(FORTUNE Magazine) – A FRIENDLY SUGGESTION

Our suggestee this time is Bill Clinton, who as we write is going crazy over his affirmative action problem (and is scheduled to speak to the country about it soon after this is published). If he follows our suggestion, he will (a) show himself to be more decisive than Reagan or Bush, (b) regain his credentials as a centrist Democrat, (c) win a lot more white male votes than Democrats got in last year's congressional elections (only 38%), and (d) infuriate nobody except people who will probably end up voting Democratic anyway.

In mid-April, Clinton's dithering on affirmative action had him looking absurder than usual. Speaking to the state convention of California Democrats, he managed to say that policy must respond to the concerns of "angry white males" while also positing that "we don't have to retreat from these [affirmative action] programs." Facing a manifest need to make up his mind, he was instead running an "interagency review" of the problem and was widely expected to conclude, after the review was over, that we need a presidential commission to think about it some more.

The way to stop looking absurd is to do what Ron and George never had the nerve to do: Abolish with a stroke of the pen the country's main engine of quotas. This is the federal contract-compliance program, under which just about all large corporations and universities are required to set goals and timetables for hiring and advancing women and minorities. Reagan, who had pledged to eliminate quotas when he ran in 1980, and again in 1984, almost did it in 1985 but in the end backed off.

It was close, though. Attorney General Ed Meese believed the federal pressure for quotas was depraved, and the Assistant Attorney General for civil rights, Brad Reynolds, was urging him to act on his beliefs. Given the way the Administration operated, there is little doubt that Reagan would have reached for his pen if Meese had asked him to. But in the end, Meese didn't ask. Accounts later published by his speechwriter, Gary L. McDowell, make it clear that several cabinet members, led by Labor Secretary Bill Brock, persuaded the Attorney General that abolishing quotas would be a political minus for the President, and Meese glumly accepted this judgment.

Bill, it would be a political plus for you. You need to hit a home run. If you reached for the fateful pen, you would stun all those Republicans expecting to run against both quotas and Clintonian indecisiveness. You would also stun Keeping Up.

HERE COMES THE SD

When your servant first became a Fortune writer several decades ago, it was hard doctrine that "several" meant three to eight, also that writers must not refer to "gross national product" without pausing to define this arcane term. GNP was in fact a relatively new concept at the time, having been introduced to the country only several years previously--in Roosevelt's 1944 budget message--so the presumption that readers had to be told repeatedly it was the "value of all goods and services produced by the economy" seemed entirely reasonable to this young writer, who personally had to look up the definition every time.

Numeracy lurches on. Nowadays the big question for editors is whether an average college-educated bloke needs a handhold when confronted with the term "standard deviation." The SD is suddenly onstage because the Securities and Exchange Commission is wondering aloud whether investment companies should be required to tell investors the standard deviation of their mutual funds' total returns over various past periods. Barry Barbash, SEC director of investment management, favors the requirement but confessed to the Washington Post that he worries about investors who will think a standard deviation is the dividing line on a highway or something.

The view around here is that the SEC is performing a noble service, but only partly because the requirement would enhance folks' insights into mutual funds. The commission's underlying idea is to give investors a better and more objective measure than is now available of the risk associated with different kinds of portfolios. The SD is a measure of variability, and funds with unusually variable returns--sometimes very high, sometimes very low--are presumed to be more risky.

What one really likes about the proposal, however, is the prospect that it will incentivize millions of greedy Americans to learn a little elementary statistics. One already has a list of issues that could be discussed much more thrillingly if only your average liberal-arts graduate had a glimmer about the SD and the normal curve. The bell-shaped normal curve, or rather, the area underneath the curve, shows you how Providence arranged for things to be distributed in our world with people's heights, or incomes, or IQs, or investment returns bunched around middling outcomes, and fewer and fewer cases as you move down and out toward the extremes. A line down the center of the curve represents the mean outcome, and deviations from the mean are measured by the SD.

An amazing property of the SD is that exactly 68.26% of all normally distributed data are within one SD of the mean. We once asked a professor of statistics a question that seemed to us quite profound, to wit, why that particular figure? The prof answered dismissively that God had decided on 68.26% for exactly the same reason He had landed on 3.14 as the ratio between circumferences and diameters-because He just felt like it. The Almighty has also proclaimed that 95.44% of all data are within two SDs of the mean, and 99.73% within three SDs. When you know the mean and SD of some outcome, you can instantly establish the percentage probability of its occurrence. White men's heights in the U.S. average 69.2 inches, with an SD of 2.8 inches (according to the National Center for Health Statistics), which means that a 6-foot-5 chap is in the 99th percentile. In 1994, scores on the verbal portion of the Scholastic Assessment Test had a mean of 423 and an SD of 113, so if you scored 649--two SDs above the mean--you were in the 95th percentile.

As the SEC is heavily hinting, average outcomes are interesting but for many purposes inadequate; one also yearns to know the variability around that average. From 1926 through 1994, the S&P 500 had an average annual return of just about 10%. The SD accompanying that figure was just about 20%. Since returns will be within 1 SD some 68% of the time, they will be more than 1 SD from the mean 32% of the time. And since half these swings will be on the downside, we expect fund owners to lose more than 10% of their money about one year out of six and to lose more than 30% (two SDs below the mean) about one year out of 20. If your time horizon is short and you can't take losses like that, you arguably don't belong in stocks. If you think SDs are highway dividers, you arguably don't belong in cars.

STRANGE SOLIDARITY

It is a common fallacy, noted by Milton Friedman and others, to assume that unions are entitled to all the credit for the pay increases granted their members--and also common to not notice when babysitters get larger raises than auto workers. One reaches back for this reflection in the wake of the great baseball settlement because one has had it with major league participants claiming they owed everything to the union.

How can superstar Cal Ripken of the Baltimore Orioles (base pay: $6 million) believe that his situation reflects what "the players before me and the Players Association have accomplished"? How can journeyman Mike Blowers of the Seattle Mariners ($500,000), a guy who knows enough to use the subjunctive properly if one is to believe the report in the Tacoma News Tribune, go around saying: "I wouldn't be making that money if it weren't for the things the union has done for players over the years."

What's weird about all this is that the genesis of the lucre is pikestaff plain. It was not unionism but the free market, a.k.a. capitalism, that brought affluence to the players. One could argue, in fact, that the great players like Ripken have been penalized by union policy, which consistently puts pressure on owners to divert more and more of the payroll to marginal players. Since 1966, the minimum salary has risen from $6,000 to $109,000.

Major league salaries have benefited from free markets for 20 years now--a period in which baseball revenues were increasing perhaps tenfold, to a figure now approaching $2 billion. The guys who mainly made it possible for the players to latch on to huge chunks (half or more) of this loot were pitchers Andy Messersmith of the Los Angeles Dodgers and Dave McNally of the Montreal Expos. The union's principal contribution was to support them after they got going.

The obstacle to free-market dealings in 1975 was baseball's infamous "reserve clause,'' which made it impossible for players to switch teams without their own team's consent--in effect stripping them of any real bargaining power. If they found the owner's pay offer unacceptable, they could of course refuse to play at all, but if they wanted to earn a living, they had to accept the owner's offer. Paragraph 10-A of the standard contract gave the owner the right to renew an unsigned player's old contract "for a period of one year on the same terms.'' The owners contended, furthermore, that this clause gave them the right to keep renewing on those terms indefinitely.

Messersmith and McNally made the brilliant decision to test this contention. They refused to sign at the start of the 1975 season, played for a year under their old contract terms, then argued that they were free agents. An arbitrator upheld their position, and capitalism was suddenly in business. But, as usual, not getting enough credit.