From: IN%"ichudov@algebra.com" 11-DEC-1996 14:01:18.43
The problem is, people can choose what credit history they want to have (I can be a saver or a spender, for example), but nobody can change the color of their skin.
This is central point of the theory why discrimination based on credit histories is OK, while the discrimination based on race is not.
First, I would point out that redlining does not necessarily equal credit discrimination based on race; it may mean credit discrimination based on poverty, which has an unfortunately high correlation with being a member of some races. (I won't go into the explanations for why this is the case here; most people who try to explain it don't take enough factors into account.) Second, let's take a look at whether inequalities based on factors that people cannot change is something that is wrong. This topic is wider in its application than redlining and credit; one example important to me in my field is in genetic screening usage for insurance purposes. (In that case, you've also got that limits on insurance uses of data when individuals can gather the data in question mean that someone can predict their own chances of needing insurance... leading to those who are healthy not purchasing it, and those who aren't purchasing it.) The first topic to mention in this regard is that of privacy. I believe I am among most people in finding a question about my behavior (e.g, my sexual activities) significantly more intrusive than a question about my personal characteristics (e.g., my gender). But I would hope that everyone would agree that it would be idiotic and irresponsible not to have someone's payments for insurance vary with their behavior; this would encourage irresponsible behavior and discourage responsible behavior. The second topic to mention in this regard is that inequality due to factors one cannot change is a fact of life. This is particularly true of capitalism (e.g., someone who has a genetic tendency toward large size will consume more food and thus spend more money on food), but it is also a problem in any other economic system - economics is not all of life. Even if one concludes that inequality is wrongful and needs to be "alleviated", there are many areas more important than credit on which one would logically start... such as forbidding merit-based admissions, which are biased in favor of those with higher IQs. I trust that my audience sees exactly why this idea, and similar ideas, are ultimately nonsense? The third topic is that one commonly applied idea used by the proponents of absolute equality is that found in Rawls' _Theory of Justice_, under which the just outcome is said to be found by a group of people who do not know what situation they will be in. (This is a vast oversimplification of the book(s) in question, which upon closer examination may realize the idea I am about to write down.) The simplistic conclusion is that everyone will want everything to be the same, since any individual might be in a bad or good situation. But if you have a choice between 49 dollars and a 50/50 chance of 0 or 100 dollars, you should take the latter. In other words, a situation in which inequalities exist can still be one that is overall better than a fully equal situation. There are a number of respects in which the insurance and credit markets fall under this category. The most obvious is the direct cost of regulation. Less obvious but perhaps more important is the uncertainty factor; the use of more data (for an insurance or credit decision) leads to less uncertainty in the ultimate outcome, and thus to less risk of unexpected claims (for insurance) or defaults (for credit). Thus, smaller businesses (which are also made more possible by lowering other regulatory costs) can exist in a deregulated insurance or credit market. The removal of the current ogliopolistic situation in such markets for the initial insurance or credit grantor would improve prices. -Allen
E. Allen Smith wrote:
From: IN%"ichudov@algebra.com" 11-DEC-1996 14:01:18.43
The problem is, people can choose what credit history they want to have (I can be a saver or a spender, for example), but nobody can change the color of their skin.
This is central point of the theory why discrimination based on credit histories is OK, while the discrimination based on race is not.
First, I would point out that redlining does not necessarily equal credit discrimination based on race; it may mean credit discrimination based on poverty, which has an unfortunately high correlation with being a member of some races. (I won't go into the explanations for why this is the case here; most people who try to explain it don't take enough factors into account.)
Thanks for an interesting reply. Do we consider discrimination based on poverty illegitimate? Does the law consider discrimination based on poverty illegitimate? I think that most people would answer no to both of these questions. As I said in another letter, correlation, to me, is not an evidence of discrimination, and just as well, making statements about averages is not racist or sexist. It is the cross-section test that evidences discrimination: suppose we have two large groups with the same credit-related parameters (credit history, etc). If one group gets better treatment from a bank, I see a discrimination. I do not see much problem if the percentage of whites with good credit is higher than percentage of blacks with good credit: it is a fact of life.
Second, let's take a look at whether inequalities based on factors that people cannot change is something that is wrong. This topic is wider in its application than redlining and credit; one example important to me in my field is in genetic screening usage for insurance purposes. (In that case, you've also got that limits on insurance uses of data when individuals can gather the data in question mean that someone can predict their own chances of needing insurance... leading to those who are healthy not purchasing it, and those who aren't purchasing it.)
The crucial question is: do we believe that the characteristic that we are considering directly linked with future performance?
The first topic to mention in this regard is that of privacy. I believe I am among most people in finding a question about my behavior (e.g, my sexual activities) significantly more intrusive than a question about my personal characteristics (e.g., my gender). But I would hope that everyone would agree that it would be idiotic and irresponsible not to have someone's payments for insurance vary with their behavior; this would encourage irresponsible behavior and discourage responsible behavior. The second topic to mention in this regard is that inequality due to factors one cannot change is a fact of life. This is particularly true of capitalism (e.g., someone who has a genetic tendency toward large size will consume more food and thus spend more money on food), but it is also a problem in any other economic system - economics is not all of life. Even if one concludes that inequality is wrongful and needs to be "alleviated", there are many areas more important than credit on which one would logically start... such as forbidding merit-based admissions, which are biased in favor of those with higher IQs. I trust that my audience sees exactly why this idea, and similar ideas, are ultimately nonsense?
This is a valid concern.
The third topic is that one commonly applied idea used by the proponents of absolute equality is that found in Rawls' _Theory of Justice_, under which the just outcome is said to be found by a group of people who do not know what situation they will be in. (This is a vast oversimplification of the book(s) in question, which upon closer examination may realize the idea I am about to write down.) The simplistic conclusion is that everyone will want everything to be
the same, since any individual might be in a bad or good situation. But if you have a choice between 49 dollars and a 50/50 chance of 0 or 100 dollars, you should take the latter. In other words, a situation in
Not necessarily. - Igor.
Igor Chudov @ home wrote:
E. Allen Smith wrote:
From: IN%"ichudov@algebra.com" 11-DEC-1996 14:01:18.43
The problem is, people can choose what credit history they want to have (I can be a saver or a spender, for example), but nobody can change the color of their skin. This is central point of the theory why discrimination based on credit histories is OK, while the discrimination based on race is not.
[snip]
Do we consider discrimination based on poverty illegitimate?
Note that when only part of the statistical picture is presented, the result can be misleading: Mississippi is a much poorer state than Ohio or Pennsylvania, but also has a much lower crime rate. [remainder snipped]
participants (3)
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Dale Thorn -
E. Allen Smith -
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