Ev Ehrlich's Everyday Economics

Who Remembers Memory Chips?

Last December, the world economy enjoyed an overlooked milestone: the Toshiba Corporation announced it would end its production of so-called DRAM chips, the building blocks of computer memory. As a result, no Japanese companies make computer memory chips today. In fact, Japan’s Asian successor in DRAMs, South Korea, is also in the soup: One of its large DRAM producers, Hynix, is going broke, Samsung, Korea’s DRAM champion, won’t buy it, and when Micron, the U.S. leader, walked away from negotiations, the Korean government told Hynix to, as they’d say in Silicon Valley, “get real.”

Only a decade ago, the DRAM market was supposed to be the province of the Asian juggernaut. This dramatic turnaround should remind us of some lessons about how economies work.

The inroads made by Japanese DRAM producers in the 1980's were the cause celebre of trade policy in that decade. Japanese memory chip producers, such as Toshiba, Fujitsu, NEC, and the other big-name keiretsu conglomerates, were taking market share rapidly from Intel, Motorola, and other U.S. producers. Armed with cheap access to funds, a relatively closed economy, non-existent shareholder rights, and complete vertical integration, the keiretsu could churn out chips and stick them in their end-use products until the cows came home.

Three Theories

The U.S. semiconductor industry yelped, and their complaint resonated with the tenor of the times. Thanks to large federal deficits, the U.S. trade balance had worsened significantly, so a variety of industries, including autos and steel, had complaints. But the chip producers used their technological allure moved to the front of the line. In fact, they became a poster child for a variety of new theories about how economies worked. There were three of them of note. One was that some industries, like memory chips, were “strategic”: DRAMs would be a platform from which the Japanese would capture the market for microprocessors and then the production of computers themselves.

A second and more general point the DRAM “crisis” was said to illustrate was that “manufacturing mattered” – that America needed to have a manufacturing base (including DRAMs) if it wanted to attract the new service economy. You couldn’t design cars you didn’t build and you couldn’t write software for devices you didn’t manufacture.

And a third premise, of course, was the Japanese had found a new system of public-private partnership that was inimical to American capitalism and had to be sealed off at the border.

Armed with these rationales, the semiconductor industry got the Reagan Administration to pressure the Japanese into a “voluntary” restraint agreement on their memory product shipments here. Now, fifteen years later, there isn’t a Japanese memory chip left on planet Earth. What happened?

Where They Went Wrong

The first idea was that of vertical integration leading to the demise of the U.S. computer industry through the Trojan Horse of DRAMs. When I Chief Economist of Unisys Corporation, the high-end computer manufacturer, in the late 1980's, I remember being told by the representative of a large, U.S. chip maker that “they (meaning the Japanese) would get memories next, then microprocessors (his company’s forte), then the low-end (meaning desktops), then the high end (meaning my company and other mainframe makers).” (The proponent of this industrial domino theory did not consider that, were I to subscribe to his view, I would be more concerned about his company than the Japanese.)

Of course, he was perfectly, sublimely wrong. Producing a rapidly evolving product such as memory chips turned out to be riding a tiger. Not only was the product a commodity, but every two years or so, a new generation of bigger, denser chips required the Japanese to spend billions on new factories to make them. These big overheads forced the producers to sell all they could for whatever they could get, which flooded the market and kept prices and profits low. When the Japanese bubble burst a decade ago, and companies were suddenly pressed for cash and its antecedent, profitability, they determined they had better things to do than keep losing money, so they quit the business. Two of today’s three largest DRAM producers are Korean. One is American. DRAMs, like automobile components and other examples of undo levels of vertical integration, proved to be not an advantage but an albatross for Japanese companies.

Second, it turned out that globally interconnected markets provided all the strategic linkage our economy needed. Cheap Japanese memories didn’t allow the Japanese information technology industry to rule the world: they allowed the American industry to do so. They allowed U.S. computer companies, unencumbered by the investments needed to stay in chip production, to make computers cheap and ubiquitous. They allowed U.S. software companies to write more powerful, productive and entertaining software, and helped establish the American monopoly in operating systems. They illustrated a new – and, at the same time, the restatement of an old – principle of an interconnected, information-intense world economy: in a world in which you can have access to any resource, product, service, good, input, component, or factor, the key to corporate competitiveness is to determine how best to add value to the assortment.

And a corollary is that manufacturing doesn’t really matter that much. That’s not to denigrate manufacturing, but it is to say that a country doesn’t need to make memory chips to write software, or for that matter, produce things in order to finance or design them. The Internet’s ability to provide costless information anywhere allows manufacturing to go wherever it wants to go. Labor costs count, but increasingly, manufacturing goes where there’s an infrastructure of services to support it – telecommunications, transportation, finance, information processing, and the like. In the Information Age, services matter at least as much as manufacturing does, which is a pressing reason why developing countries need to liberalize service trade and lower the cost of doing business in their locales.

And then, of course, came the demise of Japan as Number One. A variety of forces have led to its decade-long torpor, but the most important was the very lack of openness Japan’s celebrants found enticing. While Japan’s incestuous conglomerates were attempting to dominate the entire computer “stack” through overinvestment and production-at-a-loss, American specialists such as Microsoft, Oracle, Cisco, and Dell were efficiently attacking individual slices of that stack and dominating them: in essence, they took the vertically-integrated “stack” and turned it 90 degrees. The more open American approach – to take what the market offers and find a way to add value to it – has run roughshod over the Japanese public-private partner and plan approach.

Finally, the failure of the economic domino theory that led to semiconductor protection in the 1980's reminds us that protecting domestic industries rarely does anything worthwhile other than save the few jobs that remain in them. One man’s meat is another man’s poison. Cheap foreign steel leads to low-cost domestic cars, construction equipment, and appliances. Cheap foreign textiles lead to low-cost U.S. fashion products. Cheap memories lead to a plethora of new electronic devices and their applications. An open, competitive economy takes what the world offers and turns it into something more valuable. Like the Japanese chips that are no longer there, that’s not something we need protection from.

A Bang, Not a Whimper

November, 2000 — The amazing U.S. economic expansion reached its 106th month in February, making it the longest-running uninterrupted period of growth in U.S. economic history, and setting in motion a debate over who gets credit for this prodigious nine-year-old's parentage.

There is no shortage of candidates, but President Clinton is first on the list. Upon election in 1993, he realized that lower interest rates borne of deficit reduction would prove a longer-lasting tonic than the deficit-expanding spending programs he originally championed. This act of fiscal apostasy was anointed with low interest rates by the expansion's second Titan, Fed Chairman Alan Greenspan, who has since allowed the economy to grow at rates that would have given his predecessors vertigo. And Greenspan has helped provide stability in times of crisis — in Mexico in 1995, Asia in 1997, Russia and Long Term Capital Management in 1998. No wonder John McCain wants to stuff him.

But just as Clinton and Greenspan deserve credit for the economy's success, so, too, do Presidents Carter and Reagan, who deregulated much of the economy, even if the latter's deficits were an unneeded burden. And two others should not go unnoticed: Robert Noyce and Jack Kilby, who separately in 1959 perfected the integrated circuit, from which flowed the microprocessor, the computer, and the Internet, all of which have transformed the economy as much as any economic policy could. To some, giving Clinton-Greenspan credit for the expansion triggered by the information revolution is like giving Moses credit for water flowing from the rock at Hebron: all Moses really had to do was smite the rock, and then stand back and let Providence do its stuff. There's some merit to this view, but absent the stage Clinton and Greenspan set, it's unlikely today's revolution would have proven so robust.

But the debate over the expansion's origins begs a more important question — how will it end? The economy has grown at a muscular four percent for the past four years, but as knowing Wall Streeters say, “trees don't grow to the sky.” Nothing goes on forever. For economies, the limits are set by balance: when economies falter, it is usually because some delicate balance within them has gone out of whack.

In recent memory, this has usually meant wage-price inflation: a tight labor market leads to higher wages, which leads to higher prices, which leads Fed Chairmen less lucky than Alan Greenspan to hobble their patient in order to cure his disease. Some economists — proponents of the “New Economy” — see this pattern as a remembrance of things past. After all, just about every American with an alarm clock and busfare has a job today, but neither wages nor prices show any convincing sign of acceleration, thanks to galloping productivity gains, for which Noyce and Kilby's progeny deserve much credit. But sooner or later, as the old song says, something's got to give, and labor availability will constrain growth. The good news is that today's more responsive and alert economy might modulate itself without the overshooting that's led to past recessions, which is ultimately the reason why this expansion won't end the way previous ones have.

But there are still other imbalances brewing that could provide the spark that detonates our good thing. One is the astronomical value of stocks today: one hesitates to call it a bubble, since you never really know if something's a bubble until it pops. But were stocks to correct, the pinky-up word for it, the economy would feel a tremor. And not just consumers would be affected: with margin debt — the debt with which high-flying institutional and individual investors buy yet more stocks and other assets — burgeoning, a stock correction would take many of these high-flyers down to earth with a vengeance.

A second possible imbalance exists between the U.S. and the rest of the world, principally Europe and Japan. We're growing, they're not (although Europe, unlike Japan, has a pulse). As a result, we're running massive and escalating trade deficits with them, as we buy their goods and they don't have the means to return the favor. That's fine so long as they're willing to take the dollars they accumulate and invest them back in the U.S., which to date they've been willing to do. But should they lose their taste for U.S. assets, their growing piles of unwanted dollars will become a problem: a rapidly falling dollar usually means higher prices and higher interest rates, undoing two of the forces that have permitted this expansion to reach the outer limits of economic gerontology, and perhaps some financial institutions, again, in the soup.

These are the real risks we face. And notice that they're on the financial side of the economy, not the real side, the side that actually produces goods and services. In the real economy, things take time — inflation gradually creeps up, demand gradually slows down, unemployment gradually rises. If you catch these trends early enough, you can counter them: that's why the late economist Arthur Okun once said that economic downturns were like airplane crashes, not hurricanes, in that they were fundamentally preventable.

But a financial crisis occurs in hours, not months, and days, not quarters. Something lurches (stocks, bonds, the dollar), investors have a financial bad hair day, and suddenly panic takes over. Financial institutions go bust or grind to a halt, lending stops, and economic activity starts to implode. The world faced such a moment when Russia defaulted on its debt and Long Term Capital tanked in 1998 but averted a crisis through adept management. Yet the tinderbox aspects of the economy — escalating stock prices and margin debt — have only increased since then.

That doesn't say that such a crisis is in the works. But it does say that we're evermore vulnerable to one, and that's the part of the horizon we need to scan. And it argues that T. S. Eliot, in his poem The Valiant Men, (check!) was wrong. This time, when the world ends, it will be with a bang, not a whimper.

Old Dogs

You can’t teach an old dog new tricks, the saying goes, and in the last month, three of Wall Street’s oldest dogs have decided, in various ways, to give up trying.

The first was Julian Robertson, the founder of Tiger Fund, one of the most successful hedge funds in history. Hedge funds are private investment pools that specialize in placing rich people’s money in situations that have high rewards, but high risks. Robertson, over the last two decades, took the big risks and made the big money, betting on stocks, interest rates, currencies, and any other proposition that offered a high payout. But over the past year, he opted to stay with gritty but seemingly undervalued companies instead of high-flying technology stocks, and his investors began to pull their money out. The $22 billion he managed in 1998 dwindled down to five, and he decided to limit himself to managing his own money, still a full-time job.

The second investor giant to have a change of heart in recent weeks was George Soros, who in 1992 bet that the British pound would fall precipitously and earned a billion dollars when he was right. Like Robertson, Soros didn’t really believe in the tech stock bubble, but he decided to climb aboard: his funds began to pile tech stocks on last year, just in time for the current market retreat. Soros isn’t quitting, but he now says his fund will take less risk and accept lower earnings in a more limited future.

The third old dog is Warren Buffet, whose investment company, Berkshire Hathaway, unlike higher-risk hedge funds, is famous for buying and holding plain vanilla companies in such old-line industries as newspapers, soft drinks, and insurance. But at his annual shareholders meeting last week, Buffet proclaimed that the stock market in general was played out and he would concentrate instead on buying companies outright.

All of these Old Dogs are frightened by the same perception – that, particularly for technology stocks, the stock market has become a casino, that the way to make money is not to invest, but to bet, and that sooner or later the dice will come up craps. Robertson folded his business rather than sign up to what he called “a Ponzi scheme headed to collapse.” Soros, burned by his last minute leap into the pits, warned that “the music has stopped but most people are still dancing.” And Buffet called internet investments “a chain letter.” None of them can find a roadmap to guide them through the market’s manic moodswings.

A new generation of stock pickers, day-traders, and dot.com enthusiasts will argue that these old dogs just don’t get it. Maybe. But consider the case of the Foxhound Fund, which made a 532 percent return in the past year by betting on tech stocks, and lost almost all of it in March and April. Perhaps the most important new trick these old dogs have ever learned is when to walk away.

Hail, Hail Fredonia

Ecuador’s having one of those globalization moments: its President tried to replace his country’s local currency with the U.S. dollar last month. That set in motion both a military coup and a debate over the virtues of adopting the dollar in daily use outside the United States.

Is it really time for Ecuadorans to pass the buck?

Anyone who’s gone shopping in Third World tourist havens, or reads about Russian gangsters who like hundred dollar bills so much they print their own, knows that the dollar is welcome all around the world. But developing countries like having their own currencies. After all, when a government prints money, it makes money: you slap a few numbers and the picture of a national hero on a piece of paper, and suddenly it’s worth something. Not a bad deal.

That is, until people lose faith in it. If the world lacks faith in your currency, no one’s going to accept it to pay for goods or repay loans, and suddenly you can't do either. So places such as Ecuador — and Hong Kong and Argentina and now perhaps East Timor — are deciding either to tie their currency to the dollar permanently or simply use dollars instead of local paper. No more speculative attacks on their currency, no more printshop money shenanigans. In essence, Ecuador’s making the world a promise — either we’ll stay as productive as the U.S., or we’ll tighten our belts until you can’t tell the difference. Good luck to them.

But this goes beyond money: it tells us something about Ecuador’s place in today’s world. I mean no offense — Ecuador’s a dandy little country. But countries have two purposes — to provide an acceptable standard of living, and to reflect shared ethnic or cultural premises. And as it loses its ability to shape its economy, Ecuador is quickly becoming no more than a cultural emblem of what Ecuadorans share.

And that’s the issue. As global economic integration unavoidably leads countries to become part of currency blocs and free trade areas, countries will find it harder to define their purpose. Belgium, for example, once had its own currency and its own economic policies. As those functions rapidly shift towards the European Union, Belgium will become less a country than a bunch of Flemings and Walloons who don’t like each other. Spain, with its unhappy Catalans and Basques, is also a candidate for dissolution. And if these disaffected areas don’t print their own money, don’t restrict trade, and don’t run Soviet-style border checkpoints, who’s really going to care?

And so, Ecuador's dollar policy leads to a paradox: global economic integration, with its common money and shared rules, will leave us with a world of more countries, not fewer, ethnic ministates that subscribe to basic global economic etiquette and can then go about doing the important business of dancing their national dance and taking their national hero's birthday off.

Hail, hail Fredonia, land of the brave and free.

A Thousand Years of Economic History in Three Minutes.

A thousand years ago, life was nasty, brutish, and short.  People could neither read nor write and never traveled further than they could walk unless the Pope told them to take Jerusalem from the infidels, which they couldn't.  Best invention of the 1200s — the flue, which made indoor heating possible.  Try living without it.

The invention of movable type in the 1400's, originally conceived to expand the production of Bibles, paradoxically allows the Reformation and breaks the monopoly in the religion industry without intervention by the Justice Department.  This, in turn, allows broader perspectives on the world, and alternative centers of power, to emerge.  Meanwhile, mercantile Venice invents banking and becomes the Silicon Valley of the 1500s and before you know it, improved navigation and the discovery of pitch from pine trees  — which stops boats from leaking when they cross oceans — allow an age of discovery, trade, and colonization to emerge.

Credit, trade, markets, more widespread literacy, arithmetic, and rationality, and newly-plundered natural resources from faraway places all raise the European standard of living to something other than dire poverty.  Fortunately, Europe's trees are cut down to make pitch and to heat indoor spaces, which leads to the use of coal, which leads to water seeping into coal mines, which leads James Watt to invent the steam engine so you could pump the water out.  And, in 1793, a bunch of businessmen sitting under a buttonwood tree form the New York Stock Exchange.  So the world now has investors and something to invest in.

In 1800, people lived in an agrarian society and communication traveled at the speed of horse.  By 1900, people lived in an industrializing society with rail transportation, communication by telegraph and soon telephone, mass production and as a result mass marketing, electric lights, widespread literacy, and plenty of broke farmers looking for work.

A handful of guys in garages with tools no better than your Craftsman set change the world: Edison, Bell, Ford, the Wrights, Marconi, that sleepy Swiss patent clerk what's-his-name, and so on.  Radio gets better, telephony smoother, and engines more powerful, culminating in a man landing on the moon, which used a computer less powerful than your kid's videogame.  Meanwhile, Noyce and Kilby invent the integrated circuit at Bell Labs and Eckert and Mauchley the computer at Sperry Univac, all using tools much better than your Craftsman set, some guys at Xerox invent the mouse and icon-driven computing but don't realize what it's worth, but Steve Jobs does, and so the guys in garages become great commercializers instead of inventors.  Thanks to them, the more complex computers get, the easier they are to use, unlike my VCR.  McLuhan was almost right — the world didn't become a Global Village by watching itself on TV, but by talking to itself on the Internet, and by using those computers to trade the stuff invented long ago by the Venetians and the guys under the buttonwood tree.

And so, the awards.  May I have the envelope, please.  Best social transformation of the millennium: the Reformation.  Most unrelenting force for progress: technology.  And best invention: indoor plumbing.  Try living without it.

The Whipping Boy

A a full-fledged, bona-fide veteran of the '60s, I confess it makes my blood run to see a demonstration.

But why on Earth demonstrate about trade?

The Battle in Seattle has become surreal.  International trade is now the whipping boy for such agonizing social concerns as child labor and environmental degradation, and the WTO, a buildingful of otherwise life-needing technical wonks, has been turned into a secret cabal that fell out of some UN helicopter with plans to fluoridate our water.

Is trade the source of the misery of child labor?  Of course not.  Most child labor in the Third World is employed in primitive agriculture and service jobs that are yet worse than the manufacturing jobs that trade regulation would affect.  It's absurd to argue that, absent trade, those children would somehow be better off.   Do you want to improve their lot?  Help their societies to grow, by giving them debt relief, development assistance, and greater access to our markets.

Is trade the source of environmental degradation?  Of course not.  China has turned itself into an environmental monstrosity with minimal help from trade.  Brazil, now rapidly hacking down its irreplaceable rain forest, has done so purely on its own initiative. The idea that, absent trade, the world's poorest countries would opt for a pastoral, pristine poverty is as ridiculous as the idea that we can unilaterally set their standards for them.  Do you want global sustainable growth?  Ratify the Kyoto climate change accord, make sustainability a higher consideration in development funding, and push the frontiers of appropriate technologies.

And then there's the WTO itself, which was set up to resolve trade disputes that often have their roots in what we would call domestic policies.  It doesn't make rules, but it enforces rules that governments  including ours  freely pass laws agreeing to abide by.  Should we turn it into a global environmental cop, or worldwide child welfare case worker?  Of course not.  Instead, let's face up to the reality that today's world offers us no corner  there are fewer and fewer domestic policies in the world today.  We need to build and strengthen international institutions that help us resolve these conflicts, not burden them with requirements they'll never be able to fulfill.

There are some folks who don't like trade.  Trade creates growth, but also brings change  some folks win and some folks, unfortunately, lose.  For someone losing a job in a mill or foundry, trade can be a curse.  It is entirely legitimate to demand that we address their needs. But hiding that concern behind the image of a five-year old kid sewing sneakers somewhere in Asia does neither the concern, nor the kid, any good.

Goliath

Nobody likes Goliath, Wilt Chamberlain once said, and now Bill Gates knows what he meant.

The Bible tells us Goliath was a bad guy. But aside from being Goliath-sized, what harm has Microsoft done? In fact, leaving some other issues aside, Microsoft's commanding market power has elements of downright goodness to it. What if the gods of economic policy visited you in a dream, and told you that one company would establish the de facto standard for developing our lifetime's epochal invention? And if you wanted, the company would be American. Would you take that deal? You'd pay, you'd beg. When the Japanese tried unsuccessfully 10 years ago to subsidize the creation of an alternative operating system — it was called TRON, another case of life imitating art — the U.S. industry was shaking in its boots. Foreigners — even worse, Japanese foreigners — were trying to steal the computer industry. Well, they failed. Now that a U.S. company has achieved the same position, do we want to break it up? Or worse, do we want to pin it down so a swarm of state governments can sue it and balance their budgets off Microsoft's back? The tobacco companies gave people cancer. Microsoft gave them browsers.

“Breaking up Microsoft” is not like breaking up Standard Oil or AT&T. You could find several companies within AT&T and Standard Oil. Those monopolies were economic pinatas — once you broke them open, the pieces flooded out, each just as capable of operating as efficiently as the behemoths that contained them. But breaking Microsoft into three companies, each with its own version of Windows, undermines the value of having one Windows in the first place, and breaking the browser part of Microsoft off of the Windows part means that the government has just decided what the boundaries of an operating system are, forever.

Granted, Microsoft, even if not Goliath, isn't St. Francis of Assisi, either. Yes, its operating system code should be free of hidden bogies that disadvantage other companies' applications, if we can agree on what a “bogie” is. And we might consider compelling an auction, in which two or three competitors can buy limited rights to the Windows computer code. In theory, that could preserve both the good aspects of the Windows standard and Microsoft's right to develop it in an ever-changing information technology market. In reality, any bidder would enter such an auction knowing that Microsoft might be right — consumers like having these things bundled together, like components in a stereo system. Try bidding against that.

But to go at Microsoft with an ax could do more harm than the actual harm Microsoft has caused. Nobody likes Goliath, but not every Goliath requires a David.

The Triumph of Signal

A price war used to mean two gas stations on opposite sides of a street would go nuts and give their product away until they had exhausted themselves.  But today, a price war means telecommunications giants slashing the price of their service, with no signs of exhaustion yet.  And rather than an aberration, the current price war in the long distance market may prove to be the rule.

While every telecommunications provider has fees, bells, and whistles, the actual price of long-distance calling has dropped to the region of five to seven cents a minute.  And it's not done yet.  The biggest component of long-distance telephone costs is the charge that the Federal Communications Commission — the government's traffic cop in the communications market — makes long-distance providers pay to local phone companies in exchange for the locals keeping your home hooked into the system.

But that cost is declining, as are all the others.  Telephony is a good example of big systems with large fixed costs at the get-go and then very little in the way of added costs once they start providing service — the actual cost imposed by an added phone call, so long as there's capacity, is virtually nil.  And as we head towards a more competitive telecommunications world, that's where the price will be headed, too.

The current long-distance price war, moreover, illustrates a fundamental reality of economics in the information age.  There's a big difference between companies in the business of carrying signal and the companies that provide that signal.

The ability to carry a signal — be it a telephone call, an Internet hook-up, an e-mail, data in whatever form — is a commodity, like number two winter wheat.  It's all fundamentally the same. The winners in the competition to provide that carriage will be those who provide that commodity most cheaply.  Internet service providers may now fetch a premium price for providing you with access, but sooner or later, the price of access will fall, just like the price of long-distance calling.

The real question is — what are the signal carriers going to carry?  Right now, the Internet looks like the telephone system, only with nice graphics and souped-up presentation.  Instead of calling the store, we double-click it.  Instead of a phone call, we e-mail.  Instead of talking to each other, we go to chat rooms.  Just as in the telephone system, we are the content on the Internet.

It won't be that way forever.  The Holy Grail of the Information Age is the search for that special content for which people will pay a premium price.  And it's a search with some signs of life.  Last Spring, for example, “mp3" — the technology that lets people go “streaming” for video and audio entertainment — replaced “sex” as the most searched-for word on the Internet. Unlike the two corner gas stations, signal carriers may yet come up with something new to sell.

Census Sampling?

The Washington Post, Washington, D.C. — Republicans in Congress think the Clinton administration should pull the plug on census sampling because it is inconsistent with an "actual enumeration" of the population, as required by the Constitution every 10 years.

But sampling is not a substitute for the traditional door-to-door head count that takes place in every census, including the one being planned for the year 2000. Rather, it is a supplemental strategy that is needed, according to the National Academy of Sciences, to eliminate the massive undercount of several population segments that plagued the 1990 census.

More than 8 million Americans were missed in that census, a number that is expected to grow substantially unless modern statistical methods are used as part of the 2000 census methodology. Without sampling, the 2000 census cannot produce an "actual" -- much less an accurate -- count of the population.

Moreover, sampling does not increase the level of estimation in the census so much as make it scientific. The traditional census strategy endorsed by congressional Republicans would obtain information on 10 million or so Americans through "last resort" techniques -- such as asking your neighbor what they know about you or taking the average number of people in the house on the left and the house on the right. That's what happens in a traditional, non-sampling census in the final days of the count in order to include as many households as possible.

Is everybody comfortable with that? Are "last resort" estimates better than the well-developed, objective and widely endorsed sampling plan now at issue?

The truth is that the fight over the census is not a fight between Republicans and Democrats -- it's a fight between Republicans and scientists. Opponents of the sampling plan -- which relies on the type of state-of-the-art techniques we would expect from any private-sector provider -- are the descendants of Galileo's church prosecutors, who found competent science politically objectionable.

Still, the Republicans have a legal right to challenge the Census Bureau's sampling plan, and on Nov. 30 the Supreme Court will hear arguments on whether their position is correct. Let's suppose they win. What is the Republican plan to eliminate the undercount that disproportionately affects minority communities? Several Republicans, including Speaker Gingrich, have suggested that we switch to a census strategy based on "administrative records" -- drivers license lists, Medicaid and welfare rolls, parole records and the like. Several other countries use administrative records as part of their censuses and as a means of counting the hard-to-count segments of their populations.

Leaving aside the obvious contradiction with the Republican constitutional argument -- adding up names on lists is hardly consistent with the definition of "actual enumeration" of bodies they're pushing the courts to adopt -- I believe the administrative records idea is good news. For one thing, it reflects a realization that the "enumeration only" position that most sampling opponents propound hasn't worked, won't work and will never work -- not in a country where the population has grown to nearly 300 million.

The problem with administrative records is that they are inconsistent across state lines, they're routinely out of date and incomplete, and they raise serious privacy concerns. For example, while 90 percent of U.S. adults have drivers licenses with accurate names and addresses, the last 10 percent -- people who have moved, used a different name or have no license -- are usually the same people we can't find in the census, either. And records such as Medicaid not only have inconsistent names but omit such legally required information as race and age.

But that doesn't mean the federal government shouldn't work with state and local governments over the next 18 months -- before the census actually begins April 1, 2000 -- to improve the accuracy and thoroughness of administrative records. We should support any and every credible plan to include the millions of people who would otherwise go uncounted, be it sampling or administrative records. But until we can rely effectively on such records -- and the National Academy of Sciences has concluded it will take at least another 10 years to do so -- then the Census Bureau should be allowed, assuming five Supreme Court Justices agree, to proceed with its current plan to combine the traditional head count with modern statistical methods.

The alternative is another failed census at taxpayer expense.

Disney and Cap Cities

The deep divisions in the Disney organization were nevermore apparent than when media chieftain and CEO Michael Eisner gathered the company's most prominent revenue generators to discuss his proposed acquisition of Capital Cities ABC. The disagreement broke into the open as soon as he was done with his presentation.

"Gawrsh, Michael," Goofy opened. "I don' see what we need a network fer. Why can't we jes' keep on bein' plain ol' us?"

"Where'd you get your MBA?" snapped the Beast. "You old characters just don't get the way the game is played today. Belle and I need outlets, channels, distribution systems. We're not just characters, we're commodities that have been developed to be deployed across a wide range of markets in order to optimize yield. The world's changed since the days of the two-reelers, mutt-face."

"Hey, hey," said Jimminy Cricket. "Are we letting our conscience be our guides here?"

"Let's let rates of return on equity be our guides, Cricket," Sebastian the Crab replied. "We've got to be able to market ourselves using every conceivable vehicle if we're going to provide a return to our shareholders. Just look at the record -- there was a year when you couldn't buy your kids a hamburger in this country without having Ariel and I stuck in their face."

"I'm not disagreeing," replied Grumpy, the dwarf with the best feel for the modern media industry. "Snow and the boys, we've been a part of the success story, too. But we didn't have to go out and buy a fast food chain to do it. We had to beat those burger chains off with a stick."

Aladdin stood by his contemporaries. "That's different," he said curtly. "Don't you see the synergies? Think of the cross-promotions! The Mighty Ducks can be a movie, a sports team, a television series, a merchandising line, or a children's cartoon, all coordinated in a single system driven by rates of return. ABC's going to give us their entire Saturday morning line-up. And then there's primetime! It's an incredible opportunity, and it's all ours!"

"Absolutely," agreed Pocahontas. "It's going to be a small world after all once we're done with it."

"Oh, listen to Miss Diversity," said Dumbo, who had flown in for the confab. "Don't tell me about the oppressed Third World. I know about the oppressed Third World!"

"That's enough!" cried a boyish soprano from a far corner of the room. There was a hush that conveyed grudging respect when Mickey Mouse himself -- Steamboat Willie, the Sorcerer's Apprentice, Bob Cratchitt -- rose to speak. "But don't you see," he urged, "you don't need ABC to be on television. Television needs us more than we need them. Donald and Minnie and I didn't need to own the theaters in order to be in the movies. And we've always been on television -- not because we own the distribution, but because we're what people want to see!"

"Come on, Mouse," the Lion King retorted sharply. "You didn't complain when Michael got us a cable station."

"But that was different," Mickey pleaded. "That was a way to re-establish our brand name and market our products to a specific demographic segment. You can't fill a broadcast channel with the same stuff."

"Eisner, you've screwed up," said Scrooge McDuck. "If I wasted as much money as you're wasting, I'd be as poor as Donald. Content always dominates technology, Michael. As soon as Gutenberg invented the Bible, God's word was in it. Television was laboratory stuff until Milton Berle was on it. All of history teaches us one thing: software dominates hardware. Content is King, Michael, and we're the content.

"The networks, cable, satellite, Bellcos, they're all the same -- big, fixed-cost systems driven to increase their yield -- their subscribership, their audience. The only thing that will distinguish them from each other is their ability to entertain people. Without us, they're nothing."

"I'm getting a little tired of this," roared the Lion King. "We need scale if we're going to have a global presence. We're not just competing with Woody Woodpecker anymore. We're facing Burtelsmann, Sony, Matsushita, Viacom, all manner of international competitors."

"Scale?" Donald Duck repeated sadly. "Scale? Do you think that's what made the Big Frozen Guy what he was? It wasn't scale, it was his vision. That's where he got scale from. Creativity. Innovation. Content. He didn't draw steamboat Willie because he had theater to fill, but because he knew what people wanted to see, and that's still the bottom line today."

"Michael," Mickey said, "Donald's right. But my greatest fear is that once we have easy entree to the ABC channels, we'll lose the creative edge that led to all of us being here. The edge, Lion. It makes no difference if the content is Mickey Mouse, or Pac-Man, or the Bible, or Lucy and Desi. The creative edge is everything."

"Don't you worry about edge, Mouse," grumped Eisner, ending the discussion, and with that, the meeting was over. Mickey and Donald left the corporate headquarters dejectedly, so much so that they almost tripped over a beggar sitting in the street before them.

"You g-g-g-guys g-g-g-gonna b-b-buy ABC?" asked Porky Pig from the curb below.

"Looks like," said Donald Duck.

Porky shook his head glumly. "Just like W-W-W-Warner," he smirked. "Want to buy a p-p-p-pencil?"