Duke Economist Tells CPAC the FCC’s ‘Net Neutering’ Decision Will Stifle Internet Driven Economic Growth


Dr. Michelle Connolly, a professor of economics at Duke University, delivered what may be the most memorable line at CPAC’s panel on economic growth Thursday.

The panel included a quartet of higher profile conservative economists and politicians: former Hewlett Packard CEO Carly Fiorina, Heritage Foundation chief economist Stephen Moore, economist and columnist Lawrence Kudlow, and Congressman Roger Williams (R-TX). All offered sound policies to advance economic growth.

But it was Connolly, a former chief economist at the FCC,  who gave conservatives a new rhetorical tool that may help turn the tables when she tore in to that agency’s 3-2 decision to impose a policy that purports to introduce “fairness” to the internet.

Net neutering, . . . is the process that the FCC has chosen to begin today,” Connolly told the CPAC audience, introducing it to a term few had ever heard before, but one conservatives are likely to embrace as far more accurate than the “net neutrality” phrase far left Columbia University law professor and Democratic partisan Tim Wu coined back in 2003. (emphasis added)

“Today, a few hours ago, we had what is the most perfect example of really bad regulation. The FCC decided at the insistence of the White House to impose net neutrality rules on the internet,” Connolly told the crowd.

“The administration doesn’t seem to care that over the last two decades the internet has done amazingly well, in fact, it’s one of the large drivers of our growth. And all of this time it’s been doing that without any government regulation,” she noted.

Net neutering is not a step forward, Connolly argued. Instead, it is a huge step backward.

“What is happening today is not only a huge regulatory grab on the part of the FCC, but they are also imposing this heavy handed utility regulation, much of which was written in the 1930s,” she said.

“The FCC is claiming that it is supporting net neutrality but they are not making anything neutral or fair. What they are doing,” Connolly argued, ” is making it possible for the FCC to decide what is neutral and fair whenever they feel like it. They are making it possible for the FCC to impose new taxes on the internet, to impose new obligations and basically to impose anything that the FCC eventually decides that it wants to impose on this industry.”

The FCC decision is yet another example of how thoroughly the federal government, under the Obama administration, has undermined the conditions necessary for economic growth.

Introducing a theme that would be roundly endorsed by the panel, Connolly argued that, when it comes to prosperity, it’s all about economic growth.

“The most important thing that will help average Americans is growth. Growth in GDP (Gross Domestic Product) per capita is the most relevant measure because it shows how much income is essentially the equivalent of average income in the population,” Connolly said.

Just as the “miracle of compound interest” can, over time turn small amounts of savings into real wealth, increments in annual growth rates can have a huge impact on prosperity.

“If you have a 4 percent annual growth rate per capita, your income will double in 18 years. So in one generation you double your income. If, on the other hand, you have a 1 percent growth rate, then it will take three generations. It will take 70 years before average income doubles in the United States,” Connolly said.

The burdensome regulations and high taxes of the Obama administration over the past six years have stifled, rather than promoted economic growth.

“If we look at all of the past recessions since World War II that have lasted for ten months or more, the recovery rate is on average about 3 percent per year. That’s been all of our recoveries since World War II. Our current recovery we’ve had an average growth rate of 1.5 percent,” Connolly observed.

This differential is highly significant.

“That’s the difference between income doubling every 47 years instead of every 24 years,” Connolly pointed out. “So I think that in the end this long run growth rate ends up being the most important thing to the gain of Americans because if we’re growing it doesn’t matter if you’re in the 50th percentile or 52nd percentile everyone will end up with much higher income,” Connolly added.

“It’s not the government that creates growth, private firms create growth.”

The role of government, Connolly said, is to provide “the environment in which the private sector creates the growth. the government can create a positive environment or it can create a negative environment. It can create a positive environment that will encourage innovation, investment and production by using rule of law, providing infrastructure, property rights, military protection, free trade and education.”

All too often, Democratic policies, “create a negative environment which will actually discourage innovation, investment and production. It can do this by attempting to decide which firms or industries should be favored over others. Think Solyndra. “It can create economic uncertainty. It can increase taxes for paying the increasing size and number of government projects. It can do this by increasing the effective taxes and discouraging optimal firm choices through excessive regulation,” Connolly concluded.

Connolly then introduced the panel of experts– Fiorina, Moore, Kudlow, Williams–all of whom delivered hard-hitting critiques of failed Democratic economic policies and focused on the conservative solution. The panel made a consistent argument, one that posed a stark contrast to the government-centric economic policies the Democratic Party has promoted for decades.

“The economy basically has been growing at 2 percent for this entire recovery and it’s basically been growing at 2 percent for the last 15 years. Historically I looked at some numbers, and since World War II we’ve grown at 3.5 percent. Over the past 100 years, from 1900 to the year 2000, I think that’s 100 years, we grew at 3.4 percent per year,” Kudlow said.

“We can’t do 2 percent. It’s not American. We lose our leadership. We lose our employment. We lose our vigor,” Kudlow added.

Fiorina agreed.

“First, I think we have to acknowledge that 2 percent is not a new normal that we should get used to. I say that because the administration keeps declaring victory. It keeps declaring victory. Growing more jobs. We’re growing, they say. No this isn’t victory. We can’t accept this,” Fiorina emphasized.

“The second thing we have to recognize is that the cost, the complexity, the bloat, the corruption of government is part of the reason our growth is falling,” Fiorina noted.

“The tax code is too complicated. The regulatory structure is too complicated. The result of that is crony capitalism. As I said earlier today, small businesses are getting crushed. In other words, we have to start with the fundamental that we need to throw weight off the economy. So that we can get going and growing again,” Fiorina concluded.

The Heritage Foundation’s Moore pitched a specific policy solution: the flat tax.

“I want a 15 percent [flat tax ] on the income tax. 15 percent on the corporate tax. I want to quit double and triple taxing capital gains, and dividends. Estate [taxes are] about quadruple taxing. I want the Republican Party, I want the candidates running for president to start talking about this kind of sharp tough tax reform,” Moore said, putting some pressure on the Republican contenders.

Congressman Williams, who owns a small business, argued that without strong economic growth and with a government that runs on crony capitalism, small businesses suffer while Wall Street prospers.

“Wall Street may be doing great, but I’m a Main Street guy. I employ 100 people. Main Street is playing defense. Main Street is not back. Main Street is suffering for a lot of reasons,” he said. Small businesses on Main Street need to go  “from playing defense to offense,” he concluded.

“It’s the Economy, Stupid,” was the phrase James Carville coined to became the theme of Bill Clinton’s 1992 presidential campaign.

If the advice of the CPAC panel on economic growth to 2016 Republican Presidential contenders could be encapsulated into a campaign theme, it would be something like this:

“Its About Growth in the Economy, Stupid!”


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