The Main Event keynote address was delivered by Dr. Michael Cox, senior vice president and chief economist of the Federal Reserve Bank of Dallas. This is an abridged and edited transcript of his remarks, which were made with the assistance of numerous data exhibits which are not available for publication.

A persistent theme of Dr. Cox's speeches and publications is the fact that most of the things we consume cost less and less in terms of the hours of work needed to earn enough to acquire them. According to Cox, this trend occurs at almost all income levels, and continues through boom times and times of slower economic growth.

Important Long-Term Economic Trends

"A hundred years ago, during the era of mass production, the United States was a leader in the production of goods and equipment, and in transporting those goods to the rest of the world. We excelled at that.

"That’s still going on and global trade is still expanding, but the second great round of innovation is in information. It used to cost $100 to send just a 10-word telegram across the ocean. Even as the price came down for telegrams, Americans did not use the telegraph much. The average person never sent one more than once every six years.

"Until recently, the price of a long distance phone call, a 10-minute international call, did not come down enough to be affordable. It cost a thousand hours of work back in 1934 for a 10-minute international phone call. This came down eventually to about six minutes, a tenth of an hour, of work. People now in a foreign country don’t think too much about picking up the phone and dialing their assistant.

"So we’re much more connected, but the main way we’re more connected, that we communicate internationally, is with e-mails. The number of e-mails sent across the planet is up from almost none in 1995 to 11 trillion in 2006. By today, it’s probably double that. I can be in Mexico, China, or Africa and connect with somebody in a Starbuck’s in America.

"Now, if I’m a U.S. company, I can have a back office shop in Bangalore or Hyderabad or Chennai. Over in India, they’re working at night when it’s our day, answering phone calls to fix our computers, among other things. I would not recommend to many American students than they get a degree in computer science. Twenty years ago that might have led to a relatively high wage, but today they’re competing with Indian personnel.

"We are actually doing remote surgery over long distances. In 2001, a doctor in New York operated on a patient’s gall bladder in Strasburg, Germany. Five years after that, a laptop in Boston actually was able to improve the trembling in a surgeon’s hands as he operated on a patient in Milan.

"Our students are being tutored by Indians. For $100 a month you can get trans-global tutoring from a company named Tutor Vista.

"We’re traveling now more than we used to. In 1950, only one person on average would arrive in a foreign country for every 100 people who lived there. Today, it’s 12.

"So, what about the by-products of all this globalization? Well, we're seeing the fastest productivity growth in many years. The average productivity growth rate for 130 years, from 1870 to 2003, was 2.3% on average. At that rate, it takes 72 years for living standards to double.

"Since computers were fully integrated into business operations, productivity growth has been high, not just in the United States, but especially high in China, India, and Eastern Europe. In only a couple of places in the world has productivity growth slowed down, but that’s a function of the fact that some countries are unwilling to go through the process of creative destruction to remake themselves over and over.

"Another important rend is the great moderation in the business cycle. We used to be in recession a lot. In fact, over the period from 1853 to 1953, the U.S. economy was in recession 40% of the time. Over 1,200 months, we were in recession 409 months. But, since November of 1982, we’ve only had 16 months of recession. That’s only 5% of the time. We’re a much more stable economy.

"Years ago, services were not a very large part of the economy; only 25% of it. Now, they account for 50%, so you have 50% of the economy being a very stable sector. So, the overall economy is much more stable

"A fourth trend is lower inflation. Inflation rates for industrialized countries used to be very high, but today they're down to 2-3%. If today’s inflation rate goes up to 3.5%, we throw up our hands and think, “Oh, that’s terrible.” That's because we’re competing now with other countries for investments worldwide. If we let our inflation rate get very large, we’re going to lose customers for U.S. markets and U.S. investments. The competition between central banks is a good reason inflation will stay low.

"Inflation expectations have come down. If you remember the period during which the inflation rate in America got up to 14% in the late 1970s, that burned a lot of investors. People who had put their money in long-term government bonds that yielded 2-3% found out that they had a capital loss on their bonds. So, they said, “Fool me once, shame on you. Fool me twice, shame on me. I am not going to let you loan me that money again at those rates for a long time."

"So they forced a 350-basis point premium, an inflation rate risk premium on government securities for a long time. It finally got eradicated due to the so-called "Greenspan effect" of monetary policy stable enough for people to believe we could have long-term interest rates without long-term inflation. The inflation risk premium eventually got down to zero. This is as good as it gets for these low inflation expectations.

"One of the biggest trends is the rise of China and India. Real GDP per capita in China was roughly $700 per person in the year 1. In 1978, it was about the same. For almost 2,000 years China went nowhere. Finally, they adopted markets. They haven't reached Western levels yet, but they’re rising rapidly.

"You know how much difference it’s made to the world to incorporate Germany and Japan into the world following the Second World War. Those two countries came on strong, they were our competitors, and they provided products for us to consume. It was very good for the world to have Japan and Germany as competitors—and South Korea, as well.

"But Germany, Japan, and South Korea together only have 260 million people. The U.S. population is 304 million. Imagine what it is going to do with these 2.5 billion people in China and India joining the capitalist club, to have 40% of the world’s population suddenly become capitalist consumers and producers, rather than just producing only what they can consume.

"People don’t live in isolation anymore. When your production goes up, so does your consumption. We've seen China’s production relative to GDP, its exports relative to GDP, go from 2.5% to 37%. But their imports have gone up, too, so they are demanding more from the rest of the world, as well as supplying more to the rest of the world.

"The same thing’s true of India. India has gone from exporting about 4% of their GDP to exporting 20%, but their imports have gone up to 23%. They’re actually running a trade deficit, buying more form the rest of the world. So this is a real opportunity for America to sell stuff to 2.4 to 2.5 billion people.

"We’ve spent 80-100 years developing a service economy. Only 18% of us in America work in the goods-producing businesses: agriculture, manufacturing, mining, and construction. But 82% of us work in the service business. We haven’t been able to export our services very much because technology was not in place to make it easy. Today, it is, so there’s going to be big growth in export of service.

"The Bureau of Economic Analysis has taken all the data on services exports and imports to and from America and broken it down into 20 categories. The United States has export surpluses in 15 of those 20 categories.

"We have a huge surplus in our royalties for records and software products and so on. We export five times as much in financial services as we import from the rest of the world. Our financial business is in there selling stuff and managing money for the rest of the world."

"In education, they’re coming here to go to our schools more than we are going to theirs.

"In the film business, there's a big export surplus. You can actually download movies from foreign countries now and we get money for that. The legal business is exporting a lot more to the rest of the world than we are importing in legal services.

"The biggest example is industrial engineering. That industry is overseas making their factories work, making their supply chain management work. Yes, foreigners are making the goods and services, but who’s making the equipment talk to each other?

"We import four times as much insurance service as we export. A lot of this is reinsurance. There is a great opportunity for America to be selling its insurance to the rest of the world, all kinds of insurance, including property insurance. 100 million people in China live in China’s top 10 cities. Every week in Shanghai two office buildings of 35 or more floors are completed, and that’s scheduled to happen for the next six years. And that’s just the office space and the commercial space. There’s a lot of property left here.

"The residential construction is changing in China, too, to where folks are finally going to have enough money to be able to build a decent sized house, and then they’re going to want to insure it.

"If we don’t look outward form the United States to the rest of the world, from our local to a global market, we’re giving up 21 customers for every one that we have. We’re 4.5% of the world population; we only have one out of every 22 people living here in America. Twenty-one of every 22 potential customers live out there.

"Another trend is greater resources demand. There’s a very tight correlation between income and oil consumption and all kinds of resource consumption. There’s just no way around this at least for a decade or two. World demand for oil will be rising and the putting upward pressure on prices.

"Rising wealth, rising world wealth, is another trend. We’re not the only ones getting richer anymore. In North America, we expect that wealth is going to increase. But the biggest increases in percentage terms are going to be in the Middle East, 9.5%, because of oil prices, but also in the Asia-Pacific region, 8.5%.

"We have an increasing number of people whose net worth exceeds a million dollars. There are about nine million millionaires in America today. In terms of investable assets, the figure is six million millionaires. Wealth is going up across all categories.

"The way in which wealth is held is continuing to rise. I hear all the myths all the time about how we’re becoming a very indebted nation, but that’s just looking at one side of the balance sheet, that’s just looking at liabilities.

"On the asset side, household net worth relative to income has been increasing. Net worth has been increasing faster than income. Net worth is more volatile than income but it’s higher.

"The importance of education and knowledge is rising. We are increasingly in a world where what you know is what matters, not just your knowledge gained in school but what you’ve learned elsewhere.

"Two very strong factors in well-being are education and experience. Suppose you drop out of junior high. You’re young, 25-34, you make $22,000 a year. Thirty years later, you’re making $5,000 a year more, not much more at all. But, suppose you get a professional degree? You're in the same age group, still making as much, but you see a huge increase in your income over your lifetime, a $70,000 increase in income.

"This is the most egalitarian economy we ever had. There's gold in them books and you just mine it out. You earn what you learn.

"We need to use our creativity, our imagination, to think of new ways to do business. Most of the people getting rich in America today are imagination-age moguls. Bill Gates who did not use his analytic power to invent Windows, but he did recognize that it would be something the world would use and so. The same thing is true of Jeff Bezos, who imagined a new way of acquiring books.

"Imagination and creativity have risen above analytic reasoning in terms of value, but the highest value now is placed on people skills and emotional intelligence. Folks that know how to manage a labor force. Folks that know how to inspire people. We need to tap the knowledge of business which we’ve garnered over years and years of operating a capitalist economy.

"We’re the most diverse nation in the world in terms of our labor force, so, we should know how to get along with one another. We’re much more egalitarian this way than many other nations, and in our day-to-day jobs we’re already more people-oriented. This is our natural comparative advantage.

"The next trend is the rising economic power of women. Some 72% of the new veterinarians coming out of schools are women, 68% of new pharmacists are women, half of doctors, 45% of the MBAs.

"The rise of declining average cost industries is an important trend. In old economy industries, the cost of doing business turned up after awhile. This does not characterize much of today’s economy. Today’s enterprises tend to have high fixed costs and low marginal costs.

"The cost of bring a new pill to market is a billion dollars--for the first pill. The second pill? Fifteen cents. Windows NT cost $250 million to design for the first copy. Second copy: 50 cents.

"This means that the average cost curve goes down over a range of output. As we add the world to demand, we can each be charged just a little bit to cover fixed costs. This is true in software, it’s true in medicine, it’s true in hardware, and it’s true in microchips. Poor countries are able to get stuff at very low cost so they’re able to raise their living standards very quickly.

"Products are also diffusing into the economy much faster than they used to. In a few years, just a few years, Internet use spread throughout America and throughout the world. The same is true for cell phones. This is because these are declining average cost industries.

"Leisure is increasing. The average work week in America in 1830 was 76 hours. Six 10-hour days was the average week in 1870. In 1830 it was six 12-hour days plus 4.5 hours on Sunday. It's down to 34 hours in American today. In 1870, people worked 61% of the time they were awake; today, we work 28% of the time we’re awake.

"We spend more time watching TV than in the past. We go to more movies. We have more adult softball teams, twice as many golfers, 14 times more Americans taking cruises, and 3½ times as many amusement parks."