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August 18, 2000

New Ideas for The Information Economy

James Glassman, W. Michael Cox, Rep. Dick Armey

BARTLETT CLELAND, Director of the IPI Center for Technology Freedom:

Thank you all for coming.

I feel it necessary to say that we started this event hoping and praying that we would have 70 people show up. By the time we got done with the RSVP list this morning, it was about 185, and I think we already have about 150 in the room. I think we’ve managed to hit upon a success. And I don’t think it’s surprising, frankly. You are not here because I’m up here talking to you. It’s the cast of people we have arrayed to talk to you. It’s the issue that, I think, is on the tips of everyone’s tongues — whether you watch the business news, whether you watch the leading news stories, whether you’re watching the political conventions where both parties claim to be the technology party and their convention is the convention of technology, whether you’re in church and you hear sermons on the issue — technology is absolutely everywhere.

Technology has become very important in everything we do. Many of you e-mailed, many of you made a telephone call today — all these things are using technology. Even some things that we think of today as being very mundane in the way we go about doing our jobs, interacting with the world, frankly hinges greatly on technology. Interestingly enough, using Federal Express results in using very sophisticated technology, from the planes they fly to the tracking of packages to those electronic pads you sign when a package is delivered. Between their airline systems and the way they deliver their packages, and you sign in on their delivery pads electronically. They use all that technology. I find that to be phenomenal. I think what it says is we need to stop thinking traditionally of technology as the PC, the telephone line, etc. We need to think broadly. In fact, so broadly that it does impact every area of life and that’s what we’ve tried to array for you today — three very different takes on where technology is going.

I used to work for Senator Ashcroft, then worked for an organization called Americans for Tax Reform. In both capacities, I was the technology counsel. Every day I was confronted on Capitol Hill with “But why does the senator have a technology counsel?” In fact, even in the office, this was a list of issues of which nobody wanted to be concerned. No one was interested in technology. I was affectionately called a propeller head by Senator Ashcroft. And frankly, that represented what people thought of technologists at the time. Today, everyone — and I mean everyone — in Capitol Hill and elsewhere, is clamoring to say something about technology regardless of their background and expertise. I wasn’t ahead of the curve. It was at best dumb luck. Nevertheless, here we are. I think it’s important to point out some of the people who are in the room — not by name — by what they’ re doing in their backgrounds. In this room we have everyone from telecommunications, to the cutting edge of technology of nanotechnology, to agriculture, to other folks who are thinking, hopefully deeply about these issues, from think tanks in the state to accounting firms. All interested in how technology is going to change their lives.

My background — as I was thinking about this today — is an educational background, a philosophy and business. I thought it’s very interesting because that’s pretty much where we are today. Business people are thinking “how do I take advantage of this incredible rush of technology?” I suspect that many philosophers and theologians are considering these issues in the way that they need to consider them. Is this the next level of searching for truth? Is this the next level of searching for freedom? How do we assimilate these advances into our lives? What do we know that we need to unlearn and what have we never thought of that now we need to learn? These are all very important questions. That’s what we do at the IPI Center for Technology Freedom. That’s what we get to do every day.

Amazing that you actually get paid for doing this, but it’s not easy.

Think for a moment about the questions that we’ve always had answers to, or that we certainly have had in the last several years. I suspect I could throw out any number of political issues and you’d give me the pros and cons: death taxes, marriage tax penalty, handgun control. We could put together all the arguments. In this arena — in technology and public policy — there are no set arguments. Think of the complications of Internet privacy, Internet tax, privacy and Internet gaming. The arguments are all brand new. And we have to discover what these mean for the economy and for the technology, and frankly for each and every one of you.

Today, we have three people who are going to give you three very different takes on what we do, on technology, and what it means and how it impacts in what they do best. First, we’ll have Jim Glassman, then Michael Cox, and then Congressman Dick Armey. I will give a brief introduction of each. Tom Giovanetti, the President of IPI will introduce Dick Armey.

First, then, I’d like to introduce Jim Glassman. I’ve had the pleasure of spending the morning with him. Perhaps even a greater pleasure is having him accept the newest position on the IPI Center for Technology Freedom’s board of advisors which means he’ll be helping me, and our writers, and our researchers to come up with ideas, and to make sure that they are crafted well and readable, and interesting, so that you can enjoy them.

Jim Glassman is a fellow at the American Enterprise Institute and a writer and speaker on financial, economic, and political topics. From 1993 to 1999, he wrote a regular Washington Post column syndicated throughout the country and the world, appearing in newspapers ranging from The International Herald Tribune to the San Jose Mercury News. That happens to be the newspaper for Silicon Valley. He is co-author with economist Kevin Haster of the best-selling book Dow 36,000. Most recently, he was the host of Capital Gang Sunday, a political talk show on CNN from 1995 to 1998, and of Technopolitics, a weekly program on technology and public policy on PBS from 1995 to 1999. From 1988 to 1993, he was the editor and part owner of Roll Call, a twice-weekly newspaper. Let me tell you it’s a twice-weekly bible on Capitol Hill. During his 10-years, Roll Call broke the House of Representatives bank scandal that led to the defeat of 50 congressmen. He was formerly publisher of two public affairs magazines, The New Republic and the Atlantic Monthly. He also served as executive vice president of U.S. News and World Report, and executive editor of the Washingtonian magazine. He is a 1969 graduate of Harvard College, and I want to remind you one more time, the newest member of the IPI Center of Technology Freedom board of advisors, Jim Glassman.


Thank you, Bart. It’s a great pleasure to join the Board of the IPI Center for Technology Freedom, and it’s great to be here in Dallas, the hottest high-tech center in America. In fact, it was 104 when we got in the car this morning. Truly hot. And thank you Tom Giovanetti, wherever you are here today. It’s great to be on a program with one of my heroes -- two of my heroes. Michael Cox, whom you will hear next. Michael and I — some people would say we’ve been optimists — and actually the truth is we’ve been realists. We have actually seen and I think understood the promises of technology beginning many years ago, and realized that America was not in the dumps but far from it. As well as Dick Armey, another hero of mine, whom you will hear very shortly.

Among the many wonderful things that Ronald Reagan said was his definition of economists. Economists, said Ronald Reagan, are people who see something work in practice and wonder if it would work in theory. What is working in practice in the economy, as well as by the way, in the stock market. As Bart said, I’m the author, or co-author, of a book called Dow 36,000. The stock market has risen, including dividends — if you just look at the S&P — by a factor of 20 since 1982. I’m not going to talk about the stock market today although the stock market is kind of woven in to my discussion of the economy.

What is working in practice? Most economists have no theory to explain it. For example, economic theory of the traditional sort holds that growth causes inflation. Unemployment is low; inflation is supposed to be high. It’s called the Phillips Curve. But that is not working. We’ve had low unemployment, low inflation, and a booming economy. Gross domestic product for the 12 months ended June 30th is up six percent. We are now in the longest prosperity in American history and as well the deepest. We have developed in this country, starting with Ronald Reagan’s administration, a jobs machine that is creating net jobs at a rate of over 200,000 a month. That’s the equivalent of a new General Motors every 90 days. Why? In a literal sense, supply side economics is working. I know the supply side economics has many definitions. It’s been denigrated many times, but the best one is simply that it’s an economic theory that concentrates on supply. If you free up supply and you provide higher capacity, you get more goods, higher quality goods, cheaper goods, and you hold down inflation. How? Certainly the tax rate reductions during the Reagan administration have been a boom. So has the deregulation of transportation, much of energy and communications, and so to has free trade. In both goods — and I would also add in immigration — it’s been very, very important that this country, unlike European countries, unlike Japan, has not kept skilled and eager workers out. The trade in immigration is at least as important as the trade in goods and services. But a supply side driver that Ronald Reagan and Jack Kemp probably never expected has been high technology.

Thanks to high technology nurtured by these policies on taxes, regulation, and trade, we can produce more with the same inputs. Again, more supply. The latest statistics show that productivity rose 5.1 percent in the second quarter of this year, an amazing figure. Outstripping labor costs very easily. As a result, over the last 12 months, unit labor costs have actually declined in this country. In other words, it costs less in compensation for every unit of production that comes out. Every ton of steel, every other unit of production, costs less in labor costs. We’re now talking about an economy that’s in the ninth year of a boom. As a result, most of the experts over the past years are looking pretty foolish — just as they have on the stock market. Remember the economists’ cover back in the spring of 1998. America’s “bubble” economy. All we have done since then is grow at a rate of about five percent a year. Now the economists say that the best metaphor for the U.S. economy is the Duracell bunny — the one that keeps running and running. I’m just waiting for the Economist magazine, as well as hundreds of other economists, to say that they were wrong. In fact, I think the Economist magazine should rename itself the Theologian. I mean it just sticks to a particular dogma and won’t move.

What can stop this little bunny, or I think a better metaphor, this juggernaut of the U.S. economy? In my opinion, nothing smaller than government. A major reason that high technology has thrived is because, in a way, it’s been in kind of an enterprise zone. You remember Jack Kemp came up with the idea of enterprise zones. You take a poor area in the inner city that wasn’t growing, and you basically would eliminate taxes. In a way, that’s what’s happened with the Internet and the rest of high technology. It’ ;s been a zone of low taxes and low regulations, partly because government has not been able to catch up with it. It’s been too fast. Now, governments at all levels are beginning to intervene in this new economy, in high technology. It is particularly troubling to me that many of these interventions are inspired by high tech firms themselves. Of course, others are inspired by trial lawyers and their friends in high places. The attorney general of Michigan says that she wants to do a “Smith & Wesson” on DoubleClick. You know what that means. Basically, try to destroy the company in the way that Smith & Wesson was destroyed in league with the trial lawyers. And low-tech companies, low-tech industries are activists too, especially in trying to tax the Internet.

Lobbying to tax the Internet has become a hot bed of activity. In fact, here in Texas, according to The Wall Street Journal, is particularly a hot bed of activity. And I see Dick Armey has just come in. Good to see you, Mr. Leader. No, I’m not lobbying, quite the opposite. I’m glad you’re resisting.

Governments at all levels are intervening and beginning to strangle the new economy. Fears of increasing intervention are showing up in the stock market where the NASDAQ has dropped 30 percent, and that decline began with the decision of Justice Department, backed by the Court, to break up Microsoft. Not only has Microsoft stock fallen, but the majority of high tech stocks including those of Microsoft’s antagonists have fallen. Why? I think because investors have figured out that these companies could be next. Jim Clark, one of the Silicon Valley biggies, and the subject of Michael Lewis’ ; book, The New-New Thing, then of Netscape, was one of the folks who persuaded the Clinton Administration to take the action against Microsoft. He now says he made a mistake. And so do more and more Silicon Valley leaders. Milton Friedman knew it. Milton Friedman said a year ago, “Silicon Valley is suicidal in calling government in to mediate the disputes among some of the big companies in the area and Microsoft.” And he noted in April, “ Overall the major effect of this suit has been a decline in the capital value of the computer industry. Microsoft, in particular, but the competitors as well. They must rue the day that they set this incredible episode in operation.” Let me tell you, they do rue the day.

In the past, no one told the entrepreneurs in the garages of Silicon Valley what products to invent, how to sell them, what prices to charge, or what deals to offer. Now, unfortunately, the new economy is beginning to look more and more like the old — an environment in which the winners are not necessarily the companies that please customers the most, but the companies that do the best at keeping government at bay. Or better yet, using government to thwart competitors. Stock prices, I believe, are falling because the threats to real innovators are rising. It’s not just Microsoft. The FCC and the FTC have gotten deeply into the act blocking mergers that clearly help consumers. There are hundreds of bills now in Congress, in one way or another, to regulate or intervene in high technology. Empower America, in fact, just put out a book that includes about 120 of them. That’s really just a small percentage of the total.

Governments always have excuses to intervene. Level playing fields — you hear that all the time. Digital divides. Protecting your privacy. Imagine government — which sells information on your age, your height, your weight, your eye color, and your address — protecting your privacy.

And the digital divide — I just want to say one quick word about that. I’d like to bridge the digital divide too, and I think private companies are doing a darn good job of it. Today, you can buy a computer for less than a television set, and 99 percent of Americans have TV sets. In fact, you can get a computer today for free if you sign up for Internet access, usually at a rate of about $25 a month with a three-year contract. You can get a free computer. The digital divide really has nothing to do with the high cost of computing. Quite the contrary.

Something is changing as far the role of government is concerned, and for this reason, in February, with a number of colleagues, I started a Web Site called that looks at these issues. Looks at the issues of technology, public policy, and finance, and tries to alert people to what’ s going on.

One phenomenon that’s going on — and it has particular relevance in Texas — is attempts to block consumers from buying directly from manufacturers on the Web, eliminating unnecessary costs. At TechCentral, we call this the “revenge of the middle man”. And here in Texas, many of you may know the story of Ford Motor Company’s attempts to sell cars directly — used cars — over the Internet, using dealers, by the way, for delivery and having dealers get a cut. The state of Texas, on prodding from dealers, shut down that site on a threat to Ford and any participants of a $10,000 a day fine. There is a similar law that just passed in Arizona, which is now being challenged in the court.

This is what is happening around the country. Special interests trying to block direct transactions on the Internet. Lawyers are also challenging legal services on the net that offer very simple boilerplate documents for bankruptcy or divorce. In other words, looking out for their own interest, companies are trying to stop Internet commerce.

Let me mention another kind of disruption of e-commerce. It’s a little bit more subtle. It’s being done in the name of deregulation. In 1996, after years of debate, Congress passed a law to solve a very tough problem which was how to bring competition and deregulation to telecommunications. It wasn’t perfect, but it was a darn good idea. The idea was that the local telephone companies could get into the long distance business, which was already deregulated, if they opened up their local switches to competition. The Bells owned that last mile, that one mile, the Bell monopolies, because of 100 years of monopoly protection. And it was a good idea, that plan.

What's happened since then is a lot of foot dragging, a lot of lawsuits. But two states have certified that the local Bells had opened up enough to get into long distance, in New York, where I live, and in Texas, right here.

The Telecommunications Act of 1996 spawned 300 independent telephone companies called CLECs — companies like Covad and Northpoint — worth a hundred billion dollars in market value. The local Bell monopolies, on the other hand, worried about this competition, are trying to roll back the Telecom Act. There's a bill in Congress — several bills in fact — to do this. The reason they say is this will encourage us to roll out broadband. Well you know what? Broadband is already being rolled out under the current regime. In fact, a company here in Texas — SBC Communications — has devoted $6 billion to rolling out DSL. So what do they need legislation for?

There’s no need to change the Telecom Act. All that will do is limit competition. This may be a subtle issue, but it’s re-regulation, not deregulation.

Let me just talk to you very briefly about New York where I live. It’s quite amazing — New York City. People thought, “How was New York City going to benefit from this high technology revolution?” Everyone will certainly be doing business at a far distance from New York City — places that people thought were more pleasant to live. In the current issue of City Journal, which is a publication of the Manhattan Institute, they point out that against all predictions, New York has become a huge center of Internet jobs. In new media, the number of jobs in New York has gone from 27,000 in 1995 to 138,000 in 1999.

Let me just quote from this article: “The city’s new media industry has also complained long and loud that the city’s primary phone company, Bell Atlantic, has been slow to bring new services and technology to New York and is responsible for a severe shortage of the telecommunications capacity vital to digital businesses.” This is really what is holding up things. I don’t want to dwell on it, but it’s an important issue — telecommunications. In fact, in only one area where firms are seeking to use government to thwart what the Internet seems to nourish the most, fierce competition which increases the supply of goods and the number of choices that Americans want and deserve.

Don’t get me wrong. I think government does have a role to play in high technology. First, it is the prime protector of private property including cyber property. And certainly the Internet raises some very thorny issues about patent protection and copyrights like the recent dispute over Napster. But that is a function of government and a very important one. Second, government should continue as a funder of basic research. Third, government naturally is the biggest purchaser of high technology that we have. That’s not going to change. Some of us might want it to change; it’s not going to change. Government is influencing the direction of research and development as being the biggest customer.

For this boom benefiting so many Americans to continue, governments at all levels need to stay away from high technology. Leave our entrepreneurs backed by our amazing democratized financial system free to create new ideas, new technology, and indeed new wealth for all Americans. The new economy is something like a baby at this point. There’s a long way to go. This is not the time to strangle it in its crib.

Thank you all for listening.


Our next speaker, of whom I’ve heard rave reviews about and am very much looking forward to his discussion. Michael Cox is the Senior Vice President and Chief Economist of the Federal Reserve Bank of Dallas. He advises the bank president on monetary policy and economic issues, and heads the Free Enterprise Research Group. Dr. Cox has authored the bank’s annual report essay on rising American living standards and the new economy, and I might add a phenomenal piece of statistical work on the new economy. A great work that I use regularly, and I know many others do as well.

He battles economic doomsayers in his book Myths of the Rich and Poor. As president of the Association of the Private Enterprise Education, Dr. Cox actively promotes market solutions to economic problems. He has taught economics at SMU since 1985. Dr. Cox’s 24 years of university teaching include Virginia Tech, the University of Rochester, and the University of Western Ontario. He is a regular guest on talk radio and TV across the nation and a frequent op ed contributor to The New York Times, and The Wall Street Journal. Wired magazine recently dubbed him a “Prophet of Boom.” Please welcome Michael Cox.

MICHAEL COX, Senior Vice President and Chief Economist, Federal Reserve Bank of Dallas:

I’ve got only a few minutes, so there’s no time for jokes, folks; besides, I’m from the Fed so I’m not funny.

Over the period from 1895 to 1915 — just two decades — America got the automobile, the airplane, the telephone, the radio and refrigeration. Today, from our 100-year perch of history, we recognize all these as major industries. Yet they barely registered a blip on GDP’s radar screen back then. Most folks saw them as products that wouldn’t last, being too far outside the realm of daily life. Alexander Graham Bell’s father-in-law said the telephone was “Only a toy.” As it turns out, many new products are seen first as toys, including the automobile which Henry Ford had to defend against claims that it was just a “rich man’s toy.”

We know today, of course, that these “toys” transformed the world. They took us from one paradigm to another. But they weren’t the catalysts of that revolution, they were the results. The catalyst was electricity, because it made all these products possible (and much, much more). Without electricity, we have no spark for the internal combustion engine for our cars or airplanes, and no power for our telephones, radios, or for refrigeration. Without electricity, we were still in an old paradigm — a world of horses, buggies, carriages, ice houses and the Pony Express. But with electricity, a whole new paradigm emerged that changed virtually every aspect of our lives.

It’s easy to see the world changed a lot back at the turn of the 20th century. What’s more difficult to see is it is changing right beneath us now — just as much, if not even more. The world tomorrow will be as different from the world today, as the world after electricity was different from that before it. This time, the catalyst is not brawn — the power to run engines and motors — offered by electricity. This time, it’s brains — the canned brainpower embodied in the microprocessor. Following the lead of TI’s Jack Kilby, who in 1958 developed the integrated circuit, Intel in 1971 introduced the microprocessor. The chip was born out of an effort to shrink an electronic calculator down into something small enough to run on batteries and fit into our pockets, the idea being that folks would take one to the grocery store or wherever they went — in other words, that it would sell. But the Intel team (with Ted Hoff pioneering the project) succeeded beyond their wildest dreams when they shrunk a computer down into something the size of a microchip — a mere fingernail. Intel advertised the device in the November 1971 issue of Electronic News magazine as a “micro-programmable computer on a chip.” In that same ad, Intel basically invited people to tell them what to do with it because they didn’t fully realize what they had. How could they? Who could envision all the things that the chip would eventually make possible? No one could then and no one can even now. Just as not even Thomas Edison could foresee all the technology spillovers that electricity would eventually make possible — the automobile, the airplane, the telephone, the radio and refrigeration to name just a few — the technology spillovers from mother lode inventions such as the chip are simply too grand for one mind (or a bevy of central planners) to comprehend.

What have been the technology spillovers from the microprocessor? There are five major ones, which I’ll review now by decade, beginning with the 1970s. In 1972, following the introduction of the microprocessor, the first hand-held calculator was produced and sold — a Texas Instruments’ model TI-2500. Slightly later, a few West Coast hobbyists put a few chips together on a motherboard and formed a club called Home Brew Computer Club — later known as Apple Computer — and the personal computer (PC) industry was born

In short, the first technology spillovers from the microprocessor centered on the rapid calculation of statistics. We thought of the chip as a fast and small computer — something with which we could more quickly calculate the trajectory of a bullet or the orbit of Mars. But that’s a very limited way of thinking about the chip because, really, it amounts to “canned brains” — the ability to put logic and decision-making wherever it’ ;s needed, from controlling the timing in our automobile engines to brewing coffee at just the right temperature (181 degrees).

So toward the end of the ‘70s and early ‘80s the microchip had its coming-out party, so-to-speak. It came “out of the box” — out of its use solely for the rapid calculation of statistics — and into numerous possible places we can imagine to use it. Garage door openers, VCRs, microwaves, automobiles, airplanes, camcorders, palm pilots, cell phones, and more — these industries and many, many more are ones either made possible by the invention of the microchip (such as the cell phone, which is loaded with chips) or ones where the chip has greatly improved the product (such as the automobile). Today, 1.3 million people in America work in the cell phone industry, holding jobs that wouldn’t exist without the chip.

Of course, there’s the greatest smart product of all: the remote control. But there are also cochlear implants, insulin pumps, smart prostheses, and more. And smart products aren’t just consumer goods, but also include smart tools, such as bar code scanners, Doppler radar, advanced robotics, FAST (the final approach spacing tool which lands planes here at DFW airport), CAT scanners, LASIK surgical tools and more. There are too many applications to list here, and more just arriving or on the way — chips which do D&A testing, devices which correct crooked teeth without braces (Invisaglign) and so on.

Smart products. That was the second round of spillovers from the chip.

The third round of spillovers occurred in the 1990s as we connected the personal computers we began to invent in the 1970s. We called it “computer communications” at first, but the interconnected network of computers quickly got it’s own name — the Internet. In 1990, there were just 313,000 worldwide Internet hosts. But, today — following the advent of the World Wide Web in 1991 — there are over 93 million (37 million more than just last year). It’s been clearly an explosive decade and, as Jim mentioned earlier, in part so because government hasn’t been able to react fast enough to stop it. The Internet has spread like wild fire. But frankly we’ve just seen the beginning of how much the Net will revolutionize our world.

I’ve gone over three major technology spillovers from the chip, taking us through the 1990s. But the harvest has just begun. Here at the beginning of this decade, we’ve completed the Human Genome Project. All 160,000 lines of code on the human DNA strand have now been decoded, and we can go about the business of turning off and on certain characteristics of our bodies. We should eventually be able to turn off diabetes, Alzheimer’s disease, heart disease, hemophilia, baldness, and many of the maladies that have forever plagued mankind — even some forms of back problems. As it turns out, most people’s back problems are due to a too-soft disk in our spine, the last disk — a genetic defect that’s already been identified. Perhaps one day we’ll be able to turn off that defect, and eventually be able to turn on the lungs of Lance Armstrong and the brains of Marilyn vos Savant (who has the highest IQ ever recorded). People want to improve on their genetic code, so people are working on it.

And it will happen. What you must realize about this is that it will happen. We will genetically engineer our bodies. It doesn’t matter a lick whether or not the United States government and every lawyer we can dream up in this country strive to stop it. Because the first lesson of economics is that people tend to get what they want over time, one way or another. And if folks can’t get it here in the U.S. because of government laws or court cases — which try to stop or slow it down arguing that it’s morally and ethically “wrong” — then they’ll only succeed in making it happen elsewhere. If I want my blood to clot (i.e., the absence of hemophilia) or if I want green hair to grow out of my head, then some day, some way, some place I’m going to be able to get it. You can argue the ethics of it all day long if you so choose, but all the while R&D will be moving forward to bring it to market. Because each line of code on the Human Genome is a potential gold mine.

If all the Genomics companies we now have in America have to pick up shop and move off shore or to another country, they will. If I want my kids to be smarter, I’ll try to get it for them. (Otherwise, we’re going to have to be popping chips into and out of our heads). We already compete with our kids. We sometimes try to hold them back a year from entering school here in Dallas so they can be ahead of the rest of the class, making the best grades, being a better athlete. So if I want my kids to have blue eyes and black hair — whatever — I’ll get it. If not here, then in Mexico, or Thailand. I’ll get it somewhere. But I will get it. So we have to resist this temptation — the government does — to try to stop genetic engineering. Government can’t stop it; they can only make the United States be the country that doesn’t offer it, a country not on the leading edge of that technology. And I dare say the product will be better if our industries here in America are involved than if they’re not. Genomics will change our world — for the better — in ways that are difficult to imagine.

The fifth round of technology spillovers will begin to hit around the year 2010 or so, my friend Jim Von Ehr of Zyvex Corporation — a nanotech company here in Dallas — tells me. Nanotech is otherwise known as molecular engineering. It’s where we build materials one molecule at a time in nanospace, one-billionth of a meter in size, which is at the molecular level. It’s where we take input materials then use a computer program to assemble (essentially, grow) the output that we want. It’s where we take carbon and grow diamonds. We’re already doing that. We’re growing thin diamond film applying nanotechnology. I asked my friend Jim the other day about this. I said, “Does this mean I’m going to be able to get materials for the side of my car door that won’t ding when somebody opens their door on it?” He said, “You’re missing the whole point, Mike. We should actually be able to grow a car.”

If you’re still having trouble understanding nanotechnology, think about it this way. Practically every one of us sees a nano-fabrication facility every day. There’s one right there — that tree. A tree is a nano fabrication facility. It does nothing more than take input materials — water, minerals from the earth, and carbon dioxide — use a computer program given to it by God and convert those input materials into wood, leaves, and oxygen. That’ s all it knows to do. Take this and make that following a program. We can do the same thing. We can choose our input materials and follow our programs to make products that are lighter than plastic yet far stronger than steel, or products that are as slippery as possible, as elastic as we wish, super-conductive, and so on. That’s nanotech.

Those are the five major technology spillovers from the chip, but they’re not all. Others are out there too, and more will follow, just as did for decades after the advent of electricity. We’re just getting started. This growth cycle that we’re in ... we’re not even yet to the middle of it ; we’re just past the beginning. I expect strong growth for at least three more decades because there’s more — much more — to come. The science of computational biology, genomics, and biotech is itself a whole area for growth. Nanotech is itself a whole new thing. We’re just getting started.

Technology is pushing a tidal wave — a tsunami of growth. As proof, I offer you the following fact: Since November 1982, we’ve had only eight months of recession. That’s eight out of 215 months, 3.8 percent of the time. Is that unusual? Over the 100 years from 1853 to 1953, the U.S. economy was in recession 40 percent of the time. Yet since about the early part of the 1980s, which I think of as the watershed period for the U.S. economy, we’ve only had eight months of recession.

The Dallas phone book in 1970 — 25 years after the invention of the mainframe computer in 1945 but one year before the invention of the microprocessor in 1971 — had just one-third of one out of four columns of computer companies. It read: compressors, computers, concert bureaus on just one page. That shows you how important the computer would be without the chip. Not very important because you can’t hold an 18,000 vacuum tube mainframe computer up to your ear when you want to talk on the phone. But look at the Dallas Yellow Pages again today — about another quarter century later — and you’ll find there fully 54 pages of computer companies.

Ten thousand dollars invested in Dow stocks in 1990, with the dividends reinvested, would have grown to nearly $56,000 by the end of the decade. I offer you that as proof we have a new economy. As more proof, I offer you our latest Dallas Fed Annual Report essay, called the “New Paradigm,” which I recently authored. You can get it over our Web Site, if you don’t have it there at your seats. We didn’t realize how many people were going to be here so I may not have brought enough. In this report, we document the change in the economy, the growth in computer geeks from a quarter million to 2.5 million, and so on — all the facts which show that we’re in a new economy and why.

I also want to go over another handout that I’ve given you. It’s the piece of paper I’ve given you on downsizing which says at the top “ Results for the Decade”. It shows that as growth has accelerated in this economy, the pace of lay-offs has accelerated even more. We downsized much more toward the end of the ‘90s than at the early part of the ‘90s, yet it still did not stop this economy or even slow it down. For every one job cut in a major layoff, four were created: one to replace the job that was destroyed and three more new jobs. Total employment increased by 19 million during the decade and the unemployment rate fell from 5-6 percent levels down to 4 percent through the recycling of human labor. Technological progress in an environment of keen competition forced private sector firms to downsize, to be more productive, or else go out of business. Productivity in the business sector increased from an index value of 94 to 119 in the nineties

One thing I want to point out here is that in a free market economy, businesses don’t have the option of adopting new technology or not. I’ll illustrate. If all of us in this room were very tired and ready to go to bed — just dead tired, and wanted to rest — but then somebody walked into the room and said, “Down the road about a mile there’s a huge pot of gold.” What would we all do? Go to bed? Y’all can go to bed. In fact, I hope you do. But I’m not. None of us will. We’ll start a race toward the gold and that’s exactly what happens with promise that new technology brings. Private businesses cannot not adopt new technology. They have to, to survive. The problem of course is that government doesn’t have to adopt it. They lack the competitive discipline that markets routinely administer.

I offer you there on your handout another chart — one pertaining to government employment. Private sector America has downsized in the ‘90s, but government employment has continued to grow, and grow until just recently. Public sector employment started to turn down a little lately, not because government sought actively to reduce its “payrolls” but because the wage differential between public and private sector employment became so large that folks sought the higher-paying private sector jobs. Good. Yet, still we haven’t applied the benefits of the technology revolution to make government more efficient by any measure like that in the private sector.

I want to conclude by addressing the question: What are the rules of this new economy?

Rule one: faster growth. Expect faster growth. The economy can grow faster and will grow faster for quite a while as new technologies enter and are absorbed into the economy. Expect faster growth for at least two decades, maybe three. One decade is already in the bag.

Rule two: The Phillips Curve (which really never lived anyway) is dead, totally dead. There is no relationship between unemployment and inflation, or growth and inflation, and certainly not one that should be applied to any kind of monetary policy decision to restrain growth.

The third rule — and this is the most important one of all — is that the cost structure of American business has changed. We are not in the industrial age where most products have a fairly high marginal cost — like a car, washing machine or house. We’re in an age where increasingly the goods produced have high up front information investments (like a pill or new software) — high fixed but then low marginal costs. The average cost of bringing a new drug to market is $350 million. What does that mean? It means you need customers. You’ve got to spend $350 million before you’ve got one pill. The more customers you can have, the less you can charge for each pill. In the information age, price and quantity are no longer enemies of each other. To get to lower Ps you need higher Qs, just the opposite of yesterday’s world. In order to make things happen in the new economy, we need a company large enough to be able to make a high up-front investment. Windows NT cost Microsoft $250 million to develop. Just that one software program. Who’s going to spend that? A bunch of small “atomistic” firms like we used to teach in economics? No. It’s going to take a bigger firm ... and government cannot view company size in the Information Age with the mind set they did in the Industrial Age. No one has a monopoly on ideas and pursuing a “small is beautiful” policy today is a prescription for stagnation and inflation. The rules have flipped.

The fourth new rule is that it’s a global economy now. And as we become more and more global economy, the U.S. needs to remember that it can’t stop change. Legislation to “protect” us from change will only drive business elsewhere. The best government can do is stay out of the way of change, resist the temptation to become Luddite-like.

The fifth, and final, rule is that the new economy can function with a smaller government. We don’t really need as big a government as yesterday. Information age tools — fiber optics, e-mail, fax machines, the Internet, voice recognition technology, new and better software, etc — allow us to manage more information with fewer people. So what should government do? Downsize. Eliminate. Privatize as many things as possible.

In closing, I leave you with the following challenge: We have a new economy. There’s no doubt about that. What we need most now, though, is a new government. I don’t mean a new political party. I mean a whole new mind set, one that understands the new economy and sees technology as a tool to replace eliminate what government now does. I leave that to you.

Thank you.


Tom Giovanetti is the President of IPI. I’m sure that he would say that the IPI Center for Technology Freedom was a collaborative effort to begin with. I’m quite sure that it was originally his idea. You have him to thank for bringing these issues to the forefront of public policy and getting people to attend these luncheons, and for us to be able to talk to our legislators and to find ways to help them and ourselves understand these issues.

TOM GIOVANETTI, President, Institute for Policy Innovation:

I’m to introduce the person who was responsible for my job. Let me real quickly say that if you’re not familiar with the Institute for Policy Innovation, please avail yourself of the literature that’s outside at the table. I don’t want to spend a lot of time tooting our own horn here because you want to hear Dick Armey, not me. But if you’ve never heard of us before, you can find out everything you need to find out at that literature table.

Let me also thank the crew at IPI for making this go very smoothly. We had a much larger turnout than we were expecting. I think everything went well. I’d like to thank Lisa and Sonia and Sandy and Betty and Bartlett for making that happen. I would also like to particularly thank the small group of four or five of our friends who underwrote this luncheon for all of you. It was very kind and helpful of them to provide this for you. I sincerely appreciate it.

You all know Dick Armey. Let me tell you who Dick Armey is to me. Dick Armey is the founder of the Institute for Policy Innovation, 13 long years ago. We have grown quite a bit since then, but the reason we exist at all is because of the passion and vision of Dick Armey that there ought to be an organization like this that provides some alternative information to the biased information that comes out of Washington, and that tells you what some of the real numbers are. And that helps you look ahead about what are the issues that we should be concerned about, rather than simply what are the old fights that we already know all the answers to. That’s what we try to do at IPI. Dick Armey is my congressman; Dick Armey is the founder of IPI; Dick Armey is the Majority Leader of the U.S. House of Representatives; And, Dick Armey is someone who gets it when it comes to technology. He’s one of the very few, unfortunately, as Bartlett has explained to me, in Washington, who really get it. Without further adieu, my congressman and your friend, Dick Armey.

DICK ARMEY, Majority Leader of the U.S. House of Representatives:

Let me make just a quick note about my association with IPI. Yes, I founded IPI, and as a member of Congress, I knew there was a risk involved. I made a commitment to IPI, the idea of IPI the institution, at that time that it would never be politicized. In all the years of my, should I say official association, we kept that commitment. When I became Majority Leader, I knew that that would be impossible. You talk about a heart-rending decision. Mom and dad, sometimes you’ve got to give your children up if they’re going to be free. I resigned from the board of IPI and made an official disassociation so that it could never be a political target. It had its own integrity as a think tank. I knew at the time it would keep its integrity. And I was not going to let politics trespass against IPI through my association. Some of you will recall when Dick Armey used to be the Chairman of the Board. The reason I’m not Chairman of the Board is I love IPI and I love freedom of ideas, freedom from politics.

Let me go on to my point. I want to illustrate a point. I wanted to almost put a title on my remarks. I rarely do that. But how about: Geeks and geezers. Can I use that for a title? I want to tell you that to follow Jim and Professor Cox is kind of a foreboding thing, but I’ll try to hold my own.

Geeks and geezers. I want to make the point that geezers quite frankly most often don’t understand what geeks do. But geezers are a presumptive lot. They’re slow to understand what’s going on, but quick to claim ownership for it when they see it. I want to tell you that while we focus so much of our time and attention on the technological side of this wonderful innovation of business cycle we find ourselves in, which Galbraith said in 1962, would be impossible to ever see again. We now see Schumpeter vindicated by your creative actions, and thank you for that. Anybody that makes Schumpeter look right and Galbraith look wrong has done a service to mankind.

At any rate, we can all go back to Galbraith, to the halcyon days during the Kennedy years when he was considered the bright guy, the most effective accomplishment of a sociologist masquerading as economists in my lifetime. During that time, some of you will recall in terms of my personal story, that I was climbing poles for the REA. Now when I climbed poles for the REA in the early 1960s, this thing called computing was in its really most primitive and incipient stages. All us macho guys who were out climbing poles, we had one of our gang named Gus Cartwright, who was so physically inept he could not chew gum and walk at the same time. Gus was a strange bird. He was a weird kind of duck. He was all fascinated with taking apart radios and stuff like that. He’d look inside and see how they worked and rewire them making electronic tricks. Putting speakers in his grill and blasting Elvis Presley all over. Anything that had a wire to it, Gus was into it. The company I worked with got a computer with that old big thing that sorted the cards and so forth, and they had it shipped there for efficiency purposes in managing payroll and billing. Nobody knew how to make it go. They turned to Gus. Gus, by the way, had dropped out of high school because he was bored with his teachers. Does this story start sounding familiar?

About 1962, I now realize all these years later, I met my first geek ever. It was Gus Cartwright. He became the computer specialist. Now he’s doing all that stuff with the PCs with the same company. The point I’m trying to make is, the cultural impact that we’re not really fully grasping is this high tech world has given us back something in America’s world of work. It’s called meritocracy, and thank you, Jesus, we’ve got it back. The basic rule is if you can do the job, you’ve got the job. I don’t care about your credentials. I don’t care where you went to school. I don’t care if you went to school. I don’t care who your daddy was. If you can do the job — this is such an important thing to be restoring in our world of opportunity for our young people today — that you make it by your wits and your ability and your demonstration. I grew up through a period of time when life was defined by your credentials. Quite frankly, it was a fundamentally discriminatory world of work that most of us tried to make our way through. This new wonderful geeky world has given every one of our kids and grandkids an opportunity that we had long since feared was lost to the American experience. I’d like to have us appreciate that for a moment. Every now and then, I think of Gus Cartwright. I think about the first geek.

I went on — some of you may recall — and went through formal education. Got my Ph.D. Went directly from academics to the government, so may very likely complete my whole life without ever having had real work. So I became a good illustration of the geezer in this part of the story. Gus is the geek; I’m the geezer. I was an apprentice geezer in 1963. The other side is, nobody in America is slower to recognize what’s happening in the world than is government and academics. Bless their poor little old pea-picking hearts, who do the people in government turn to for advice? The academics.

Let’s sort of flash forward. I want to carry us through a period of time. During the ‘60s, America went nuts. During the ‘60s, we went off in a sort of a self-indulgent little national flirtation with the avante garde. But one of the aberrant things that resulted from that was people began to believe that real scholarship was found in disciplines like sociology. And understand this — I’m an economist. Economists are franchised by the Lord God Almighty to criticize sociologists. It’s our birth right. You earn that. They give you that with your degree.

So what happened was, we sort of started in the ‘60s to go intellectually soft, as we were probably trying to understand our own goofiness. And then we went into the ‘70s, and I would say the most characteristic thing about the ‘70s was described by poor, bless-his-heart Jimmy Carter, probably the greatest victim of the '70s, who had to stand up and pronounce us in a days of malaise. We had this goofy thing called stagflation. Nobody could figure out what it was, where it came from, how to fix it, and how to cure it. But what happened, I believe, goes back to one of my first lessons in economics 101. There is a difference between invention and innovation. The difference is probably implemented by investment. So, as you pointed out, the invention was going on. That is to say, while all us geezers were running around acting silly or wringing our hands in the ‘70s, the geeks were still inventing things. So the invention was going on, but America wasn’t seeing the impact of it all because we were caught in the broad macro-economic malaise of the ‘ 70s and nobody was willing to invest, or had the ability to, or dared to take the risk, or could suffer the interest rates and the expense. We had then this sort of gap that slowed us down.

Now what happened? I’m going to suggest that the last great and most defining act of macro-economic policy of our lifetime was 1981 and 1982 when we broke the back of stagflation. I credit Ronald Reagan with that. What it did was it broke out the computer revolution, the high tech revolution, from the malaise of the ‘70s and the silliness of the ‘60s. All of a sudden, investors said, “Let me discover the invention so I can make the innovation.” We had this great explosion that is now sustaining us. That is where this longest period of prosperity in maybe the history of the world — this large period of prosperity — comes from. It’s very important for us to understand. Mr. and Mrs. America, you did it. Once we got the government out of your way when we broke the back of inflation, we did all we could do in the matter. I don’t believe there’s been an important macro-economic impact from the federal government since then — since 1980. We may have made macro-economics as we have known it, learned it from Keynes, obsolete in this growth cycle. We don’t know what will happen there, but we do know the inventions of now.

Here’s the problem. We’ve had throughout all the ‘80s in ways we never recognized, realized, or understood, and now even through most of the ‘90s, the same thing. And all of a sudden the academics and the politicians wake up and say hey, there’s something happening out there. Something big is going on. Sure enough, just as sure as we’re sitting here, one among us is going to stand up and say “I invented that.” And that might be fun, and that would be something we could probably get a kick out of. But as Jim Glassman pointed out, there’s something worse than that. Once the academics and the politicians discover that it is out there, they immediately adopt a proprietary attitude about it. We’ve got to take control of this. Freedom is running amok out there. People are creative; people are getting rich. What’s the digital divide? Give me a break. That is the same thing Democrats have been talking about since 19-whenever. This class conflict. It’s just a new label for their old theme. The fact of the matter is this is a world of digital opportunities. Expanded communication.

As I said, we have got the largest most fascinating driving engine in an American economy, indeed, a world economy, maybe ever. Maybe it was bigger than electricity. Maybe it was bigger than automobiles. Who knows how big it will be. But I’m going to bet it’s going to be more big and more fascinating than we can imagine and than what we’ve ever seen in history.

We have a responsibility — we in government — to get on that learning curve and catch up to the best of our ability. That’s why I sat down and wrote what I call the E-contract, which you can read, and remember this point: Geezers can have Web Sites too. You can read all about it on my Web Site: The whole idea of the E-contract is to say we have a commitment in principle, in your government, in the House of Representatives, to understand our responsibilities here. In some instances to restrain ourselves, in most instances, from the natural impulses of big government to do what — tax and regulate.

But then we understand that sometimes we need to go forward with legislation. We did e-signatures. I think it was a good thing. I think it was a necessary thing. A fundamental revision in contract law that allows new exploitation of this potential. I’m kind of proud we did that.

We’ve been real slow on this privacy thing. And watch this, ladies and gentlemen: There is nobody who intrudes against your privacy more than the federal government as Jim Glassman pointed out. They’ve got this thing called CARNIVORE that the FBI wants to attach to AOL that would allow them to use that on us. We better go back to the 4th Amendment and take a look at our court decisions before we start allowing the application of that. We’re doing research now on the extent to which government agencies are in compliance with their own privacy requirements on their Internet sites. We’re finding that they’re not doing so well on their own terms, and yet they want to police us. So be very, very careful. The high demagoguery thing of this election cycle is privacy. They’re going to try to get to control your access to all this technology by scaring you into believing that somebody’ s intruding against your privacy. And remember, I always like to remind people: It was the federal government of the United States that was blowing up all those nuclear bombs in the desert of Nevada and now they’re protecting us from exposure to nuclear waste. You just need to be very careful. These guys will be the first guys to be reckless while they’ve combined that with the presumption that they must intrude against you and me to protect us from one another. Privacy is a big thing for us to watch.

The broadband issue, as Jim Glassman raised, is a place where I am again saying we’ve got to go slow. We did ’96, we did the Telecommunications Reform Act. Is broadband spreading through all these new firms that responded to the opportunities that law invented? Are we getting access? Broadband’s important. If you want a quick illustration of it, do what I did. I went home where I’m on copper and I sent by e-mail myself at the office a picture of my mother and father that my brother had sent me. It took me 15 minutes to get it out of my house. It took me 15 seconds to call it up where I had broadband. So it makes a big difference. If you have that capability and the access to it, you can hook up in your firms and so forth, and it’s going to make a big difference in productivity.

The question is: Do we need further legislative action for broadband to spread? Jim, you just gave me a hint on your thinking on the matter. My advise to my colleagues, some of whom are very eager to jump forward, let’s go slow. Let’s understand this. Let’s see what happens. We’ve just passed that law; give it a little time. Sometimes we have to just slow down and watch and wait and learn. Sometimes we have to restrain ourselves because we have these evil impulses to tax and regulate. Sometimes we have to say there is a need here. We recognize what it is. The right answer is something like e-signature. But we have got to stay on the learning curve. The rate at which we are learning, inventing, innovating, developing, creating is mind-boggling.

One of the things I also counsel my colleagues with is: Get on-line. Play with the stuff. Learn what it does. And then talk to people about it; ask questions. We cannot know this in the halls of Congress, but we can have the respect for the innovators and the creators to learn. That’s the pledge of the e-contract. I believe we’re doing pretty well; frankly, I’m impressed. I’ve never had a very high regard for the quickness of mind of government. I’ve always seen government lag way behind the learning curve. I think we’re up here pretty good, but we’ve got to stay up there. And somebody has to whip us along the way.

I accepted that as my personal responsibility, and I have to tell you why. I am otherwise known in my life as Charlie Armey’s little brother. Charlie was a great football player. Charlie was an outstanding hockey player. Charlie was tall; he was handsome. The girls adored him. And I was kind of a geeky looking kid. And to think that we now have a world where fathers can look down on their children and be proud whey they say, “Daddy, I want to grow up and be a geek.” And you don’t know what that means to me.

Thank you.


A couple of announcements before we wrap up. First of all, I’m going to tease you with a quick advertisement for the next two studies that the IPI Center for Technology Freedom is going to be putting out. The first is on the economic impact of the Microsoft action taken by the Department of Justice. We just don’t look at the macro effects of the economy; we’re going to tell you how much money you lost from your family’s budget. How many fewer vacations you can afford, how much less food you’re going to have in your house from that decision.

The second one is we’ve compiled a list of the 10-worst regulations in government — as if there were only 10. Five focus on technology. We’re doing this in conjunction with another institute. They’re doing their five on EPA environmental issues.

Our five include everything from pharmaceutical regulations to your privacy. So look for both of those. Make sure you’re on our mailing list. Make sure you’re checking our Web site often. Our Web site is Let me give you the other Web sites you heard mentioned today. They’re all beyond being worthy. They’re important and you should be reading them. In reverse order: — Congressman Armey’s site. If I can take a moment to thank his technology staff, Doug Farey, phenomenal technology advice going on in the office of the Majority Leader. The next one is The information there is just invaluable. You can answer about any kind of question on the economy and technology. And finally,, incredible information there as well, and a really nice picture of, I should mention, the newest advisor to the IPI Center of Technology Freedom.

Finally, right out here you may have seen a lady with Barnes & Noble who has stacks of books, both Michael Cox’s book and Jim Glassman’s book. They’re on sale out there, and they’ll be out there to sign some more books after we do a little press conference with them. But if you’d like to go out there and hang around for a few minutes, they’ll be out to sign books.

I want to thank all of you very much, echoing everyone’s comments. You are the people making the technology revolution happen. It’s not government; it’s not the people in the think tanks. We’re just trying to explain it to everybody. I am very happy and grateful to those of you here who are doing technology whether you think you are or not. Remember: When you pick up your phone, when you turn on the microwave, you’re using technology. Thank you very much, and we look forward to interacting with you in the future.


Bartlett Cleland, Rep. Dick Armey, James Glassman


I read the E-Contract and under reducing taxation regulation and litigation it says, “Preventing frivolous lawsuits that stifle growth.” Now, how do you do that?


Now that is a tough one to do legislatively. We’ve already had a little bit of tort reform and we have certainly intruded against the legal, what should I say, siege that was about to be launched on Y2K. One of the things I was a little amused at, it was my job by the way to see how well the government was getting themselves in compliance for Y2K. Jim, I don’t know if you ever heard this story but our first report back from the Department of Agriculture and this is a true fact story. The Department of Agriculture reported that they had expected to have that problem completely resolved by the year 2002. And that was…but what we realized was the lawyers were all lining up ready to launch a flood of lawsuits. And what it was doing was interfering with people’s willingness to take the responsibility to go in and make somebody Y2K compliant because they didn’t want to get themselves out there for the legal exposure and you may recall you guys probably saw it more clearly then I did, we had people all over America that were not being able to get the manpower, not that it wasn’t available but the technicians wouldn’t accept the exposure until we put that legislation through the House, with Chris Cox’s bill, and what it did was limit the exposure of a technician who had signed off on Y2K compliance from a future lawsuit of any failure. The failure was that Y2K was a bust, the ball came down on New Year’s Eve and there was no excitement but I’m sure the lawyers were more disappointed than anyone else. That was probably the first really concrete place where we were able to unlock ability to mobilize workers to an essential task.


Do you anticipate any further work on the issue of litigation, litigation reform?


Absolutely and we will try to get further litigation reform but litigation reform is one of the toughest things to get in any venue not just in the computerized world because the trial lawyers are so, shall I say, highly well organized. But if you want to talk about what is the ‘Big Daddy’ of all frivolous lawsuits you’d have to say the Justice Department’s case against Microsoft. Obviously that is something we can do, we will have a new Justice Department after the next election. My guess is that they will try to drop the case out of sheer embarrassment as they did in an earlier time in respect to IBM. In the ‘70’s even in the great cereal caper in the ‘70’s, I guess I’m the only person alive in the whole world that remembers that one on shared monopoly I used to give in my classes what was called the Fruit Loop lecture by my students. But clearly the Microsoft case is based on aberrant application of antiquated antitrust law and if they had legal training near as good as the Microsoft software on which they were preparing the case they’d know to drop it.

Do you see one of the battlegrounds…..


Now you guys come in here (referring to Glassman and Cox). These are the wise guys.


Do you see one of the battlegrounds over taking credit for the economy we have right now between the Democratic and Republican Party especially right now during this election cycle?


Thematically I think that’s what this election is all about. President Clinton and Al Gore are standing up saying, “Aren’t you lucky that you had us because we brought you this prosperity and if you lose us you lose this prosperity.” George Bush, if you listen to what he is saying, he’ ;s saying, “Thank you Mr. and Mrs. America for the prosperity you have created and if you elect us we will be responsible in what we do with respect for that prosperity”.

Now, and I give you a crazy example, prosperity had been going on since about 1982, sometime after the first two painful years of the Reagan Administration, and yet we didn’t do anything yet to get to the surplus budget. During the ‘80’s we had a $1.56 increase in spending for every increase dollar in tax revenue. So while America was generating jobs, employment, output and economic growth and money, in Washington money was spent faster than it came in. Now, since 1995 we’ve brought that down to less than $.60 on the dollar. And now we’ve gone from chronic deficit projected forever to surplus. That is because we had responsible restraints on government. What George Bush is saying, “You create this kind of prosperity, you send this kind of revenue to Washington, we’ll use it to stop the raid on Social Security, pay down the national debt which has worried America sick, and give you tax relief. So I think the contrasting messages are generically, thematically the difference between the two parties on this campaign trail in this season.


How much self-restraint do you see coming from government? You say tax and regulate. How can they possibly keep their hands off the Internet? What can you tell us that would stop them from doing that?


Well, they have to be pretty stubborn and careful, and you know, for example, I’m the Majority Leader. Nothing gets to the floor unless it goes through my office, so at least I can say, “Now wait a minute, let’s stop and think this over guys.” I mean I can’t guarantee I can stop something so that it is dead in its tracks. I’ve still got the tracks up my back from minimum wage from a few years ago, but at least I can say, “Hey, slow down a little bit.”

We have other members that are key roles that I think are also very cautious about this, but in the end, it is personnel. If you have Big Government advocates that have the natural penchant to follow the natural course of Big Government (which is get your hands on something and control it), then it would go forward. You would have protesting. But I don’t want to overdo myself here, but I have to tell you that I’m a fairly formidable obstacle. Just by institutional responsibilities given to me by my colleagues. I can’t guarantee that I can stop it, but I can sure rough it up along the way.


Could I just add something to what…. Mr. Armey is too modest John…in answer to his first question about responsibility for the prosperity, he did not note that things have really changed since 1994, since the republican majority came to congress. For example the NASDAQ since then is up by a factor of 6, the market itself has risen by a factor of 3. If you look at the first two years of the Clinton administration and you’ve got basically average increases in the stock market, about 10% on an annual basis. Interest rates, long term rates had gone up to 8%, immediately after Republican congress was elected, they went down and down to actually one point below 5% so I don’t think that their effectiveness in basically blocking a lot of the things that the Clinton administration wanted to do has been fully recognized. Don’t forget the first thing that President Clinton wanted to do was something called the Stimulus Package. Remember that — and Republicans didn’t even have control of Congress at the time — it was stopped. If that had gone through, not to mention health care, we’d have a very different economy from what we have today.


By way of introduction, all those good things happened despite the Federal Reserve. (laughter)


I wanted to comment on what Dick was saying about taxing the Internet. I think the right way to view it is that taxing the Internet at such a young stage is penny wise and pound foolish. If you look at what has happened in the decade of the nineties — the decade of the Internet — the nation’s budget deficit has disappeared, we have a growing surplus and we’re talking about retiring the debt perhaps by 2010. Higher tax revenues have flowed from a faster growing economy, in no small way aided by the explosion of the Internet and the new economy it has helped enable — e-commerce, e-mail, supply chain management, etc. Shouldn’t we be happy with that surplus? Let’s let that continue to happen a while. Let the Net get big. Let it be what it can be and then later put the taxes on it if you have to. Yes, not taxing the Net amounts to an advantage for buying via the Net; but I doubt that it would do anything more than accelerate the death of yesterday’s economy. Capitalist economies grow through a process of “creative destruction“ — out with the old, in with the new ... and better. The “new” has to be given a chance to grow just as do young children, a young tree. You don’t let a young child pull a wagon, we don’t let kids smoke; it stunts their growth.

The point of a well functioning, healthy economy is to destroy jobs and replace them with new and better ones — recycle the labor to a higher-order, more productive use. That’s the way we’ve gotten from a nation where 95 percent of Americans were working on farms, yet we were still poor, to a nation where 2.5 percent of American’s are working on farms yet we export food to the rest of the world. Fat has replaced starvation as our number one dietary concern; we kill and eat 25 million chickens a day.


Bo Pilgrim would have loved you for that.


We have time for one more question for Mr. Armey and he has to leave.


What are your thoughts regarding privacy on-line?


Well, you’re really talking here, I think, about a serious threat against Fourth Amendment rights, and a lot of it is a technological thing. When it comes to my telephone, FBI goes to court and says, “I want a court order to tap Dick Armey’s telephone.” We can be sure that it is exclusive to my phone and we can be sure that it is monitored for specific information. But if they say I want to tap Dick Armey’s e-mail, right now, at least as far as I know, certainly CARNIOVORE is a technology that doesn’t attach to my house, my phone, it attaches to AOL’s hardware. And whatever goes through AOL then the FBI can monitor. I’m on my e-mail maybe an hour, two hours a week. What are they doing on the rest of the time? They’re going to get bored. Their going to say, “Well, let’s see what Jim Glassman’s up to!”. But they can if they want to, and people say that’s absurd, that’s the FBI.

Well is it absurd? Remember the Hoover files? We know of FBI abuses in the past, but even if we were 100% confident that they wouldn’t abuse it, current law with respect to taps says it must be specific to the individual, and specific to the individual location for which we give the order. And the technology that is employed with CARNIVORE does not meet that test.


Correct me if I am wrong, but the Internet is a privilege not a right.


Whoa! I don’t understand that. It can’t be much of a privilege; I look at my bill every week.


It’s like driving a car. It is not a guaranteed right, it is a privilege that we…


No, no, no, no, no. I don’t see how that is any more the case than my phone. It’s a service that is out there provided to me. I buy that service. I pay for that service. I tell AOL, “Look, I am buying your service and you’ve got restrictions on what you can do with me. You’ ve got my information going over your hardware. I expect it to be respected for a price.” I don’t think it’s any different then…

(Interruption by reporter)


I just have to say, I don’t even follow the logic of your question. It’s mine, I paid for it, the government keeps…

(Interruption by reporter)


But the government doesn’t have the right to search your car, and if they get a search warrant to search your car and I’m parking behind you, they search your car and they leave mine alone.




Right now, in order to search your car they also deploy the technical capability to search every car that is out there.


Right. Your talking about the expectation of the right of privacy, but even on the Internet when things say they are secure, they’re not really secure because the FBI is blatantly doing the what hackers are secretly doing. So what’s the difference?


Well, when we catch the hackers we arrest them, and I’ll catch the FBI and arrest them. My argument is very simple. You can’t say to the FBI, “ In order to prevent burglars from burglarizing Dick Armey’s house we must be able to burglar his house.” Their job is to catch the burglars, not to engage in the burglary.


Is it operational? Are you guys looking into it or what are you all planning to…


We’ve already had some correspondence with the FBI about that. We are working with them on that. We hope not to have to do a legislative action. We do believe that in fact that they will see, and we have seen this before.

I gotta go, but I gotta tell you one of the finest moments in my life — and you’re talking about a little poor boy from North Dakota — was to have the director of the Internal Revenue Service sit across from my office desk a few years ago say, “Yes, Mr. Congressman, I’ll make that change.” ; And I think we can probably bring the FBI to that point as well. It was just an incidental thing, it had to do with Crime Stoppers and the way they were taxing them, but just the experience of having the director of the IRS saying, “Yes, Mr. Congressman, I’ll make that change,” I think we can probably negotiate it out without having to legislate.


Is there ever a role for government in anything technological?


I am a believer that sometimes we need state intervention when there is an external cost like your talking about. When a factory belches smoke into your yard, you need some kind of recourse and in a practical sense it’s very difficult for you to sue or somehow control to impose cost on the factory that does it. Sometimes you have to have the state step in with some kind of environmental regulations. It’s really hard to conceive of many examples of that with technology such as the Internet essentially spreading information and knowledge around the globe. In a way the Internet is almost the opposite of an external diseconomy, it’s sort of an external, I don’t know what you would call it, when there are external benefits that are distributed by the internet for free. So I really just don’t see that as a problem, I mean if you could site examples or something, but you know, I think it’s almost the opposite. Here’s a real economist with the answer.


As I mentioned in my talk I am in favor of privatizing much of what government does. One thing that government does, and I believe that it has a legitimate role in doing, is putting pollution limits on society because clean air is one thing that we care about that is a public good. We care about a clean environment and we can better afford to do something about it now because we’re a wealthy society. At one time we were willing to let the air in Pittsburgh be dirty in order to have the automobiles and washing machines that were the product of the industrial age. But we have all those industrial age goods now. Americans are wealthy enough to where most of us would like to see a cleaner environment. The way to achieve that, though, is through markets, subject to initial overall limits imposed by government.

Set a limit on total allowable pollution and auction off those rights in perfectly divisible units on the New York Stock Exchange. Then allow companies, individuals, government, or whatever group to buy and sell pollution rights at market prices, subject to the total allowed. That way, when an individual or company buys the right to pollute, they immediately have the incentive to reduce the amount that they’re polluting so they can resell the portion that they save. By becoming more efficient, they can sell it back to the market and profit. That’s the market’s way to solving pollution problems — getting the incentive and profit mechanism to work to reduce pollution. Taxpayers could instruct government to use our tax dollars to buy back pollution rights and take them off the market entirely, thereby making the air cleaner. The Audubon society, a wealthy philanthropist or a classroom full of school children could buy and retire pollution rights.


We have time for one more question.


You made a joke about cybersex on the Internet. Do you see government’s role, whatsoever, in monitoring or censoring or controlling radical groups, cybersex, or things of that nature, including sex Web Sites? Should the government take any role in that or should it just be let the buyer beware or …


Honestly, you’re asking me for a personal opinion on this. My personal opinion is that when it gets into things like child abuse or child pornography obviously there’s a role for government in helping to stop it. I’m less concerned about the sex issue, though, honestly, than I am about somebody who can tell me how to make a hydrogen bomb on the Internet or how to be a hit man. I think the really important concern is stopping people whose intent is to simply be malicious or destructive, such as a hacker. Computer viruses are my biggest concern because I feel that the continued growth of the economy is highly contingent upon the continued expansion of the truly wonderful information age tools that we’ve developed — computers, the Internet, e-mail, etc.


All right, thank you all very much.


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