as it circulates through the nation, then total spending is 20 pounds.

What about market value?  Well, this is the price of a typical consumer basket (for example, two pounds of grain and a liter of gasoline) times the number of baskets sold. If a basket costs one Syrian pound and we produce 10 baskets, then market value is 20 pounds.

The shorthand for this idea is

MV = PQ

where M is the number of Syrian pounds; V is the annual rate at which people spend a pound; P is the price of a basket of goods; and Q is the number of baskets. Technically (if you really want to know), M is the money supply, V is called velocity, P is the price level (that is, the average price in an economy), and Q is quantity or output.

Crunching ciphers

With a little math, we can rewrite this formula as inflation:

dP/P = dM/M + dV/V – dQ/Q

This formula says that the rate of inflation equals the rate of change in the money supply plus the rate of change in velocity minus the rate of change in output (that is, the rate of economic growth). More money and faster spending push up prices.  More output pushes down prices, because we spread the given spending over more goods.

To estimate inflation, we need growth rates for money, velocity, and output. Let’s begin with output, or gross domestic product (GDP).

In its biannual Syria Economic Monitor, the World Bank forecast that output would fall 3.2% in 2023.  But this was before the February earthquakes. The World Bank assess the economic impact of the earthquakes in its later report, Syria Earthquake 2023: Rapid Damage and Needs Assessment. But this is available only by subscription, and individuals can’t subscribe. Yet another outstanding example of how the World Bank generously provides data to help poor countries develop, which I had foolishly thought was its main aim. 

So let’s scuttle the World Bank and take a crude approach: Relate the cost of the earthquakes to their impact on the population.

About 8.8 million Syrians were most affected by the earthquakes, according to the UN’s office for humanitarian affairs. This is 40% of the population. The earthquakes smashed water and electrical infrastructure and buildings, halting the economy in affected areas. How long until the economy restarts? Well, the US Treasury Department is suspending dollar sanctions for six months. This implies that Treasury anticipates a six-month pause of economic activity. The implied reduction in annual real GDP due to the earthquakes is .4*.5 = .02.  Thus real GDP would fall roughly 3.2% + 2% = 5.2% over 2023.  

In principle, Syria can boost GDP again by exporting. But it buys more from the world than it sells to it.  The World Bank reports for 2020 that the trade deficit—imports minus exports—was nearly a fifth of GDP. Such a large share suggests that promoting exports may not revive Syria’s economy quickly.  But the World Bank warns that payment data may be too imprecise for an accurate estimate of the trade balance—especially for countries with extensive illegal trade across borders. 

To give you an idea of the wild variation in trade estimates for Syria, consider 2021 estimates of the trade balance (merchandise exports minus merchandise imports). Trading Economics puts it at $58.3 million, and CEIC at $1.6 billion.  As its source, CEIC cites data from the International Monetary Fund, which is about as good as macroeconomic data get.  Trading Economics does not disclose its sources but kindly invites you to learn them, maybe, by paying through the nose for a subscription. Granted, Trading Economics is popular. Certain lazy economists of my unfortunate acquaintance, lounging in the vicinity of Kazakhstan, cite it as Scripture. But in truth, it is unreliable. It should document its claims.    

Reliable estimates of money growth are scarce. Really, reliable economic estimates of anything in Syria have been scarce since the civil war broke out in 2011, when Assad stopped reporting data. We might assume that the central bank will print enough pounds to enable Syria to buy the going dollar value of imports. In that case, the growth rate of pounds would equal the depreciation rate of the pound in terms of dollars. For example, if the dollar value of a pound drops 20%, then the central bank will print 20% more pounds to enable Syrians to buy as many dollars, and thus goods denominated in dollars, as before. Syria’s official exchange rate per dollar soared from 4000 pounds in June 2022 to about 8950 pounds in June 2023, or a depreciation rate of 55%.

Street feud

On the street, the depreciation rate is higher.  How much higher?  In April, Syria’s central bank raised its exchange rate 44% to account for the black market. If we use 44% as the long-run rate of depreciation due to the street, then the total depreciation rate that the central bank would target is 99%.

Time for a quick detour into why the exchange rate affects inflation. The central bank of Syria has been losing dollars, thanks partly to Treasury sanctions, so it can provide only Syrian pounds to pay for imports. Ergo, the government prints a lot of pounds.  The exchange rate of pounds per dollar thus rises; that is, the Syrian price of a dollar of imports rises. This sparks inflation, discouraging purchases by Syrians.  GDP falls, because firms in Syria can’t sell as much as before.  This “pass-through” of inflation into Syria is large, because Syrians buy a lot of imports—a third of GDP in 2020.  The exchange rate rose 224% in 2020 and 26% in 2021.  End of detour.

Velocity, the rate at which we spend money, is the opposite of holding money. In turn, the demand to hold money depends inversely on the interest rate, since we give up this amount of money if we hold a dollar rather than lend it out. For example, suppose that the interest rate rises from 5% to 10%.  Then we would earn a greater return by spending our dollars on bonds rather than by continuing to stash them in our piggy bank.  Thus velocity depends directly on the interest rate: Higher interest rates mean that we spend more rapidly rather than stash our cash. Similarly, the rate of change in velocity rises with the rate of change in the interest rate. 

The benchmark interest rate in Syria is the rediscount rate of the central bank.  A word or two of explanation: Western central banks charge the rediscount rate on cheap loans that they offer to commercial banks hard up for cash.  They use it in emergencies, so it is not usually the benchmark rate. Instead, to set interest rates for the economy, they manipulate a pliable securities market. For example, in the United States, the Federal Reserve wades into the market for overnight loans between commercial banks to target their interest rate, the “federal funds” rate. Thus the federal funds rate is the benchmark interest rate for the US economy. But Syria does not have such well-developed financial markets, so it uses its only policy rate, the rediscount rate.

This rate in Syria has been 5% for at least a year. The lack of change in the rediscount rate implies no change in the demand to hold money. Thus there is no change in the rate of spending a Syrian pound.

Overall, the implied rate of inflation in Syria for 2023 is 99% + 5% =104%. Other estimates on the Internet are around 140%, but they seem to be based on 2020 statistics.

Of course, my estimate is rough. Thanks to Assad’s indifference to data, we don’t know enough about Syria’s economy to pinpoint what’s happening.  But my estimate, as crude as it is, indicates that the economy is not mending to the point where anyone can laugh off the possibility of famine. 

The civil war has simmered down but not ended. Assad would do well to spend less time on victory laps and more time feeding poor Syrians, particularly if they’re in the opposition. — Leon Taylor, Baltimore, tayloralmaty@gmail.com

 

Notes

As we’ve seen, the quantity equation of exchange is

MV = PQ.

We can rewrite the quantity equation in rates of change:

dM/M + dV/V = dP/P + dQ/Q

where dM is the change in the money supply, and so forth.

Solving for inflation,

dP/P = dM/M + dV/V – dQ/Q.

 

 

References

Exports of goods and services (% of GDP) - Syrian Arab Republic | Data (worldbank.org)

Flash Appeal: Syrian Arab Republic Earthquake (February - May 2023) [EN/AR] - Syrian Arab Republic | ReliefWeb

Imports of goods and services (% of GDP) - Syrian Arab Republic | Data (worldbank.org)

SYRIAN ARAB REPUBLIC MPO (worldbank.org)

Syrian Arab Republic Trade Statistics | WITS (worldbank.org)

Syria Balance of Trade - 2022 Data - 2023 Forecast - 1983-2021 Historical - Chart (tradingeconomics.com)

Syria Economic Monitor Winter 2022/2023 (worldbank.org)

Syria Trade Balance [Up-to-date Chart & Data] | 1950 - 2023 | CEIC Data

News brief: Arson probed in Abay fires

 

                                Scene from video alleging arson in Abay Oblast. Source: Tengrinews

Kazakhstani authorities are investigating a video charging that the main cause of the forest fires in Abay Oblast in the past week, killing 14, was not lightning but arson. But the scenes in the video appear distant from the fires. 

Firefighting has nearly doubled to 1,800 persons, according to a Russian-language source, Tengrinews. --Leon Taylor, Baltimore, tayloralmaty@gmail.com

References

Версию поджога расследуют в области Абай: 12 июня 2023, 13:46 - новости на Tengrinews.kz

Fire in the Abai region: the Ministry of Emergency Situations reported up-to-date information: 14 June 2023, 11:00 - news on Tengrinews.kz

News brief: Another tragic fire in Kazakhstan

 

                  Abay Oblast in Kazakhstan goes to blazes. Photo: Turar Kazangapov, Reuters

 Lightning Thursday sparked forest fires in northeastern Kazakhstan, killing 14 foresters, ravaging 168,000 acres, forcing 300 people from their homes, and embarrassing the government. The emergency ministry says it has the situation in hand, although 1,000 rescuers are still combing for trapped firefighters in hot and shifting winds.  President Kassym-Jomart Tokayev was not impressed: He fired the emergency minister, Yuri Ilyin, Saturday, charging “criminal negligence.”

“You understand, 14 people were killed!” he shouted as the vice minister of emergencies, Marat Kul’dykov, tried to report on the tragedy at a Cabinet meeting. “I met with the families.” One youth was orphaned, he said, as the ministers stared glumly at each other. The akim of Abay Oblast was slow to respond, Tokayev continued. And “why was the [fire] forecast wrong?” Tokayev spoke in Russian, rather than Kazakh, perhaps to appeal to an international audience. He released a video of the meeting. The new emergencies minister, Sharym Sharipkhanov, said quenching the fires might take several days.

Tokayev has reason to worry about public perceptions of government incompetence. In 2021, a house fire killing five children touched off a national protest that forced then-President and -dictator Nursultan Nazarbayev into a comfortable retirement. When the government jacked up fuel prices in January 2022, riots broke out, killing more than 200.   

 

Kazakhstani officials did not comment on whether climate change might have precipitated the fires.  After dragging its feet, Kazakhstan signed the Paris Agreement in 2016 to reduce carbon emissions, proposing a 15% cut by 2030. Of course, Kazakhstan’s own carbon emissions spread across the globe and so would not have directly led to the forest fires.

Aside from Reuters, the Western media hardly noted the tragedy. And not for the first time. When Nazarbayev was forced out of power in 2021, major U.S. newspapers attributed it to a conflict between Kazakhs and ethnic Russians that in reality had ended 20 years before. The real reason for the ouster was public outrage at the fact that the two parents of the children who had died in the blazes were not home because both had to work fulltime to survive. By and large, the few Western journalists who speak Russian don’t give a darn about Central Asia. – Leon Taylor, Baltimore tayloralmaty@gmail.com

 

 

References

Olzhas Auyezov.  Kazakhstan mourns 14 forestry workers killed in wildfire.  Reuters.  June 12, 2023. https://www.reuters.com/world/asia-pacific/kazakhstan-mourns-14-forestry-workers-killed-wildfire-2023-06-12/

Al Jazeera.  Fourteen people killed in Kazakhstan forest fires.  June 10, 2023.  Fourteen people killed in Kazakhstan forest fires | News | Al Jazeera

Tengrinews.kz  Токаев прервал доклад вице-министра: ”Вы понимаете, что погибли 14 человек?!”: Вчера, 17:37 - новости на Tengrinews.kz   June 10, 2023

Lessons from Near-Armageddon

 

                                           House Speaker Keven McCarthy and President Joe Biden: Saviors or                                                         cynics?  Photo: Doug Mills, The New York Times

Last week, the United States government avoided, or said it had avoided, running out of cash, and by the skin of its wisdom teeth. This happened when Congress and the White House agreed Friday on a budget that let the Treasury borrow more. Apocalypse, almost now.

This close call is probably not the last. A few lessons for the next time and the next country:

1. Above all, the Treasury must tell the truth. For weeks, it had maintained that it could run out of cash by June 1. When it became clear that Congress and the White House could not agree a budget by then, it suddenly announced that given new (and unexplained) data, it could hang on until June 5, affording a few more days for the Democrats and Republicans to negotiate. The Treasury’s letter to Congress implied that this miracle was due to a small swap of securities that, in reality, could barely affect its solvency.  Then on June 2, when the Treasury’s cash fell below four-tenths of one percent of the federal budget for the year, it suddenly—and contrary to recent forecasts—more than doubled the amount of reported cash, thus maintaining a (barely) positive balance.

Probably the Treasury had worried that a report of a cash shortage would rattle the markets. Or maybe it really did discover unforeseen cash: No forecast is 100% accurate. But in any case, its first duty is to provide full and accurate information, regardless of consequences. The Treasury monopolizes data on the government’s financial state. Investors and nations rely on the agency to tell it like it is. Misleading them may have more lasting consequences than a temporary market meltdown. For example, ratings agencies may become more likely to mark down US bonds when the Treasury kitty is running low again thanks to daredevil pols. When there are surprising changes in data or in financial conditions, the Treasury should explain them fully and in real time.

2.Get the jargon straight. Reporters and politicians referred to a zero cash balance as “default” and pointed out that economists regarded default as catastrophic. But by “default,” economists mean failing to pay creditors—in this case, missing a payment of interest on Treasury securities. Even when the Treasury’s pockets are empty, it can still pay bondholders by refusing to pay somebody else.

Of a failure to agree a budget, President Joe Biden said in his victory lap Friday: “Nothing — nothing would have been more irresponsible. Nothing would have been more catastrophic….America’s standing as the most trusted, reliable financial partner in the world would have been shattered.” This is misleading. Running out of cash is bad enough without exaggerating the consequences and thus creating skepticism about warnings of the next cash shortage. We already have one Presidential candidate out there who thinks that it’s OK to run a Treasury on fumes.

3.State forecasts as ranges rather than point values.  Deposits into and withdrawals from Treasury funds fluctuate. It is hard to be sure what they will be on a given day. Rather than state the forecast as an expected value, it would be more useful to state it as a range of likely values: For example, a forecasted deposit not of $100 billion but of $80 to $120 billion.

4.Inform the stakeholders. To avoid running out of cash, the Treasury could have suspended pension payments to federal retirees. In fact, this was by far the largest measure available, said the Bipartisan Policy Center. Had the Treasury contemplated this, it should have told the retirees. Of course, they would have tried to stop the suspension, giving the Treasury grief. But they are still entitled to their say. As it happens, the Treasury has been so close-mouthed that we still don’t know how it avoided a hollow piggy bank.

5.Prepare Plan B. When it runs out of cash, the Treasury must decide whom not to pay. Rather than protect large groups such as folks on Social Security, it would be less painful to target the richest recipients of Treasury checks first, with a computer algorithm ranking them by income. In the past crisis, any spending cuts would have fallen on the groups with the least political power: The poor, the children, the immigrants. But their pain from cuts probably surpasses that of others.

6.A bipartisan committee can direct plans for future budgets, years in advance, so that we avoid another catfight at the midnight-hour.

7.The journalism schools could train financial reporters who are not stenographers. The problem is that when The New York Times screws up, everyone else falls in line. Whatever happened to competition among Washington reporters? – Leon Taylor, Baltimore, tayloralmaty@gmail.com