Racism & Risk Management

In my essay "It Didn't Ad Up," I discussed the clear and consistent pattern of credit scores in different ethnic groups and how they are indicative of values and behaviors that determine economic and social outcome far more than racism. Applying these principles to and reflecting on my experience in the residential rental market, I found the "progressive" narrative on housing discrimination to be very flawed.

In the past, before the widespread access to affordable, instantaneous credit and criminal background checks, most landlords lacked a reliable way to assess the potential risk of applicants. Accordingly, landlords had to base their decisions on general statistical trends. Most of the time when landlords factored race into their decision, they were in effect utilizing a flawed form of risk management that all people rely on. My experience has shown me that once a landlord or any other individual has access to risk management tools (such as credit check systems), the vast majority will eliminate race as a factor in their decision making process, in other words they will cease their discriminatory behavior.

Since this is certainly a contentious issue and my explanation runs counter to commonly held "progresive" mantras, I will explain it point by point:

1. The 1st rule of risk management is: the less data an individual has, the more their decision will be based on general statistical trends. For example, a landlord who can check the background of three applicants will be able to base their decision on concrete factors like credit and criminal background checks. But, the landlord who lacks the said capacity will choose the 70 year old man who wears a suit and tie, over the 20 year old man with torn jeans and tattoos. The well dressed elderly man may end up being a horrible tenant and the disheveled young man may end up being an ideal tenant, but we know that statistically the latter option is a better bet.

2. The 2nd rule of risk management is: when an individual lacks risk management tools, the
greater the potential negative ramifications that a decision holds, the more likely an individual will base their decision on general statistical trends and demonstrate discriminatory behavior. For example, if a landlord rents out a parking space and the individual doesn't pay, the landlord stands to lose no more than $100 a month and more importantly, the landlord can quickly terminate the parking agreement at little or no cost. But, if a residential tenant doesn't pay rent for an apartment, the eviction could cost the landlord several thousand dollars in lost rent and legal fees, not to mention in time. So, we can expect the landlord to be far less discriminatory in deciding who they rent the parking to space, because he has a lot less to lose.

3. Poor credit almost always indicates a history of non-payment and / or late-payment of bills.

4. Therefore, the lower mean credit score and the higher per-capita rate of crime in the African-American community indicates that statistically, landlords were more likely to face issues of non-payment and / or late-payment of rent if they rented to African-Americans.

5 . Although the majority of African-Americans are good people and good tenants, with no criminal antecedents, as a group they posed statistically a greater risk.

6. Before landlords had easy access to credit and criminal background checks, statistically it was a better bet to choose a white or Asian applicant over an African-American one. A few of the older landlords I worked with voiced sentiments like "we have nothing against any ethnic group...we are just out to pay our mortgage, but to be honest with you the vast majority of evictions that we have dealt with involved our previous African-American tenants, so we are a little reserved about to renting to them..."

7. But, once I showed these landlords that I was able to eliminate their risk through credit checks, all reservations about renting to African-Americans disappeared. When presented with hard data on the individual, they did not have to rely on general statistical trends. In fact, many landlords felt relieved when they encountered applicants that "broke the mold," because few people are truly comfortable being discriminatory.

8. Although the decision making process was now non-discriminatory, unfortunately the outcomes of the application process were almost identical, because most of the African-American applicants had awful credit.

Ultimately, the problem with the flawed "progressive" explanations of racism is that those who do not understand the nature of an illness are rarely able to cure it.

http://chicago-freedom-forum.blogspot.com/2009/04/it-didnt-add-up.html