[Paleopsych] Forbes: Peter Brimelow and Leslie Spencer: When quotas replace merit, everybody suffers

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Peter Brimelow and Leslie Spencer: When quotas replace merit, everybody suffers
Forbes, 1993.2.15
[Note the date on this. Has there been any attempt to update it?]

   "Quota games . . . math games . . . bean counters!"

   President-elect Bill Clinton had every reason to lash out at feminist groups 
at his Dec. 21 news conference.  In fact, he had been bean-counting busily 
himself: According to widespread reports, some of his original Cabinet picks 
were bumped because they were the wrong sex or race, key constituencies like 
urban Catholics and supporters of Israel have been crowded out, and his entire 
appointment process has been seriously slowed. But now mindless feminist 
pressure was forcing him to admit the ultimate contradiction of all such 
affirmative action policies: "Diversity" can conflict with merit.

   Above all, the President must know the issue is death for the Democrats: His 
own pollster, Stanley Greenberg, conducted the post-1984 focus group interviews 
that found opposition to quotas was key to the defection of white working-class 
voters.  (The party promptly suppressed Greenberg's report and now uses only 
happy-talk such as "looking like America." But a quota by any other name is 
still a quota.)

   If quotas are clogging the Clinton transition, what are they doing to the 
economy?  The subject went unmentioned, needless to say, at Clinton's two-day 
economic summit in Little Rock.  In fact, it has gone virtually undiscussed 
throughout the quarter-century of bureaucratic and judicial decrees that have 
effectively transformed the color-blind 1964 Civil Rights Act into a pervasive 
quota system.

   Ironically, just as socialism has collapsed across the globe, the leading 
capitalist power has adopted a peculiarly American neosocialism, putting 
politics (and lawyers) in command of its workplace, albeit on the pretext of 
equity rather than efficiency.  Says Edward Potter of the Washington, 
D.C.-based Employment Policy Foundation: "We have, without doubt, the most 
far-reaching equal employment laws found anywhere in the world."

   Before applauding Potter's sweeping statement, stop for a minute and ponder 
this question: What does the replacement of merit with quotas cost the American 
people?  The answer is: plenty.  The impact may easily have already depressed 
GNP by a staggering four percentage points -- about as much as we spend on the 
entire public school system.

   Quotas are not the law of the land, exactly.  They are explicitly banned in 
both the 1964 and 1991 Civil Rights Act.  Nevertheless, corporate America has 
been terrorized by the legal legerdemain whereby any statistical disparity 
between work force and population is equated with intentional discrimination. 
Throughout American business, newly entrenched affirmative action bureaucrats 
are enforcing discrimination by race and sex -- in favor of the "protected 
classes" (women, minorities and, most recently, the disabled) -- as decreed by 
Washington.

   One such bureaucrat, Xerox Manager of Corporate Employment Theodore Payne, 
puts it bluntly: "We have a process that we call 'balanced work force' in 
Xerox, everybody understands that, and it's measurable, it's goals.  . . . 
Relative numbers.  Relative numbers.  That's the hard business, that's what 
most people don't like to deal with, but we do that all the time."

   "Balanced work force" is, of course, yet another euphemism for quotas. Payne 
is apparently saying that Xerox discriminates against white males in favor of 
the "protected classes." He says it without apology.  But, if anyone cares, 
white males have feelings (and families to support), too.

   "To cut whites out of the entire process is racism pure and simple," laments 
a white male reporter for the San Antonio Light, which is due to close down any 
day.  He says Gannett and other major news organizations are showing interest 
in his Hispanic colleagues exclusively.  But he adds: "I don't want to be 
quoted. I'll never find another job if I am."

   In a blistering 1987 article in Society magazine, the late Professor William 
Beer of Brooklyn College described his fellow social scientists' attitude to 
affirmative action as one of "resolute ignorance." FORBES' search of academic 
journals and Ph.D. theses confirms that ignorance has remained resolute.  What 
little work has been done tends to focus only on whether affirmative action 
policies have benefited the "protected classes." (Have they?  For an answer, 
see below.)

   Corporate America contributes to this resolute ignorance by declining to 
disclose its costs.  "Our members would never say," the National Association of 
Manufacturers' Diane Generous predicted (rightly).  "They would be concerned 
they might be accused of complaining about how much money they had to spend on 
this."

   Another big business lobby, the Business Roundtable, did publish a study by 
accountants Arthur Andersen more than a decade ago on how much its members 
spent to comply with federal regulation, including specifically the Equal 
Employment Opportunity Commission (EEOC).  But today a Roundtable spokeswoman 
says the organization has no plans to update the study -- and that it no longer 
even possesses any copies.

   Sure, measuring the costs of regulation is difficult.  But it can be done. 
For example, the Environmental Protection Agency is required by executive order 
to make regular estimates of its economic impact.

   So here is a rough but reasonable try at figuring the cost of quotas. That 
funny noise you hear from now on is economists gritting their teeth. Our 
response to them: Go make your own estimates.  And remember -- the truth shall 
set you free.

   Two points about quotas emerge immediately:

   Quotas are a very big deal. All employers with more than 15 staff, public, 
private or nonprofit, come under the EEOC's Uniform Guidelines on Employee 
Selection Procedures.  All can be sued by the EEOC for "discrimination" if the 
racial, ethnic and sex mix of new hires diverges sufficiently from that of all 
other qualified applicants -- for example, if the percentage of blacks hired is 
lower than the percentage of blacks applying.  That covers 86% of the entire 
nonfarm private-sector work force.

   Additionally, more than 400,000 corporations doing business with the federal 
government, covering about 42% of the private sector work force, have to file 
with the Office of Federal Contract Compliance Programs (OFCCP).  This process 
is so onerous that the OFCCP's explanatory manual is about 700 pages long. 
Corporations with contracts of $ 50,000 or more must develop an "affirmative 
action plan" aimed at achieving staffing at all levels that is proportionate to 
the composition of the qualified work force.

   Many colleges and universities are subject to no fewer than three federal 
agencies: EEOC, OFCCP and the Department of Education's Civil Rights Office. 
And finally, there are federal, state and local governments.  Here a racial and 
gender spoils system has effectively subverted the merit hiring rules so 
painfully established by Progressive Era reformers at the beginning of the 
century.

   All of which means that the 1984 poll that found one in ten white males 
reporting they had lost a promotion because of work quotas was quite possibly 
accurate.  Indeed, it could be an underestimate.  Quotas have been implemented 
with extraordinary secrecy and deceptiveness, in part because of their dubious 
legal status.

   "Word comes down, but it does not go out," says Claremont McKenna College 
sociologist Frederick Lynch, author of the only study on the impact of quotas 
on white males, Invisible Victims. He cites a Los Angeles manufacturer whose 
receptionist was instructed to accept but quietly shelve employment 
applications from whites and Hispanics -- after they had left the room -- 
because the plant did not have "enough" blacks.

   Typical of the secrecy and scale of quotas: the "race-norming" saga. EEOC 
Vice Chairman R. Gaull Silberman -- a Reagan appointee -- says that until she 
read it in a newspaper in 1990, she and EEOC Chairman Evan Kemp had "absolutely 
no idea" that their own agency was pressing for aptitude tests to be 
race-normed.  This bit of bureaucrat-speak refers to the practice of radically 
adjusting scores to compensate for minorities' systematically lower results. 
Yet race-norming had been going on throughout the 1980s.  It reportedly 
subjected at least 16 million test-takers to a quota system they knew nothing 
about.

   After public outcry, race-norming was banned in the 1991 Civil Rights Act. 
But quotas, like vampires, have proved virtually impossible to kill. Now they 
seem to be rising from the grave in the shape of a new test-twisting technique 
called "banding" -- concealing differences in performance by lumping ranges of 
scores together.

   The second point about quotas:

   Quotas are very expensive. There's surprising denial about this. University 
of Chicago free market economist Gary Becker, a 1992 Nobel laureate, wrote the 
standard analysis, The Economics of Discrimination (1957).  But Becker recently 
shrugged off affirmative action in a Business Week column.  He argued that 
although affirmative action "does hurt some individuals, as it caters to 
minorities with political clout," it "probably causes less harm than many other 
programs" such as farm supports.

   Strangely, however, Becker tells FORBES that in fact he has no idea what 
quotas cost ("I think it's an important subject for research").  But we do know 
what farm supports cost: about $ 9.7 billion in 1992, which is substantially 
lower than our estimate of $ 16 billion to $ 19 billion for private-sector and 
education compliance costs alone (see p. 82).

   Nevertheless, Becker's analysis of discrimination remains the best framework 
for assessing the economic impact of quotas:

   In a free market, Becker argued, there is an inexorable tendency for 
everyone to receive the marginal value of his or her labor.  This means that 
ultimately, you are likely to be paid something like what your work is worth. 
If you belong to an unpopular group, employers may pay you less.  But that 
means that they will make more money off you.  Because you are such a 
profitable hire, you will come into demand, and your labor will be bid up. 
This process can only be prevented by monopoly or government intervention -- 
both of which happened, for example, in South Africa under apartheid.  And now 
in the U.S. under affirmative action.

   Talking to FORBES, Becker is very anxious to stress that he is not saying 
discrimination will be completely competed away.  But there is a tendency for 
it to be competed away.  "Competition forces people to face the costs, and 
therefore reduces the amount of discrimination, when compared with a 
monopolistic or noncompetitive situation," Becker says.

   If you believe that racism stalks America like the Angel of Death and that 
only federal force can keep it in check, you won't like what Becker is saying. 
But the evidence clearly supports him.

   "Once adjustments are made for factors like age, education and experience, 
70% to 85% of the observed differences in income and employment between the 
various groups in America disappears," says economist Howard R. Bloch of George 
Mason University.  "That's been shown by studies dating back to the mid-1960s. 
And you can't even be sure that the residual gap is due to discrimination.  It 
could be due to factors we haven't controlled for."

   Indeed, Harvard economist Richard Freeman fund blacks and whites with the 
same backgrounds and education had achieved wage parity by 1969, well before 
quotas had America in their grip.

   Even the recent much-touted Federal Reserve Bank of Boston study claiming to 
prove the existence of racial discrimination in mortgage lending turns out to 
have made a basic methodological error in its handling of default rates 
(FORBES, Jan. 4).  Perhaps, significantly, its coauthor, Boston Fed Research 
Director Alicia H. Munnell, was a featured speaker at the Clinton economic 
summit.

   All of which shows the fallacy of two common arguments for 
government-imposed quotas: that they are necessary to force corporations to tap 
new pools of labor, and that corporations need a diverse work force to service 
an increasingly diverse population.  Both simply assume that markets don't 
operate -- that corporations couldn't figure this out themselves.

   In fact, it's hard to see any benefits contributed by quotas to the overall 
economy -- as opposed to the benefits they channel to the "protected classes." 
"Affirmative action is a fairly pure form of rent-seeking," says the University 
of Arizona's Gordon Tullock, using the concept he developed for special 
interests' use of political power to extract subsidies for themselves from the 
economy.  "There simply isn't any other economic rationale."

"In 1987 EEOC's local field office wrote me a letter saying they had reason to 
believe I didn't have enough women 'food servers' and 'busers.' No woman had 
complained against me.  So the EEOC advertised in the local paper to tell women 
whose job applications we had rejected -- or even women who had just thought of 
applying -- that they could be entitled to damages.  Twenty-seven women became 
plaintiffs in a lawsuit against me. The EEOC interviewed me for hours to find 
out what kind of person I was. I told them in Sicily where I came from I 
learned to respect women.  I supplied them with hundreds of pounds of paper.  I 
had to hire someone full time for a year just to respond to EEOC demands.  Six 
months ago I finally settled.  I agreed to pay $ 150,000 damages, and as jobs 
open up, to hire the women on the EEOC's list.  Even if they don't know what 
spaghetti looks like!  I have to advertise twice a year even if I have no 
openings, just to add possible female employees to my files.  I also had to 
hire an EEOC-approved person to teach my staff how not to discriminate. I 
employ 12 food servers in these two restaurants.  Gross sales, around $ 2 
million.  How much did it all cost me?  Cash outlay, about $ 400,000.

   What the government's done to me -- devastating.  I wouldn't wish it on my 
worst enemy." -- Thomas Maggiore, Owner of Tomaso's and Chianti restaurants, 
Phoenix, Ariz.

   Economists break the cost of regulation into three parts:

   Direct Costs: the EEOC's outlay of taxpayers' money in regulating and suing 
Thomas Maggiore, and the money he spends in fines, damages, filling in forms, 
advertising and otherwise complying with EEOC demands.

   Indirect Costs: the time and overhead Maggiore has to divert from other 
activities to argue with the EEOC, do the continuing paperwork, sit through 
sensitivity training, reorganize his workplace and his methods of operating.

   Opportunity Costs: what Maggiore might have achieved if he had been allowed 
to invest his time and money as he wanted; the loss to the Phoenix-area economy 
if he gives up and goes back to Sicily.

   Remember: Thomas Maggiore is precisely the kind of small business person the 
politicians claim they want so badly to help.

   Let's look at some numbers.

   Direct costs: One guess of private sector compliance costs for affirmative 
action: In 1977 Business Roundtable members spent $ 217 million complying with 
equal opportunity regulations.  They employed 5% of the nonfarm work force; 
OFCCP regulations cover 42% of the private workforce, implying total costs of $ 
1.8 billion.  Adjusted for inflation, that's a current $ 4.2 billion.

   Second guess: In 1981 a study by the Senate Labor & Human Resources 
Committee suggested compliance costs for the largest 500 companies of about $ 1 
billion. That's $ 1.8 billion extrapolated over the OFCCP universe.  Adjusted 
for inflation: $ 2.8 billion.

   Neither of these figures includes the EEOC's impact, although it is by far 
the larger bureaucracy.  But the guesstimates are in line with the rule of 
thumb developed by regulation-watchers from the Center for the Study of 
American Business at Washington University in St. Louis: Every dollar spent on 
regulatory enforcement inflicts about $ 20 in compliance costs.  By FORBES' 
count, the federal government spent some $ 425 million on civil rights 
oversight in 1991, of which about $ 303 million appears to be directed at the 
private sector. Implied private-sector compliance cost: $ 6 billion.

   To get an estimate of compliance costs in colleges and universities, FORBES 
turned to John Attarian, a writer and economics Ph.D. who has analyzed the 
budget of his alma mater, the University of Michigan.  Under its "Michigan 
Mandate," the university is devoting much effort to the recruitment and 
retention of the "protected classes."

   Attarian says about 2.5% of the University of Michigan at Ann Arbor's 
general budget appears to be devoted to this cause.  This does not capture 
costs buried in department budgets, such as for recruitment.  (Minor example: 
Advertising faculty posts in special minority-oriented publications costs over 
twice the usual rate.) Still, extrapolated across the estimated $ 164 billion 
spent on U.S. higher education in 1992, this suggests total compliance costs of 
$ 4.1 billion.

   If the same relationship holds true for the $ 261 billion spent on public 
and private schools in 1992, their compliance costs would be $ 6.5 billion.  Of 
course, the problems of schools are different from those of colleges.  They may 
be worse.  Busing for racial balance has reportedly caused some school 
districts to spend over a quarter of their budgets on transportation.

   Quotas are just another excuse for the American academic establishment to 
eschew scholarship for social engineering.  Thus, a long survey of "minorities 
in science" in the Nov. 13 issue of Science magazine reported that the National 
Science Foundation, which is supposed to be funding research, has spent a 
staggering $ 1.5 billion in the last 20 years on fostering black scientists. 
The magazine describes the results as "dismal."

   State and local governments also face compliance costs -- and they also 
inflict them on the private sector.  New York State, for example, spent $ 10.5 
million complying with its own and federal laws last year, and $ 7.5 million on 
"civil rights" enforcement.  In 1990 state and local governments spent some $ 
835 billion.  Implied total expended on quota compliance and coercion, given 
New York's rate: $ 287 million. Additional private sector compliance costs, 
given New York's enforcement costs and applying CSAB's 20-to-1 rule of thumb: $ 
2.4 billion.

   Note that we include no estimate of what it costs the federal government to 
comply with its own regulations.

   We like to be moderate.

   Private-sector compliance costs are apparently much exacerbated by the 
federal enforcers' arbitrary and erratic behavior.  Some rare case studies 
appeared in the September 1992 issue of the American Academy of Political & 
Social Science's journal Annals. One victim reported supplying documents nine 
times because the OFCCP kept losing them.  Another, the National Bank of 
Greenwood, Ind. -- $ 117 million assets, 138 staff, full- and part-time -- was 
subject to a grueling and chaotic two-year audit, costing more than $ 100,000 
and 4,000 staff hours, although no complaint had apparently been lodged against 
it.  Later the bank was audited twice more, again apparently without any 
complaints being lodged.  Typically, the Indianapolis-based Merchants National 
Corp., which has meanwhile taken over the National Bank of Greenwood, refused 
to allow its officers to talk about the experience.

   Total direct costs: $ 16.5 billion to $ 19.7 billion.  Or about $ 300 per 
family of four.  Compare it with the $ 20 billion of "infrastructure spending" 
Clinton has promised to kick-start the economy.  And this is just the tip of 
the iceberg.

   Indirect Costs are the part of the iceberg just under the water -- 
easily-seen but involving no direct cash outlay.

   "It takes me 50 extra hours to make every faculty hire because of the need 
to comply with affirmative action rules," says Professor Herbert London, 
formerly Dean of New York University's Gallatin Division, "even when I end up 
hiring the person I wanted to hire in the first place."

   Naturally, this cost does not appear as a cash item in NYU's operating 
budget of $ 627 million, excluding the medical school.  (The two-person 
affirmative action office costs just $ 172,000 -- or about $ 6.50 per full-time 
student -- although a spokesman tells FORBES that over a hundred people deal 
with minority recruitment every day.) Nevertheless, the cost is real.

   A measure of these indirect costs is provided by the single Ph.D. thesis 
FORBES found that investigated costs, by Peter Griffin, now assistant professor 
at California State University at Long Beach. Griffin's rarefied econometric 
analysis concluded that by 1980, OFCCP regulation had increased federal 
contractors' labor and capital costs by an average of 6.5%.  (As compared with 
noncontractors -- although actually their costs would also have been increased 
by EEOC requirements.)

   The implications of this are substantial.  OFCCP regulation covers about 42% 
of the civilian work force.  The contractors' cost of labor alone exceeded $ 
1.4 trillion.  The minimum cost of quotas to them, based on Griffin's 
methodology: about $ 95 billion -- 1.7% of GNP.

   And the cost to the federal taxpayer is heavy.  In 1991, $ 211 billion was 
expended on federal contracts with non-government entities.  The additional 
costs inflicted by affirmative action regulation that Griffin's work suggests 
this sum incorporates: some $ 13 billion.

   Which is on top of the damage inflicted on the taxpayer by "set-asides," the 
reserving of some portion of federal work entirely for contractors from the 
"protected classes." About $ 10 billion of federal contract monies were 
channeled in this way last year.  The premium paid is not supposed to go over 
10% (although FORBES has heard of premiums as high as 25%).  Additional quota 
tax: perhaps $ 1 billion.

   Ironic set-aside fact: The law is confused about this type of quota too.  In 
Richmond v. Croson (1989), the Supreme Court ruled that many of the 234 state 
and local government set-aside programs were unconstitutional, unless actual 
discrimination could be proved.  Local politicians, anxious to continue handing 
out the pork, instantly created a minor "disparity studies" industry to make 
the case that discrimination against minorities was widespread.  In a detailed 
account in the January1993 issue of Public Interest magazine, University of 
Maryland at Baltimore Professor George La Noue estimates that at least $ 13 
million taxpayers' money had been fed into this young industry by June 1992, 
with another $ 14 million commissioned by the federal Urban Mass Transit 
Authority alone.  Atlanta spent $ 532,000 for a 1,034-page report coauthored by 
Ray Marshall, the Carter Administration's Secretary of Labor.

   Expensive?  Well, proving discrimination is hard work.  Most localities have 
long been legally required to accept the lowest bid -- a Progressive-era reform 
aimed precisely at patronage-hungry politicians. And, significantly, cities 
like Atlanta, which now want to claim they discriminated, have actually been 
under black political control for years.

   Even more ironic set-aside fact: This type of quota has created another 
industry -- corruption.  A prime contractor can set up his black electrician, 
for instance, in "business" as a purchaser.  The electrician needn't have 
credit or contacts with suppliers.  He just takes 5% off the top.  One "native 
American " contractor in Tulsa reportedly had blue eyes and an Irish name but 
had managed to join the Cherokee Nation of Oklahoma on the strength of an 
alleged great-great-great-great grandparent.

   These abuses can only be checked by more supervision.  But minority 
contractors have been quoted complaining the program is too bureaucratic 
already.

   Astoundingly ironic set-aside fact: According to Professor La Noue, over 
one-half of the Small Business Administration's set-asides go to groups that 
are composed largely of first- or second-generation immigrants.  He suspects 
the same is likely to be true for all set-asides. In Washington, D.C. -- where 
an amazing 90% of the city's road construction contracts have been set aside -- 
one of the largest beneficiaries has been the Fort Myer Construction Corp., 
owned by a family of Portuguese origin who qualify as Hispanics because they 
emigrated from Argentina.

   Absurdly, all immigrants who fall into the "protected classes" qualify for 
all U.S. quota programs. Which is a pretty clear indication that quotas are not 
about righting past wrongs at all, but about asserting political power over the 
economy.

   A further indirect cost of the affirmative action system: litigation. (You 
thought massive regulation would preclude litigation?  This is America!)

   The number of discrimination suits in federal courts is rising 
astronomically -- by 2,166% between 1970 and 1989, when some 7,500 were filed, 
versus an increase of only about 125% in the general federal caseload.

   Significantly, suits about discrimination in hiring used to outnumber suits 
about firing.  Today it's the reverse, by a factor of three or more. It's 
obviously absurd to suppose the same employer discriminates in firing but not 
in hiring.  The civil rights frenzy has simply led to a more litigious, as well 
as politicized, workplace.

   Example: Alabama state law required the Lamar County Board of Education to 
fire a black teacher after she failed a mandatory competency test five times 
during the three years allowed.  She alleged discrimination because the test 
failed a disproportionate number of blacks.  A judge reinstated her with three 
years' back salary.

   And it's going to get much worse.  Preliminary reports are that since the 
1991 Civil Rights Act and the 1990 Americans With Disabilities Act (which few 
people yet realize is also a quota bill) filings have jumped some 30%.  Both 
acts for the first time allow punitive damages, an explicit incentive to 
contingency-fee trial lawyers.

   Opportunity Costs are the base of the quota iceberg, down in the murkiest 
depths.  Unlike the direct and indirect costs of regulation, they don't show up 
in GNP statistics.  They represent what GNP could have been if these more 
tangible costs have been spent differently -- for job-creating investment, say, 
or for education.  But these indirect costs are the most massive of all.  For 
example:

   Having the wrong people in the wrong jobs. Corporate America seems to have 
resigned itself to quotas as yet another tax.  But they are a peculiarly 
debilitating sort of tax, levied not on the bottom line but on every phase of 
the corporation's activities, increasing inefficiency throughout.  Most taxes 
are a burden to be shouldered.  This is an enfeebling drug.

   That affirmative action quotas lead to lowered standards is all but 
guaranteed by the fact that all standards are suspect to Equal Employment 
enforcers.  "Many of these people believe there really is no such thing as job 
performance or productivity objectively defined, that it's really just a matter 
of one's cultural definition or cultural orientation," says Frank Schmidt, a 
University of Iowa industrial psychologist.  Increasingly, they have been able 
to impose this view on American business.

   The civil rights revolution has also virtually aborted the use of tests 
devised by industrial psychologists, which in the 1950s promised to make 
employee selection a science.  Tests came under attack because minorities 
typically scored lower on them.  Today they are only used, it at all, after 
work-related validation studies that can cost millions of dollars.

   Industrial psychologists, however, have gone on believing in their work. 
Schmidt and John Hunter of Michigan State University have produced numerous 
studies showing that hiring the able results in enormous productivity 
increases. Today, Hunter estimates that total U.S. output would be about $ 150 
billion higher if every employer in the country were free to use tests and 
select on merit.  That's about 2.5% of GNP.

   Effect on morale. Poor hiring shows up not merely in poor decisions but also 
in poor morale.  Quotas, like income tax (and unlike farm supports), have an 
immediate and dramatic impact on incentives.

   Frank Schmidt put it like this: "When the less competent employees reach a 
critical mass, their lower performance standards become the standards of the 
organization." The longer-established employees who are quipped for the job 
abandon their old high standards and conform to the new, lower ones.

   Schmidt and Hunter made no estimate of the impact of this phenomenon. But 
they have speculated that it lay behind the U.S. productivity stall of the 
1970s, as the first effects of the war against testing were being felt.

   Misallocation of resources. Monies expended to meet the costs of affirmative 
action cannot be spent on research and development and plant-modernization. 
The effect of this is cumulative: The growth path of the economy diverges, 
permanently and increasingly, from its potential. Thus we estimate that an 
extra $ 113 billion in direct and indirect costs have been inflicted on the 
economy annually since 1980.  A standard calculation converts this into an 
estimate of GNP shortfall because of affirmative action: about 1.5 percentage 
points by 1992.

   GNP in 1991 was about $ 5.7 trillion.  The total shortfall quotas may 
already have caused comes to some 4%.  That's well over $ 225 billion, money 
that could buy a lot of social programs.  Or finance a good deal of 
job-creating investment.

   So quotas cost a lot.  But do they do any good at all?

   Quotas have obviously failed to prevent continuing catastrophe in much of 
black America.  Prevailing taboos make this subject difficult to discuss.  But 
the distressing facts are powerfully summarized in a remarkable new book, Jared 
Taylor's Paved With Good Intentions: The Failure of Race Relations in 
Contemporary America (Carrol & Graf).  In 1950 only 9% of the black families 
were headed by a single parent; in 1965, 28%; now, fully half.  In 1959 only 
15% of black births were illegitimate; in 1992, 66%.  One in four black men in 
their 20s is either in jail, on probation or on parole.  Clearly, affirmative 
action has done nothing to reverse the dismal trends.

   Quotas have not decisively improved overall black employment. "Despite all 
the controversies surrounding affirmative action," says Queens College 
Professor Andrew Hacker, a supporter of quotas, in his bestselling Two Nations: 
Black and White, Separate, Hostile, Unequal, "fewer blacks now have steady jobs 
of any kind and their unemployment rates have been growing progressively worse 
relative to those recorded for whites."

   Quotas' effect on black incomes appears at best mixed. Between 1970 and 1990 
black median family income, adjusted for inflation, crept snail-like from $ 
21,151 to $ 21,423.  But the proportion of black families earning above $ 
50,000 jumped sharply, from about 10% to nearly 15%.  Dragging down the median: 
the increase in black families receiving below $ 15,000, now nearly 40%.  So 
quotas may have helped create a black middle class (although educated blacks 
might have done well anyway; after all, the proportion of white high income 
families also rose in this period).  But the black poor have not benefited.

   Quotas in colleges have not prevented the gap between black and white 
college participation from widening in the 1980s. By 1976 some 22.6% of black 
18-to-24-year-olds enrolled in college, compared with 27.1% of whites. 
Thereafter black participation declined, then recovered.  In 1990, 25.4% blacks 
enrolled, but meanwhile white participation had grown to 32.5%.

   And although crude enrollment numbers are dear to the hearts of college 
admissions officers, they conceal tragic differences in attrition.  For 
example, only 37.5% of blacks enrolling at Berkeley in 1983 had graduated five 
years later, compared with 72% of whites.  Critics argue that top colleges burn 
out black students by irresponsibly recruiting them to fill quotas, when they 
could be successful at less high-pressure schools.

   Quotas may have improved the status of women -- or they may not. It's 
easiest to show that women have gained in the last decades -- ironic, because 
their plight was hardly as serious as that of blacks, with whom they are now 
competing.  Women's share of professional degrees grew from 2.7% in 1960 to 36% 
in 1990, and their average earnings as a percentage of men's has increased from 
61% to 72% over the same period.

   But quotas may not be responsible.  Female participation in the work force 
has fluctuated widely for generations, correlated with demographic factors like 
marriage and fertility rates.  For example, the Hoover Institution economist 
(and FORBES's columnist) Thomas Sowell has noted that woman earned 17% of Ph.D. 
's in 1921 but only 10% in the early 1960s. Amazingly, as long ago as 1879 
women constituted 40% of all college faculty and administrators.  Many of these 
colleges were women-only, but they could still be highly competitive: In 1902 
the proportion of women listed in Who's Who was more than double that in 1958.

   This problem of apportioning credit bedevils the whole quota debate and, 
indeed, the entire subject of government-mandated social change. Looking back 
on the 1964 Civil Rights Act and its controversial enforcement, the American 
Enterprise Institute's Charles Murray, author of Losing Ground and In Pursuit, 
offers this startling thought: "There's hardly a single outcome -- black voting 
rights, access to public accommodation, employment, particularly in 
white-collar jobs -- that couldn't have been predicted on the basis of pre-1964 
trend-lines." That's pretty devastating.  It suggests that we have spent 
trillions of dollars to create an outcome that would have happened even if the 
government had done nothing.

   From an economic standpoint, quotas work rather like an older form of 
American neosocialism: price and wage controls.  They may seem to produce the 
desired result.  But they could equally well just be simulating it, or even 
smothering it.

   Meanwhile, of course, the economy suffers.

   It may be that before America can talk rationally about race, the generation 
that remembers segregation will have to die off.  And we're not talking about 
liberals.  FORBES asked Gary Becker, 62, what he thought would be the ideal 
public policy in this area.

   Becker: I prefer to pass on that one.  I have views on it, but I don't want 
to talk about it at this moment.

   Oh.  Why not?

   Becker: Well, let me just make that judgment.  I prefer not to.

   Becker's University of Chicago colleague Richard A. Epstein, 49, seems to be 
less nervous about his popularity in the Faculty Club.  His book Forbidden 
Grounds: The Case Against Employment Discrimination Laws argues that the modern 
civil rights laws are flawed to their heart because in negating freedom of 
association they have inexorably led to government coercion that threatens 
markets and, ultimately, liberty.

   "At bottom are only two pure forms of legislation -- productive and 
redistributive," Professor Epstein argues.  "Antidiscrimination legislation is 
always of the second kind.  The form of redistribution is covert; it is 
capricious, it is expensive and it is wasteful."

   And Epstein makes the key economic point: If we want to subsidize a 
"protected class," he writes, it can be done more efficiently by just giving 
grants.

   "I have a dream," Martin Luther King Jr. said 30 years ago, "that my four 
little children will one day live in a nation where they will not be judged by 
the color of their skin, but by the content of their character."

   As bean-counting has displaced merit in America, that day is further off 
than ever.