RUST COMMENTARY: CLINTON'S SPEECH MARKS RETURN TO THE ERA OF BIG GOVERNMENT

Awkward moments: President Clinton's State of the Union address spoke of a "new dawn" for America. Given 16 years of economic growth and a decade since the decline and fall of the Soviet Union, events kicked off long before Clinton's ascent, it is hard to see what "nighttime" has preceded the morning to which the president referred.

On the merits, the speech as a whole reflected the president's oratorical gifts, but on substance it was a departure. Actually, a return -- to the notion of government as the solution to the nation's problems. "The era of Big Government is over," Bill Clinton declared four years ago -- that era is now back in force.

National child care is back. Yes, a modest tax credit for stay-at-home moms is in the mix, but when the baby reaches age 1, the credit goes only for out-of-home care. The federal education bureaucracy is back in the saddle. The president proposed new funds and new "accountability," which will work together to diminish local control and parental involvement.

The homosexual agenda is back. The president once again issued a call, the first I can remember in a State of the Union address, for a national gay rights bill and new "hate crimes" legislation. The Congress is once again being asked to endorse a divisive, "more rights for some than for others" agenda.

One area where new spending was proposed with which we can agree is defense. But here the president said that he was reversing the decline that began in 1985 -- neatly putting equal responsibility for the cuts on his GOP predecessors and himself. But Congressional Research Service figures show that military spending (in 1997 dollars) did not begin to descend until 1989, and the bulk of the drop has clearly been on this White House's watch. How did the president manage to keep this statement technically accurate? It refers to budget authority not actual spending.

Moreover, the speech made little reference to terrorism and none to national missile defense, despite the leaks in recent weeks suggesting that the president was prepared to commit new dollars to protecting our shores from missile attack. Overall, the president's proposal is $40 billion short (over five years) of what the Joint Chiefs have said they must have to meet global obligations that are stretching us thin.

The president did mention Y2K but made no promise other than to "work hard with state and local governments." If this is indeed a serious threat, the administration should do more. He might have named an executive agent to coordinate federal assistance in the event it is a serious problem and to help allay excessive fears in advance.

Finally, the president spoke of Social Security and Medicare, reserving three-quarters of projected surpluses for addressing the shortfalls expected for these programs. The details remain to be seen, but the size of the Social Security bailout ($2.7 trillion -- that's trillion with a T -- over the next 15 years), which avoids any mention of reducing the payroll tax or offsetting benefit reductions, rules out any significant tax relief in the near future. By failing to call for any structural reforms, Clinton squandered this opportunity to present a long-term plan that could win bipartisan support.

All in all, anyone tempted to think that one speech could rescue the Clinton presidency or illustrate that it is on course should come back down to Earth immediately. -- Washington Update

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The main dangers in this life are the people who want to change everything-or nothing. -- Lady Nancy Astor

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Ubiquity: As we begin the countdown to the year 2000, much is uncertain. With 40 percent of the world economies in recession, can the U.S. economy stay strong? Will next year finally see a sustained drop in the Dow Jones average? Will Clinton remain in the White House?

While the prudent hesitate to forecast the next year, let alone the next millennium, here at CFO we boldly predict one certainty: Information technology will continue to dominate the field of corporate finance. IT spending will hit 7 percent per year by the year 2000. Enterprise resource planning programs will top $20 billion. Spending on the Y2K problem alone will exceed $150 billion. Meanwhile, electronic commerce is reshaping the way business is conducted. -- Julia Homer, editor, CFO

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English only: The Los Angeles Times, no opponent of multiculturalism, reported Jan. 13 in a front-page news story: "At elementary schools scattered across Los Angeles, teachers are delivering promising reports that their students are learning English more quickly than anticipated six months after the implementation of the antibilingual education law, Proposition 227. `I honestly didn't expect to see them achieve as well as they are doing,' said Jose Posada, bilingual education coordinator at Los Angeles Elementary School in Koreatown." According to the Times, primary teachers from all over the city are reporting great progress in getting their charges to speak, even read and write, English. -- Human Events

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Maybe not so crazy: If you've been around long enough to recall the crazy bid-up of growth stocks in the late 1960s -- and their subsequent fall to Earth and below -- it's easy to become cynical.

Here we go again, it seems. Amazon.com loses money, but its stock is worth eight times Barnes & Noble's. America Online has zoomed past General Motors in market cap. Charles Schwab has elbowed aside Merrill Lynch. Yahoo is worth double the New York Times and Dow Jones combined. A company called eBay -- eBay? -- went public in August and sits atop a $10 billion valuation at year's end. Its two founders could barely afford a nourishing diet in 1995. Now they're billionaires. Where does it end?

You may answer, "With a crash!" But consider this: In 1968 there was no such thing as a microprocessor. That was to come in 1971 from the labs of 3-year-old Intel. There was no such thing as the Internet or fiber optics. They arrived in the 1970s. Even at Intel in the 1970s, its microprocessor was a sideshow to its core business, memory chips.

How have tiny computers and the Internet grown to be the driving force in the world economy by century's end? Because they get cheaper and better every year-at a truly stunning rate of improvement/cost that has no precedent in history. And there's no end in sight to this phenomenon.

What's new about the new economy? The exponentially improving capability-cost is what makes the Digital Age different from the Industrial Age (1770s-1970s). Steam engines propelled its first century. Then gas engines and electricity took over. To be sure, these Industrial Age drivers got better and cheaper each year, but at an improvement-cost rate in the 100 times to 1,000 times range, measured over a century.

Microprocessors, however, double their performance every 12 to 18 months and drop in cost by 30 percent a year. Millionfold gains have already occurred. More stunning: Digital bandwidth is improving at a rate two to four times faster. (For a finer-grain insight, subscribe to George Gilder's newsletter: www.gildertech.com.)

From a mix of capital, resources and talent, entrepreneurs create new and greater value. Secret: Use fast-improving resources. Henry Ford built an empire around gas engines, steel, glass and rubber, assembled into cars in factories run by electricity. He destroyed the horse and buggy. Bill Gates has built a powerhouse around software for microprocessors, written and packaged by aggressive, high-IQ people. He destroyed minicomputers. -- Forbes

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More proliferation: Many experts agree that, on President Clinton's watch, the rate of proliferation of the technology for weapons of mass destruction has accelerated. Usually Clinton does nothing about it, but recently he slapped three Russian scientific institutes with economic sanction for giving Iran nuclear and missile technology last year. National Security adviser Sandy Berger told a conference held by the Carnegie Endowment for International Peace on Jan. 12 that 10 Russian companies and institutes are "selling out Russia's own nonproliferation and security interests for their own financial gain." -- Capital Briefs

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The Fed will stand pat on interest rates for several more months. First-quarter growth will be brisk enough to keep policy changes on hold. Keys to watch are sag in consumer spending, slip in housing, auto sales.

Look for Fed action by summer to cut short-term interest rates another quarter-point. Prime rate to 7.5 percent, three-month T-bill to 4 percent.

Will keep lid on long-term rates. 30-year T-bond down to 4.75 percent, rising later in the year. 30-year fixed-rate mortgages, 6.75 percent to 7.25 percent. -- Newsletter prediction

~Gary Rust is president of Rust Communications, which owns the Southeast Missourian and other newspapers.