Wednesday, August 19, 2009

And the Facts Mean? (Part 1)

A while back my friend Randy loaned me a book. I returned it to him after reading only a couple of chapters. Can you guess why?

I suspect most will guess that I didn't like the book. Actually I did like it.

Your next guess is likely to be that he asked for it back, or I didn't have time to read it or something along those lines. All reasonable guesses that explain the facts – but again all wrong.

In fact I liked the book so much that I went out and bought my own copy.*

There are many other cases in our lives when the most obvious conclusion can be wrong, often flagrantly wrong. We seldom have perfect data, nor is our logic always flawless. That is just part of the human condition and we have to live with it. There are two basic ways of living with this imperfection: (1) We can recognize that we might be wrong and check our conclusions against new facts when we get them, or (2) we can assume that we are correct and refuse to consider evidence to the contrary.

Refusing to recognize the facts sets us up for major problems. What if the question is more important than why I returned the book to my friend? Maybe something like the wisdom of an investment you made? If information becomes available that the company you invested in now has unexpected problems, it would be wise to re-visit that decision. Most of us understand this and are willing to change our thinking if we get new information.

Unfortunately there are some whose intellectual arrogance causes them to stick with bad decisions, even when those decisions become costly. Worse, many of those people are third party decision-makers who do not pay the price for their mistakes. Instead their errors cause problems for others. Most of them are government employees who can impose the costs of their decisions on others. Since they do not themselves suffer the consequences of their bad decisions they have little incentive to correct their thinking.

For example, the Equal Employment Opportunity Commission charged Sears, Roebuck and Company with sex discrimination. The case dragged on for years, from 1973 to 1986. In the end an appeals court dismissed the suit, citing the “EEOC's failure to present testimony of any witnesses who claimed that they had been victims of discrimination by Sears.” In spite of not being able to find a single woman who thought she had been discriminated against, those government employees pursued a case against the innocent.

The EEOC had one fact, namely that there was a statistical disparity among Sears' employees. From that they jumped to the conclusion that Sears was discriminating. EEOC decision-makers failed to consider if there might be other reasons for that disparity. Discrimination was one possible explanation of the fact, but not the only one.

And who paid for that government action? First of course was Sears, its customers and stockholders. Those customers and stockholders were the sole source of the money needed for legal defense. Second, taxpayers had to pony up the money to prosecute the suit. Taxpayers, stockholders, and customers were all losers in that action, even though Sears “won” the case.

Perhaps a more important question is who did not pay for that action? The answer is the decision-makers who pursued a case on only statistical evidence (except insofar as they were taxpayers). Those bureaucrats continued to draw their salaries and receive their benefits, all tax paid. They were third-party decision-makers, suffering no consequences for the costs they inflicted on others.

There are of course many such cases in this country. The EEOC and others regard statistics alone as proof. In fact Alice Kessler-Harris, who testified for the EEOC in the Sears case, baldly states that she “did not agree that women's lack of 'interest' could absolve a company of charges of discrimination.” That even though she also “did think that there was some as yet undefined difference between men and women.” I find that an amazing position. She agrees that men and women are different and might have different interests. Yet she expects the statistics to show identity of outcome unless there is discrimination!

The EEOC and others have a severe form of intellectual arrogance that allows them to ignore facts and alternative explanations and assign any statistical difference to discrimination. A company in private business with such a distorted vision would soon fall prey to its competitors and probably go out of business. Unfortunately bureaucrats are insulated from reality and can continue to force their version of reality on the rest of us. That will not change until the voters demand that their government require real evidence, not just statistical differences, before charging companies with discrimination.

Next time I plan to discuss some of the reasons statistics alone can be a problem.

*The book was Vindicating the Founders by Thomas G. West.

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