Fisher v. Texas: Affirmative Action for Whites Only?

On September 19, I had the great privilege of speaking at Kansas State University as the Dorothy L. Thompson Lecturer on Civil Rights. KSU is one of the finest universities in the nation (with one of the most attractive college campuses I have seen). KSU students are simply top-notch. So, it was a great opportunity to have a serious conversation about civil rights in America today, with a more conservative audience than the norm in Chicago.

My topic was Fisher v. Texas, the upcoming Supreme Court Case re-addressing affirmative action programs designed to achieve a diverse learning environment. The Supreme Court settled this issue in 1978, in Board of Regents of the Univ. of California v. Bakke, and again in 2003, in Grutter v. Bollinger. In both cases, conservative appointees ruled that diversity in higher education is a compelling state interest justifying narrowly-tailored measures that consider race or ethnicity, in careful and balanced decisions. Justice Powell wrote the key opinion in Bakke and Justice O'Connor wrote the key opinion in Grutter.

The video of my lecture is available here, and includes shots of my entire PowerPoint presentation.

Here is a summary of my key points:

1) The drafters of the Equal Protection Clause of the Fourteenth Amendment, which the Supreme Court uses to limit affirmative action, intended to protect former slaves, not to protect those with the resources to attain equal protection on their own. According to the Supreme Court in 1880 the purpose of the clause was:

"to assure to the colored race the enjoyment of all the civil rights that under the law are enjoyed by white persons, and to give to that race the protection of the general government, in that enjoyment, whenever it should be denied by the States."

It is historically incorrect to read the clause to limit the power of the government to address continuing racial oppression in our country. For example, 40 percent of African American children live in poverty as do 35 percent of Hispanic children.

2) The meritorious contributions diverse students make to a diverse learning environment constitutes a compelling state interest as demonstrated by the continuing accumulation of empirical data of the educational benefits of diversity, as well as the manifest needs of our business sector and military for more diverse leaders. Because we still live in a highly racialized society, using race as one factor (in accordance with the Grutter mandate of an individualized and holistic analysis of diversity contributions) for unlocking those diverse contributions is a narrowly tailored means of achieving the compelling state interest in diverse leadership and diverse educational environments.

3) The most non-meritorious and morally suspect affirmative action benefits rich and powerful whites. As The Economist states:

"No less than 60% of the places in elite universities are given to candidates who have some sort of extra “hook”, from rich or alumni parents . . . . The number of whites who benefit from this affirmative action is far greater than the number of blacks. The American establishment is extraordinarily good at getting its children into the best colleges. In the last presidential election both candidates—George Bush and John Kerry—were “C” students who would have had little chance of getting into Yale if they had not come from Yale families. Al Gore and Bill Frist both got their sons into their alma maters (Harvard and Princeton respectively), despite their average academic performances. Universities bend over backwards to admit “legacies” (ie, the children of alumni). Harvard admits 40% of legacy applicants compared with 11% of applicants overall. Amherst admits 50%. An average of 21-24% of students in each year at Notre Dame are the offspring of alumni. When it comes to the children of particularly rich donors, the bending-over-backwards reaches astonishing levels. Harvard even has something called a “Z” list—a list of applicants who are given a place after a year's deferment to catch up—that is dominated by the children of rich alumni."

This 60 percent set-aside does not contribute to enhanced learning environments but instead just populates our elite universities with scions of privilege--almost always white privilege.

If the Supreme Court overturns the affirmative action plan of the University of Texas (involving 3 percent of entering slots) while remaining willfully blind to the 60 percent of the slots that entrench white privilege at our elite universities, they will effectively re-write the Fourteenth Amendment to mean: "When it comes to affirmative action, whites only need apply." That would pervert the whole purpose of the Fourteenth Amendment.

4) While one may speculate that race neutral measures may suffice to secure classroom diversity (such as living in poverty or a low income household), such measures are virtually never implemented. Indeed, the fact that so many universities use race or ethnicity as a "plus factor" suggests that it holds some degree of political plausibility that other alternatives do not. Conjuring-up other mechanisms of achieving diversity when such mechanisms enjoy little or no political viability hardly furthers the compelling state interest identified in Grutter.

5) Stare Decisis matters. The principle that courts should be guided by precedent in resolving disputes (and therefore restrained from indulging their personal preference, political goals and ideological preferences) forms the bedrock of our common law system. Judges are appointed, not elected, and in a system that values democratic rule-making they should say what the law is, not rewrite the law. Bakke and Grutter extend back 35 years. Only an activist Court pursuing politics rather than law would reverse such longstanding precedents. In the end, it is not appropriate for unelected judges to destabilize the rule of law and render it up for grabs based upon transient political preferences of the judiciary, unless the precedent is egregiously wrong or times have changed to such an extent that the precedent is simply too costly to maintain. Bakke and Grutter do not fit that bill.

Consequently, it seems extreme to just reverse 35 years of precedent and eliminate all affirmative action seeking to diversify American universities through the consideration of race or ethnicity. The students at Kansas State largely agreed with the idea that expanded educational opportunity for disadvantaged students made sense; yet, they evinced real discomfort with the use of race to address this concern or as a means of achieving educational diversity. At the end of the evening an informal poll found support for continued affirmative action based upon race (but in accordance with Grutter) by nearly a two to one ratio.

As part of the lecture event, I also did an interview with Richard Baker of KSU, for his outstanding Perspective series on Kansas Public Radio, which also summarizes the key points of the lecture: Play Interview

Will Obama Finally Stop the Scourge of the Megabanks?

As I have long argued, the most important question of this election is who will stop the scourge of the megabanks. By any measure more money is at stake here than any other issue in this campaign, as evidenced by non-partisan tallies of the cost and damage of the last financial crisis--ranging from up to $13 trillion (primarily in lost GDP) to nearly $30 trillion (in government outlays).

As discussed in my last two posts Mitt Romney is the candidate of the megabanks, including the foreign megabanks. For Romney to stop the megabanks, he would need to turn on his base. But, he would need their continuing support for reelection. Romney cannot be expected to stop the megabanks. Simply put, Romney is no Jon Huntsman, who was the one major party candidate who got this issue right. Romney gets an "F" on likelihood of stopping the megabanks.

Historically, there is clear reason to be skeptical of President Obama. But, Obama has been cut off from Wall Street support this election cycle. Mr. Wall Street--Timothy Geithner--has already announced his expectation of exiting after the election. The President will be a lame duck, empowered to follow his instincts on the megabanks--and according to Ron Suskind in Confidence Men Obama ordered Geithner to bust up Citigroup. President Obama gets a "B-" and for the first time in years we may have a political  reality conducive to real reform in the financial sector.

Of course, much can change in the next 6 weeks, and the debates in particular will shed light on the position of Romney and Obama on this critical issue. Domestic issues will be the focus of the October 3rd debate.

Government guarantees for the megabanks guarantees failure. The megabanks become too insensitive to risk because their managers know that government will make good any losses. They will gorge on too much credit because creditors know that the government guarantees megabank debt. Thus, banks backed by the government will naturally take on too much leverage and too much risk at the same time, all but insuring their demise. Further their government guarantee makes them attractive derivative counter-parties. So they will naturally be tempted to push the envelope on the extent to which they can generate illusory profits and hide risks in fundamentally dark derivatives markets. For an excellent overview of the economic hazards of Too Big To Fail banks, see this outstanding publication from the Federal Reserve Bank of Dallas.

The stakes here could not be larger. It boils down to this: Is the USA prepared to once again transfer trillions in bank welfare to a handful of megabanks at the expense of all other government services ranging from fire protection to teachers to Pell Grants to Defense? We are one financial crisis away from such bailouts. This is the reality in the Eurozone today. The federal government would become a vassal state of the banks and state and local government would be consigned to an even more dramatic contraction in resources. We are literally talking a huge portion of American economic wealth.

How much money? Since the crisis began in late 2007, the US government debt to GDP ratio increased from under 60 percent of GDP to over 100 percent of GDP, or by about 45 percent of GDP--representing an additional debt burden of about $6.75 trillion. So, if we add the additional debt burden to the $7.6 trillion in forgone GDP, as quoted above, we end up pushing nearly $15 trillion in lost GDP plus additional debt burden. Then, US household net worth took an additional $7.7 trillion hit between its 2007 peak and the beginning of 2011. So the last crisis easily cost Americans $20 trillion.

We as a society simply cannot afford to spend another $20 trillion saving the megabanks.

Stout on "Increasing Shareholder Value" as Injurious

Professor Lynn Stout, Cornell Law School

Professor Lynn Stout at Cornell Law School argued last week in the Los Angeles Times, that the corporate law maxims of "profit maximization" and "increasing shareholder value" have taken on lives of their own in the past thirty years and in so doing have visited positive harm on corporations, employees, and the public at large.  In her Op-Ed "'Maximizing Shareholder Value' Is Ill-Conceived Concept," Stout essentially argues that prior to the 1980s, corporate leaders focused on promoting long-term growth for the benefit of employees, shareholders, the community at large and society as a whole.  But she posits, dating back to Milton Friedman and the rise of the Chicago School of free-market economists, the idea that shareholders "owned" corporations and that businesses existed solely to maximize shareholder profit began to take root.  Stout writes that the federal government has now embraced maximizing shareholder value as near religion today.  This embrace, per Stout, has led to calamity and disappointment:  "It's now become clear, however, that a relentless focus on share price can hurt not only employees, taxpayers and society, but shareholders too. Managers who are pressured to raise stock price quickly often resort to tricks — selling assets, cutting payroll and investment, draining cash through dividends and share repurchase programs — to bump up stock price for a year or two. But such strategies often hurt a company's long-term ability to grow and prosper."


Is it possible that the "profit maximization" maxim which has taken hold in corporate law can actually harm taxpayers, shareholders, employees and society in general?  Stout supports this by arguing that: "In 1993, Congress changed the tax code to require companies to link executive pay to 'performance' (typically stock price). The Securities and Exchange Commission over the last two decades has adopted rules to make corporate directors ever more 'accountable' to shareholders. And hedge funds have used these rules to harass companies into selling assets, cutting expenses and paying out large dividends to 'unlock shareholder value.'   How has this worked out for American investors and the American economy? Not well."

Stout continues:  "In the name of increasing shareholder value, public companies have sold key assets (Kodak's patents), outsourced jobs (Apple), cut back on customer service (Sears) and research and development (Motorola), cut safety corners (BP), showered CEOs with stock options (Citibank), lobbied Congress for corporate tax loopholes (GE) and drained cash reserves to repurchase shares until companies teetered on the brink of insolvency (much of the financial industry). Some corporations even used accounting fraud to raise share price (Enron and WorldCom). Public companies employed these strategies even though many executives and directors felt uneasy about them, sensing that a single-minded pursuit of higher share prices did not serve the interests of society, the company or shareholders themselves."

Stout concludes:  "It's time to recognize that the philosophy of 'maximize shareholder value' is just such a defunct economist's idea. Let's throw off our intellectual chains so our corporate sector can do a better job for shareholders — and the rest of us too."

Law professors and corporate practitioners would do well to re-consider what they are teaching and/or practicing when they support the "new-ish" legal principle of "profit maximization."  Surely a corporation exists to do more than simply provide profits for its shareholders.


And finally today, we wish to take a moment to reflect on and remember those who lost their lives and those who continue to grieve their losses of 9.11.01.