I am going to make some remarks on the economy and the political situation. This country's position today is absolutely extraordinary and unique in history. Never before in world history has a nation or state had the global influence we do today. If you look at great empires of the past, in global terms they were regional affairs. Even the Roman Empire was a regional affair, if you looked at it from a global perspective. No nation has had the world-wide influence that we do today. Whether they admit it or not, nations and people around the world look to us to see how a free people adjust to changing times and circumstances. We have found ourselves in the unique position of being the world's only superpower, at the same time rarely have there been the opportunities for economic growth, expansion, and renewal in this country.

We have a number of problems today, but the possibilities of moving ahead have never been as fantastic as they are now. The country is experiencing a renewal. You feel the energy. You can see it on the social side; people are deciding on the local level to begin to deal with problems that have plagued us, whether it is drugs or crime. Even the tone of the welfare debate changed in the last year and a half. In times past, people always talked about the money spent on welfare. This time the debate focused on the fact that the current system hurts and actually destroys many of the people it is supposed to help.

We have had these periods before in American history. We can go back, for example, to the 1820s. We have a serious drug abuse problem today, especially among younger people. But back in the 1820s in America, alcoholic consumption was three to four times what it is today. Everyone took a swig from the jug. Teachers did it. Preachers did it. Adults did it. Kids did it. They called it cider in those days, but it bore no resemblance to what you buy at the supermarket. This was really the strong stuff. So, in the late 1820s in America, by the time noon-time rolled around, much of the country was in kind of a haze. While we may chuckle about it today, it had all the predictable social consequences.

So there arose a series of movements in the late 1820s that said that if you are going to have a self-governing nation, the country must be inhabited by self-governing individuals. The first public health movement in America did not come out of Washington, Sacramento, Albany, or Trenton. It was the Temperance Movement. It worked. Within a generation, alcoholic consumption had fallen by two-thirds. The 1830s saw a rise in religious movements that historians now call "The Second Great Awakening." That time period saw the rise against slavery by the Abolitionist Movement. We have had these periods of renewal before.

But on the economic side, even in the time of industrialization, we did not have the prospects we do today. The fundamentals are absolutely enormous. We have had an investment boom in America since the early 1980s, with brief interruptions. In manufacturing, the United States is world class again. Not just in the newer industries, high technology, or computers, but in more traditional industries, including steel and the automobile industry. Yes, the competition is again intensifying in the automobile industry.

Take a company like Chrysler. In 1990, Chrysler was on the financial ropes. There was a real question of whether they were going to get this new product to market before the company ran out of money. Four years later, Chrysler was making more money than the entire Japanese auto industry put together. America is again becoming world class in manufacturing. We have capital available in America as we see what happens each day in the stock market.

Banks are now brimming with cash, and we are now the foremost trading nation in the world. That sometimes gets obscured by trade statistics, but those trade statistics don't always give you the true picture. Take, for example, high technology. Actually, it is many industries and is import intensive. Value added comes here in America. Let me give you a simple example. A book might be physically printed in Italy or Taiwan. In trade numbers, you might say America has a $3.00 trade deficit with Taiwan. But what that number overlooks is that book comes back to the U.S. It is retailed for $20.00 or $25.00. The author gets his or her cut; the agent gets his cut; the transporter gets his cut; the retailer gets his cut; the store gets its cut. Everyone comes out ahead. That is the trading pattern of the United States today.

In high technology, where our real future lies, America leads the world. There is microprocessing, Internet technology, software, and fiber optics. At the same time we have these glittering possibilities, we are entering into an era that is altering the way we live and work. The computer age, the information age, and the microchip age are going to have a profound impact on this country, as well as around the world. This new age is symbolized by the microchip, which is extending the reach of the human brain the way machines extended the range of human muscle during the Industrial era. For example, if you learned to drive a tractor you could do more physical labor in a day than a hundred Herculean plowmen could have done in a month in days of old. Too, in this new era, the chip is going to make us more genius-like. Even if we were dunces in school, the chip will make us able to do things previous generations couldn't even conceive of.

One of the virtues of a free country with a free economy is that you succeed most when you provide a product and service that people find simple to use. You do not have to be an engineer to buy and drive a private automobile. You do not have to know anything about aerodynamics to buy an airline ticket and travel like I am tonight. In this new era, you don't have to know anything about whatever high tech jargon is floating around to be able to participate. Look at one of those early fruits that the microchip gave us, the calculator. Just think, twenty, twenty-five years ago a calculator cost over $1,000. Today they are so cheap often the packaging costs more than the gizmo itself. They are simple and easy to use; everyone has one. Thus, even if you did not know anything about arithmetic or math when you were in school, and they gave you F's, you can do in a matter of minutes the kind of mathematical computations it took math whizzes hours or days to do just forty or fifty years ago. Now, we think it is the most natural thing in the world to be able to use a calculator. This is just the beginning of what lies ahead.

No one needs be left behind in the labor force. You do not have to be a programmer to participate in this era. For example, if you go to a supermarket, -- and I guarantee you that presidential candidates and ex-presidential candidates make it a point to visit supermarkets once in a while what do you see when you get to the check-out line? Very sophisticated inventory equipment that is changing the face of retailing in America. Anyone can learn to use it whether it is wands or lasers. Most people can get the hang of that machinery very quickly; yet, it is very expensive and full of information, changing how we do retailing. This should and will be an inclusive era.

This, of course, raises a basic question. Will the United States recognize her full potential with these glittering opportunities? Will it be known as an era that rose to the occasion, unique in history? We won't remain the only power in the world forever. We won't maintain these fantastic leads forever unless we remove certain obstacles. We have to get these obstacles out of the way as we are starting to do on the local level in America. There is amazing energy around the country. But if we don't get these obstacles out of the center that is in Washington, we are not going to be able to fulfill our real potential.

The real question we face today is, can we fulfill our potential as a people and as a nation? Or will we be known to future generations as an era of missed opportunities? The real challenge at the beginning of this century and so too at the end of this century, is getting the political culture up to speed with the changes that are taking place in this country. At the beginning of this century, we had the so-called "Progressive Era," epitomized by Teddy Roosevelt, who brought in major reforms. He wasn't just at the center of Washington but all around the country - Ohio, California. Hiram Johnson and others brought in reforms to Wisconsin and elsewhere. They brought the political culture into the Industrial era.

Let me just touch on some of these obstacles. There is no secret as to what they are. For example, regulation. We do have excessive rules and regulation in our country today. We experience it on a day-to-day basis. My favorite example is what happened to a bank in Kansas a couple of years ago. It was fined by the regulators. What was the bank's crime? Most of you have done drive-through banking, ATM machines. This bank was fined because its ATM machines were drive-through banking and did not have Braille on them. Why do you need Braille for drive-through banking? The bank had to pay a fine for it. You see it, too, in communications. Those of you who have been on the Web and Internet know how crude or slow the graphics are. If you have ever had these conference calls, it looks like these old silent movies with jerky motions. You know how long it takes to get graphics up on the screen? That is not a lack of technology. That is regulation that won't allow the telephone companies and the cable companies to put a single wire into your home or office that can handle that kind of capacity. Telephone wires, even with super modems, cannot handle the capacity for information that a cable wire or fiber optic wire can handle. Why not let them put a single wire into your home? The real competition comes not from having a bunch of wires in your office or home but it is what goes over the wire or what you pull off the satellite. The regulators have this crazy notion that you need a lot of wires going into your house. It is like having a new automobile, but you are told you have to drive it on a path, even though just over the hill we have a modern super highway. They won't let you do it. It is crazy.

We need educational reform in America. There is no reason why our kids aren't getting the kind of education other kids in other countries are getting. The Education Department a few years ago participated in a global study and spent $35 million to see how our kids compare with other kids in mathematical capabilities. Other studies had been done, but they had always been dismissed as being inadequate - comparing apples and oranges. They were always able to dismiss them. This study was done right, and it came out a couple of months ago. It showed that out of forty-one nations that participated in this study, we ranked about twenty-eighth. We were behind Japan, Germany, France, Great Britain, and even Russia. We are not giving kids the education they need. The ultimate answer is making the schools responsive and accountable to parents. You need business to be responsible and accountable to the customer. You need it, too, in education whether it is done in choice or charter schools. It has got to be done.

We need legal reforms in America in order to get sanity back in our justice system. The two areas where we need immediate reform and fundamental change are the areas of taxation and entitlements. Taxes are a subject I hate to talk about. If there is one thing you understand about taxes, you will be ahead of most policymakers and economists in Washington D.C. Taxes are not just a means of raising revenue. Taxes are also a price and a burden. The tax you pay on income, profit, and capital gains is the price you pay for working. The price you pay for being productive, innovative, successful, and willing to take risks to provide foundations for future progress and prosperity.

The proposition is very simple. If you lower the price and burden on those good things like work, productivity, success, and risk taking, you get more of them. If you raise the price on those good things, you get less of them. Every time in American history that you lowered the burden on the American people, the American people responded as you would expect them to do. Better paying jobs were created. New businesses were created. Incomes went up. The standard of living improved. Government revenues went up, not down. What Washington really secretly fears from fundamental tax reform is not a loss of revenues but a loss of power at the center. It should not be a partisan issue. With the Kennedy cuts of the early 1960s, America had twice the growth rates we have today and 1 percent inflation. With the Reagan cuts of the 1980s, same principle. We had the longest peace-time expansion in our history, and inflation fell by two-thirds. Inflation is not caused by prosperity, contrary to what some think in Washington, D.C. The tax code today is the biggest burden on American life. Nobody knows what is in that code any more. Not even the tax collector knows what is in there any more. You can take your tax return to a dozen different preparers, and you will get a dozen different returns back because of the complexity and incomprehensibility of the current code. Just to put it into perspective, Abraham Lincoln's Gettysburg Address which defined the American nation was just over 200 words in length. America's Declaration of Independence was 1,300 words. The Bible, which took a few years to put together, 700,073 words. The federal tax code and its regulations, 700 million words and rising. Nobody knows what is in there. I will give you a true story. A couple from California had to file a petition in tax court. Their lawyer called the IRS office and asked, When is the petition due? March 14, they were told. They called another IRS office just to be sure. They got the same answer. March 14 rolls around, and the couple files the petition. A few days later, they get a notice in the mail. The notice said, Your petition is being rejected without a hearing because the real deadline was March 13. The couple did not think that was fair so they took the issue to court. A few weeks ago a federal court ruled that under current law the IRS cannot be held responsible for giving you false and misleading information. You lose out. We do need fundamental reform.

Given the monstrosity we have today, it is corrupting and complex. The American people don't like to pay taxes, but in times past we always felt it our duty to pay our taxes. We did have a compliance that other countries envied, but our faith in the code has been subverted by its complexity, corruption, and incomprehensibility. There is only one thing to do with this monstrosity. If you can't reform it or tame it, the only thing you can do is kill it. Drive a stake through its heart and bury it and hope it never rises again to terrorize the American people. There is no other way around it.

We do need genuine tax reform. I believe we should replace this code with a flat tax. You could fill out your return on a post card. Lower the price on those good things we talked about - have generous exemptions for children and individuals so that we remove millions of people from the tax rolls who should not be there in the first place. They will still be paying plenty of other taxes, but let's start there. That is a fundamental and vital reform. We spend 6 billion hours a year filling out tax forms. We spend almost $300 billion a year complying with this thing, and for what? Just think of all the energy and intellectual power that you put in trying to figure out how to cope with this monstrosity.

Now, on entitlement reforms. It is in the news again. Social Security. Medicare. One of the things that you learn when you go into public life, if you have been in the private sector, is that people in public life do not realize the full dynamic of a free enterprise system where everyone can move ahead. In politics, it is zero sum. You win the election, or you lose the election. You get the coveted committee assignment in Congress, or you don't get it. If somebody moves up in the Cabinet, it means somebody is moving out or to the side. If they think of reform, they think, Who is going to win and who is going to lose? The idea that you can make serious reforms where everyone is going to win is an utterly alien idea. You see it in Social Security. Look at this advisory panel which has spent all these years grappling with the problem and finally realized that stocks and bonds in the private sector do better than the government has done. Great revelation! It took sixty years, but things don't always move fast in that town. Even these panelists, every single one, came out in favor of raising taxes and cutting benefits. There is a better way. Recognize we have to keep the current system for those who are on it. Promises made. Promises kept. We have to keep the system for those who are going to go on it in the next few years because real-life decisions have been made on the basis of those promises.

But while we still have time, why not start a new system for younger people where part and eventually all of their payroll tax goes to their own individual retirement account? Taken out of the hands of Washington, they would own it. They could direct the investment of it. No, they could not buy race horses in Guatemala or avocado farms in Honduras or try to raise buried treasure. It would be restricted to mutual funds and bank CDs. They would own it, and they couldn't touch it until a certain age, say fifty-nine and a half, pick an age. They will have infinitely more when they retire in the next century than the currently going bankrupt system can provide today.

The money would be invested in the real American economy, which would make America stronger. Everyone comes out ahead. You take a couple today making $30,000 a year; they now pay about $4,000 a year in payroll taxes. In the next century, if reforms are not made, it will probably be $10,000 or $12,000, just in payroll taxes alone to support the current system for Social Security and Medicare. Obviously, it cannot be done. It would wreck the economy of the United States if you had those kinds of payroll taxes alone. But if you took that $4,000 and put it in a couple of retirement accounts and assumed normal historic returns, by the time that couple retired at mid-sixties, late sixties, they would be millionaires. They will earn more in retirement than they did working. That is what a free economy and a free enterprise can provide. With Washington's zero sum mentality, they all say, That's all very good. Stocks are very risky. Yes, they are, but they are not as risky over time as the current bankrupt way they run Social Security. We can see that.

Also, too, it is very important to remember that people do not have to buy stocks. They can buy bonds or bank CDs if they like. They say we cannot afford the transition costs. They say we might have to float bonds to pay for the current retiree's benefits during this transition period. My friends, if you ask an actuary, he will tell you the debt is already there. $8 to $10 trillion of unfunded liability. If you do the transition right, even if you have to float bonds, it won't be anywhere near $10 trillion. If you bring in the new system, you can pay the bonds off. In Washington, they have this zero sum mentality. Those are the kinds of obstacles we face here at home.

Overseas, we face the obstacles of countries getting ahead. Unfortunately, this zero sum mentality hurts our relations with other countries who are trying to get back on their feet. Unfortunately, when countries around the world get into trouble, our Treasury Department and the International Monetary Fund prescribe policies that would get you sued if you did it in medicine. Malpractice. Two hundred years ago, if you got sick they used to bleed you, and that got rid of the pain and suffering because it got rid of the patient. Unfortunately today, in too many instances, what do they prescribe when a country gets in trouble?

Devalue your currency. All that does is get you more inflation at home. They say, balance your budget. But they do it by raising taxes, which raises the price on the emerging middle class and gets the country in a bigger rut. There are four basic principles that we should apply to countries around the world that get into trouble that will get them on their feet. Again, it is not rocket science, but it is amazing how much they are ignored. Remember that taxes are a price. Put in a low rate tax system. A second principle is sound money so that you do not have inflation, flight capital, and barter as you had in Russia and elsewhere. Third, respect for property rights, both physical and intellectual, the rule of law. You don't have that in certain areas of the world today. Finally, nonbureaucratic interference. If you want to set up a business or run a business, it is amazing how difficult it is in many countries to set up a legal business. That is why they have such large, informal economies. Just look at Russia. It is very dangerous what has been happening in Russia. They suffered from hyperinflation, and gangsters reign there today. Russia now has a murder rate five times that of the United States. What does the IMF and our Treasury Department tell the Russians? Improve your tax collections; your revenues are going down. Why don't they actually look at what is going on there because of the corruption? Tax collectors now wear masks so they won't be recognized and their families bumped off. If you have a business in Russia, you now face 180 different taxes from four different ministries. You would go broke trying to pay the taxes; no wonder they don't, which increases the power of the Mafia. Why not advise the Russians to put in a Hong Kong system of simplicity and low rates so you can get businesses to grow in a legal manner. That is not prescribed.

You look at Peru. Same thing. You look at Mexico; that peso crisis two years ago could have been avoided. Instead, we advised devaluation, which set off an inflation that destroyed a rising middle class. Mexico's finances look like they are getting back in shape because they are paying the money back that they borrowed from us. But if you go to Mexico, it is a very distressed country today, and people are still trying to cross our borders illegally because of the distress there. That crisis could have been avoided if we had followed these basic four principles.

If we had said those loans are available to prop up and stabilize the peso, we would in December 1994 have been able to buy every peso floating in Mexico and then some. But we did not do that. There is a lot that has to be done overseas, not just on the economic side. I know I am going to get in trouble here, but we need a real foreign policy again in this new era. The policy should recognize these opportunities. There is no reason why Russia can't get back on her feet. There is no reason why Germany and France are in a rut today where they propose these austerity moves.

In Germany, they tried to cut back on their six week vacations and had to back off. In France, they tried to make some cut-backs. The truckers objected, and the government backed down. They have ferocious taxes and crazy regulations. They are stagnating. We need new thinking. We have to show them that here in this country you can make fundamental changes. If we break the log jam in an imaginative way, I guarantee you that people around the world are yearning to see examples so they can get out of the rut they are in. If western Europe doesn't get out of that rut, with double-digit unemployment in Germany, France, and elsewhere, the extremist parties are going to gain more and more strength.

The conditions and wonderful opportunities we have today are going to go by the boards. The question that I ask you is, will we rise to the occasion? I think the answer is obviously yes. I am convinced, as I think historians are, that when they look back on this period they are going to have to conclude once again that the American people would prove wrong the critics and skeptics. They will have to conclude that the American nation will have resumed its rightful place as the leader and the inspiration of the world.