Texas A&M University Commencement

College Station, Texas , December 17, 2004

Well . . . HOWDY!

And congratulations.

To the graduates and your long-supportive Aggie Moms and Dads—and others who’ve been pulling for you. I’m honored to be part of your day.  

Thank you for that, President Gates.  I’ve been McChancellor–as the Battalion put it–for only six weeks, but I’ve been an honorary Aggie for 38 years.  And I’ve got the t-shirt to prove it. As the bumper sticker says, “I wasn’t born in Texas, but I got here as soon as I could.” 

Many of you are starting careers, while others will go on to graduate or professional school first.  Either way, you must be anxious about your passage.  I know how you feel, having just given up 36 years of security and 14 years of CEO pampering, for a great unknown.   It’s hard to know what waits around the corner. For example, I wondered how I might make a good first impression in Aggieland by doing something really different. Like arriving in a pickup instead of a car.  Maybe even a maroon pickup.  As I said, it’s hard to see around the corner.  

There’s so much to learn . . . and my re-education is just commencing, if you will.  As is yours. Robert Earl Keen says the road goes on forever and the party never ends. But, like Robert Earl and Lyle, you’ll go down that road proudly wearing your Aggie ring.   But don’t go too far.   Even if you’re not from Texas, Texas wants you anyway.

Graduations are special everywhere, but especially here, where the traditions are so rich, so rewarding, and so long-lasting.  I first visited this campus in 1991, shortly after I came to Texas.  A member of the Corps gave me a walking tour.  He walked backwards facing me and described what I was seeing behind him.  He made all the right turns, precisely, without looking. I was so impressed that I told Alan Greenspan that, when he left the Fed, an Aggie should replace him. Because Aggies walk and talk just like the Fed makes monetary policy . . . looking backwards.”

I never learned to talk like the Chairman.  He speaks Washington, and I can’t help talking Texan. Someone captured the difference in a cartoon where the pillars of the world economy were cracking and about to fall.  Down below was a chicken with the Chairman’s head on it.  It was obviously Chicken Little.  But instead of saying “The sky is falling.   The sky is falling,” this chicken said, “The sky is measurably weakened.”

While I need your advice as much as you need mine, it’s my turn today. I’ve got lots of good advice saved up because my sons never took any of it. You are already over-achievers, so I won’t give you Ted Turner’s secret for success.  Which is . . . “Early to bed, early to rise, work like hell, and advertise.”  And, for Texas Ladies, moisturize.

I’ll just caution you not to OD on work. Imagine occasionally how you’ll feel near the end of your career rather than the beginning.  People rarely wish they’d spent more time at the office or attended more Rotary club meetings.

They do wish they’d eaten more hotdogs and ice cream at ball games and spent more time with the old folks, and the young folks.

I won’t tell you to stop and smell the roses.  That would be a cliché. But you might remember that clichés become clichés because they are usually true, and thus take your parents’ advice more seriously. For example, if you lose your sweetheart, there really are more fish in the sea. When you have bad luck or good luck in your career, just remember: it’s hard to know which is which.

So don’t get too high on your successes or too low on your setbacks. Kipling calls your triumphs and disasters imposters, and suggests you treat them the same. Waylon Jennings thought he’d lost the coin toss that kept him off Buddy Holly’s airplane—the night the music stopped.  Richie Valens and the Big Bopper thought they’d won.  “That’ll Be the Day” came way too soon, but by age 23 Buddy had revolutionized rock and roll. He focused.

I put my picture at Buddy Holly’s grave in the Dallas Fed’s annual report along side my picture at Adam Smith’s grave.  When Alan Greenspan asked me about it, I told him that the father of rock and roll and the father of economics had a lot in common. I suggested we collaborate on an article about them.  He declined, saying that his taste in music was similar to Adam Smith’s, i.e. he preferred  J. S. Bach. I told him I’d heard of old J. S., but I thought Buddy had had more hits. I never heard back from him on that.

Let me conclude on a more serious note.

You are graduating into a much better economy than you probably realize by watching TV in a political season.  Just by being part of the U.S. economy, you’ll be more productive and thus have a higher standard of living than you would with the same skills in any other country.  I used to be called a cheerleader for the new and improved U.S. economy. I guess I’ll have to change that to yell leader. Either way, the new economy of the late 90s featured faster output and employment growth and lower inflation and unemployment, primarily because of the impact of information and communication technology on productivity growth.

Productivity growth, or the growth in output per hour worked, doubled in the late 1990s from the previous two decades.  The best-kept secret of recent years is that productivity has continued to grow that fast or even faster.  And now include the service sectors as well as manufacturing.

This good news on productivity growth has been obscured by its unfortunate side effect on employment growth.  Businesses have been producing more and more with fewer workers.  Ultimately, the factory of the future may have just two employees: a man and a dog.   The man to feed the dog.  The dog to keep the man from touching the computer.

We’re conditioned to look at the down side of producing more with less work. But that’s how our living standards rise. Because of productivity gains in agriculture, two percent of our citizens produce more food than 80 percent once did.  The same trend has existed in manufacturing for decades—more production with fewer workers.

So far, the dynamic U.S. economy has recycled displaced workers into new higher value-added jobs—or puts their sons and daughters into them. But as the job churn speeds up and includes service sector jobs as well, we worry that we won’t be able to keep up.

Whether we can or not really is a matter of education and training. You shouldn’t think of your education begun at Texas A&M as a job training program. It is that, but it’s much, much more.  It’s a living-training program. We can’t afford to lose our nerve and give in to pleas for protection of the old jobs and the old ways.  If we had done that a few years ago, half our population would now be telephone operators.  Or maybe elevator operators.  That might be okay for them, but who would make our computers, software and cell phones?

You are lucky to be graduating into the dynamic U.S. economy.  You are doubly lucky if you are going into the vibrant Texas economy. We have less ice and snow and better air conditioning than most places. Thankfully, our government is somewhat more limited and less intrusive than most.  Which gives us more freedom.

We’ve recently begun dealing with a former problem area: tort reform. Our favorable business climate attracts employers and employees from around the world.  We were an emerging high-tech leader before overinvestment set us back temporarily.  But we’ll be back.   Moore’s Law has not been repealed. We are still doubling processing power every 18 months.The high-tech recipe books are waiting on the shelf–waiting for the business models to catch up to the technology.  And they are.

We are also poised to be a leader in biotechnology, which holds even more promise than electronic technology because it affects our lives and health.

Texas A&M is in the thick of genetic research that promises to revolutionize our approach to human health and extend the length and quality of human life. I’m reminded of Eubie Blake, who reportedly said if he’d known he was going to live so long he would have taken better care of himself.

Just this week, Governor Perry proposed an exciting new initiative, the Texas Emerging Technology Fund to help keep Texas businesses and universities on the cutting edge of these exciting new frontiers. A&M is well-positioned to take advantage of that. And if I know President Gates, A&M will be on the leading edge of the cutting edge. I think that’s sometimes called the bleeding edge, but we’ll be careful.

Learning is speeding up and knowledge is compounding at a higher and higher rate. Many of you graduates will be here in a couple or three decades astonished at the progress since today and the promise of more to come. And like your parents today, you’ll be feeling pride down to your toes.

Until then, so long.  Good luck.  Gig ’em. See you at the Cotton Bowl.

Teaching Economics

Remarks before the Annual Conference of theTexas Council on Economic Education

Houston, Texas, February 19, 2004

Someone once said, “If economics made sense, we wouldn’t need economists.” To that I would add, “If economists made sense, we wouldn’t need teachers.”

I have several excellent Ph.D. economists reporting to me—all smarter, better educated and graduates of more prestigious universities than I am. No doubt they could teach economics to graduate students better than you and I could—graduate economics being highly abstract and mathematical. But they’d be teaching future economists to teach future economists to teach future economists—far above where the rubber usually meets the road. I doubt they’d be all that effective teaching useful elementary economic concepts to your students, most of whom probably won’t take economics again.

You see where I’m going with this. I’m taking away your excuse.You don’t have to be a professional economist to teach important economic concepts at an elementary level. Just like you don’t have to be a weatherman to see which way the wind blows (to introduce a little Bob Dylan).

But what to teach? What to teach students on their way to further economic study isn’t what to teach on a one-shot basis. I reached this conclusion teaching night school at Johns Hopkins in the 1980s. In the middle of a wonderful lecture, I’d ask myself if I should have brought my sons to audit the class that night and absorb my wisdom. The answer was invariably no. Because tonight’s lecture wouldn’t mean much without last night’s and tomorrow night’s.

So, what do I recommend? First, I wouldn’t spend too much time on concepts that are little more than common sense—concepts they’ll learn anyway. By common sense, I mean things like:

A balanced budget is generally preferable to budget deficits.

Saving is important, for the individual and for nations.

Debt is dangerous. It should be handled with care.

High investment returns usually reflect high risk of loss.

If something sounds too good to be true, it usually is.

(That last one isn’t limited to economics, but it’s too important to ignore. As is the power of compound interest, which I would put at the top of the list for financial literacy.)

Such common-sense conclusions are important, but don’t require any particular expertise to teach. Rather than common sense, I suggest you concentrate on uncommon sense—concepts that are less intuitive, or even counterintuitive, and not likely to be understood by most taxicab drivers. Examples might include answers to such questions as:

Why are government actions to raise wages, fix prices or save jobs probably bad ideas?

How can a complex market economy work without somebody or some government agency in charge?

How can an unplanned market economy satisfy our individual wants and needs better than a centrally planned and controlled economy?

Why is free trade a good idea for most of us despite the hardship it imposes on a few of us?

Since virtually all economists believe fervently in free trade, why is it so difficult to convince the public and politicians?

How does good Fed monetary policy bring about price stability?

And how does price stability contribute to faster productivity growth and greater prosperity?

In an election year especially, a good thing to discuss might be why not everything that is desirable in our lives should be provided by the government. Why individual decisions and purchases hit the mark better than collective decisions and purchases.

Your students may not appreciate the value of economic education at first. They might ask that snotty teenage question, “If you’re so smart, why aren’t you rich?” Economists don’t do much better on that score than schoolteachers. Like you, they’d prefer to turn that question around and ask, “If you’re so rich, why aren’t you smart?”

Actually, why economists don’t usually get rich from their special knowledge is itself an interesting topic for discussion. And has to do with how well markets work. Inefficiencies that give rise to a potential for profits are discovered and eliminated so quickly that they hardly seem to have existed. That’s why it seems like all the really good deals have already been taken and all the really good investments were made in the past. Certainly, the best time to buy stock or real estate is always years ago. (Or the best time to find a good husband or wife, for that matter.)

While efficient markets may frustrate those trying to get rich by discovering unexploited anomalies or inefficiencies, they are a boon to those of us coasting along, looking for a free ride on an up escalator.

If we were lonely Robinson Crusoes, having to be self-sufficient, we’d be poor indeed. But markets enable us to specialize narrowly and benefit from the specialties of others.

Except for your own job, markets are forgiving of your versatility limitations. For example, we can benefit from a rising stock market with a minimum of stock research. We can take advantage of low Chinese wages without going to China to shop. We can eat oranges in the wintertime. We don’t have to worry much over which is the best lane in traffic or the shortest line at the check-out counter. We do worry about those things, but we don’t have to because others do and pretty much even them out for us. We can count on the market to do our work for us. Which leads to apparently paradoxical outcomes, such as, “Nobody goes to that restaurant anymore. It’s too crowded,” which some attribute to Yogi Berra. (Of course, Yogi says he never said everything he said.)

At the national level, of course, there is a strong connection between economic literacy, sound economic policies and the Wealth of Nations. That’s why North Koreans are starving and making bombs while South Koreans are living well, hip deep in bandwidth and cloning humans. In the postwar world, remember economic conditions in East Germany vs. those in West Germany? Remember East Berlin and West Berlin and which way Berliners voted with their feet? Remember the wall? Remember when John Kennedy visited Berlin and said, “Ich bin ein Berliner”—“I am a Berliner”? (I’ll bet you don’t remember when President Nixon visited Peking and said, “I am a Pekinese.”)

Remember when Khrushchev said he would bury us? That his communist system would outperform our capitalist system? Remember, later, when his communist system collapsed of its own deadweight and left capitalism as the last “ism” standing? Did we win the Cold War because we’re smarter than the Russians? Not hardly. They are better chess players than we are. Which settles the intelligence issue.

When Bobby Fischer won the world chess championship in the 1960s, I bought a chess set and learned just enough to teach my sons to play. One of them started winning chess tournaments. Since he was already winning tennis tournaments and knew how much work was involved, he dropped chess like a hot potato. So did I. Chess is hard, and frankly it made my head hurt. But it doesn’t make Russian heads hurt. They like it and are good at it.

No, the outcome of the Cold War wasn’t based on intelligence. Our economic system made the difference. They chose Marx and Lenin, while our founding fathers chose Adam Smith. We haven’t been as faithful to Adam Smith’s principles as we should have been. We’ve drifted, backslid. But the power of Smith’s ideas and the market is such that diluted capitalism beats full-strength socialism.

A few years ago, I went on a pilgrimage to find Adam Smith’s grave in Scotland. I found it in a churchyard in Edinburgh. There was a tourist-type souvenir shop nearby. I went in and asked what kind of Adam Smith souvenirs they had. They had none. They looked at me funny. Adam who?

It was even worse in France. Exactly a quarter century after Adam Smith published the Wealth of Nations in 1776, Frédéric Bastiat was born in Bayonne, France, in 1801. You might think of Bastiat as the French Adam Smith. Perhaps not quite as seriously scholarly, but Bastiat is easier to read and more fun. He promoted free trade and free markets with humor and satire. If he were alive today, he’d be a regular on Kudlow and Cramer. (Julia’s econ ed students would have called him “that Bastiat dude.”)

Bastiat’s 200th birthday was in 2001. I was invited to France to give the keynote address at his 200th birthday party. They had a bust of Bastiat in a little village square, and his hometown of Bayonne has a street named after him and a plaque at his birthplace. We visited these shrines, but leftist protesters hounded us everywhere we went. I had missed the ’60s in the U.S., and it looked like I was about to catch up in France, of all places. The protesters showed up everywhere and demonstrated against the economic principles of Frédéric Bastiat—and by implication, Adam Smith—the economic principles that finally, after many millennia, broke the cycle of poverty that had haunted mankind from the beginning to the Industrial Revolution. It left me incredulous. The protesters were only interested in the distribution of the wealth of nations—not its creation. They wanted to kidnap the goose that lays the golden eggs, cut it open and remove the last egg.

While I’m on the subject of graves, I’ve also visited the grave of Juan Peron’s wife, Evita, in Buenos Aires. It was better kept than Adam Smith’s. Of course, one might argue that nostalgia for leftist Peronism has contributed to Argentina’s current plight. Argentina shouldn’t cry for Evita, but Evita must be crying for Argentina.

But, I digress.

Let me get back to the opposite of free market economics, extreme socialism, or communism. Their ideal was “From each according to his ability; to each according to his need.” A noble sentiment. It even works well within families. But it doesn’t work within economies. The incentives are wrong—i.e., unrealistic. If we all own the means of production, in common, through the government, then nobody owns them. Common property is not private property. Without a profit motive and a private property incentive, why work? There was an old Soviet joke back in the days of communism: The workers pretend to work, and the managers pretend to pay them.

Under capitalism, we look out for No.1. We all try to better ourselves, not others. We are all trying to get rich—not make society rich, but ourselves. But Adam Smith explained that by trying to make ourselves better off, we inadvertently make others better off—as if by some invisible hand. We get rich by providing goods or services that people desire greatly and are willing to pay for. That’s why Adam Smith’s invisible hand is No. 1 on McTeer’s Top 10 List of things high school students should learn about economics. Incentives matter. Ideas matter.

The Dallas Fed is doing a video, which hopefully will become a public TV program, on Milton Friedman’s TV series Free to Choose. Our working title is Ideas Matter. You will certainly want it for your classroom. But back to incentives matter, lower case.

What incentive do I have to work hard, save and invest if I’m not working for myself or my family? What belongs to all of us collectively belongs to none of us. Why should I contribute more to the common pot than other people if they have equal claim on it?

How many times have you gone out to dinner with a group of friends? Each person orders for herself. Some have drinks; some don’t. Some have dessert; some don’t. When the check arrives, some idiot suggests splitting it evenly—usually the person who had the most expensive entrée on the menu. Everybody says fine, and pays her equal share. But just wait until next time. With everyone trying to eat and drink at the expense of someone else, the bill will be at least 30 percent higher.

What’s true of a socialized meal can’t be very different from socialized medicine or a socialized drug benefit. Not just socialism, but big government in a mixed system, faces moral hazard problems when those who benefit are separate from those who pay. If you doubt that moral hazard is real, just ask yourself when was the last time you washed a rental car before returning it.

Yet juries keep playing along with plaintiffs’ attorneys in the sham of trying to convert every accident or every good deed gone wrong into a lottery win for lucky victims. The big company or the big insurance company can afford it, juries rationalize, and their million dollar windfalls get folded into the cost structure of everything we buy.

By the way, who do those who rail against business think provides the jobs they complain about not existing? And once we put pharmaceutical companies in their place, who do we expect to invent the new drugs we need? Talk about killing the golden goose.

But even if you don’t quite kill it, there is a limit to how much abuse a goose can tolerate before the eggs stop coming. Wouldn’t it be better to take good care of the goose, with an eye on tomorrow as well as today?

And, of course, what’s good for the goose is good for the gander.

Don’t Count Jobs, but Make Jobs Count

Texas Lyceum, Harnessing the Lightning:
An Economic Growth Summit for Texas
San Antonio, Texas, November 13-14, 2006

I’m honored to be invited to speak to such a distinguished group of Texans.

Especially since my friend, Skipper Dippel, was one of your founders 26 years ago. Skipper served on our Houston Fed board for several years. If you don’t know Skipper, you should make it a point to meet and talk to him—if you have the time. He is the kind of optimistic guy that, if he goes after Moby Dick, he takes along some tarter sauce.

A few weeks ago in San Francisco, I boarded an Air China flight to Beijing, and looked up and saw Skipper on the same flight. What were the odds of that?

It turns out that he’s been teaching values and ethics to the future leaders of the Chinese government. They use one of his books in their leadership university, and may adopt his latest. I believe the Texas Lyceum is involved in some way. Good for you.

I also did what I could on the ethics front during my visit. I gave talks in Beijing, Shanghai and Hong Kong on the importance of intellectual property protection to economic development.

I would have done more, but I had to go to the knock-off markets to do some shopping for my wife.

Just kidding—well—half kidding.

I’ve always thought of the Lyceum as a group of serious-minded Texans who probably would like to shed the stereotype of Texas personified by J.R. and Sue Ellen. I’m pleased to learn that I may have been wrong about that.

My evidence is the following quote from your Chairman:

“From the wildcatters to the high-tech capitalists, the spirit of Texas is larger than life. Texas is a big state, highly diverse in its population and terrain and full of self-confidence.”

In the Economist Magazine, December 19, 2002, there appears an article entitled, ‘The Future is Texas.’ If you want to see where America is headed, start by studying Texas.’

The article goes on to describe Texas as “America on steroids.”

“America on steroids” I like that. I hope the French don’t insist on our taking urine tests like they do with Lance. I’m not sure they realize that “Texas is bigger than France.”

NPR once ran a segment about Egypt, where 20 years ago Dallas was one of the few Western shows on Egyptian TV. The streets of Cairo emptied on Thursday nights. Egypt’s leaders approved of Dallas because they thought it reflected badly on Americans. Instead, it just made the Egyptians envious of our mini-mansion ranch houses, convertibles, big hair, big hats, and big watches.

Some anecdotal evidence suggests that Dallas helped bring down communism—especially in Romania, where Larry Hagman visited in his Stetson promoting a Russian oil company as “The Choice of a True Texan.” As Larry tells it, the people saw what they didn’t have, so they took their ruler out and shot him.

The latest Nobel-prize winner in economics, Edmund Phelps, recently wrote an opinion piece for the The Wall Street Journal, titled "Dynamic Capitalism."

In it he said . . .

There are two economic systems in the West.

Several nations—including the U.S., Canada and the U.K.—have a private-ownership system marked by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and incentives necessary for their development.

Although much innovation comes from established companies . . . much comes from start-ups, particularly the most novel innovations.

This, is free enterprise, aka capitalism.

The other system—in Western Continental Europe—though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interest of “stakeholders” and “social partners.

The system’s institutions include big employer confederations, big unions and monopolistic banks.

Since World War II, a great deal of liberalization has taken place. But new corporatist institutions have sprung up:

Co-determination ... has brought “worker councils;” and in Germany, a union representative sits on the investment committee of corporations.

The system operates to discourage changes such as relocations and the entry of new firms, and its performance depends on established companies in cooperation with local and national banks.

What it lacks in flexibility it tries to compensate for with technological sophistication.

So different is this system that it has its own name: the “social market economy” in Germany, “social democracy” in France and “concertazione” in Italy.

He could have mentioned France’s 35-hour work week at this point—their effort to spread a fixed amount of work and a fixed number of jobs over more people.

To continue quoting:

The American and Continental systems are not operationally equivalent, contrary to some neoclassical views.

Let me use the word “dynamism” to mean the fertility of the economy in coming up with innovative ideas believed to be technologically feasible and profitable—in short, the economy’s talent at commercially successful innovating.

In this terminology, the free enterprise system is structured in such a way that it facilitates and stimulates dynamism while the Continental system impedes and discourages it.

Continental Europe—old Europe—looks down on the Anglo-Saxon brand of “unadulterated” capitalism. Which implies they prefer their capitalism “adulterated.”

I agree with Professor Phelps, as far as he goes, but he doesn’t go far enough. There is yet another brand of capitalism—a third brand—that is even more dynamic and innovative than the American or Anglo-Saxon brand.

That’s the Texas brand. Let’s call it “Cowboy Capitalism.”

When the Europeans call our President a “cowboy,” I swell with pride.

I spoke at a conference in London in 1999 at the Institute of Economic Affairs, a free-market think tank originally identified by the Austrian free-market economist, Frederick Hayek, and associated more recently with Margaret Thatcher.

I was describing the dynamic, new and improved, high- productivity, high-growth, low-inflation U.S. economy of the late 1990s, which had not made an appearance in Continental Europe. A local professor critiqued my remarks by saying our economic statistics were too good to be true. He meant it literally and actually accused us of cooking the books.

As an example of how we fudged the numbers, he pointed out that we don’t count our large prison population as part of the labor force, and, consequently, we don’t count them as unemployed. In my response, I said I’m from Texas, and in Texas we take it a step further.

To my surprise everyone in the audience got it, which pretty much ruined the professor’s day.

“Harnessing the Lightning” is an ambitious goal. A worthy goal, but it sounds dangerous. Like belling the cat—a good thing to do, perhaps, but who’s going to do it?

The chancellor’s house in College Station is next door to the Horse Center, and last year I asked its manager, Nikki, if she would give me riding lessons. I was concerned because I’d heard that the chancellor is sometimes asked to ride in the opening parade on Aggie night at the Houston Rodeo.

Well, on the first morning, Nikki showed up with a naked horse and asked me if I wanted to start by learning to harness and saddle it. I said no, I’ll leave the dangerous stuff to her. I’d just try to sit in the saddle without falling off.

As it turned out, they put us all in buggies, so I’m still looking forward to my first real rodeo.

Livestock—both large and small—has played a bigger role in my tenure as chancellor than I ever dreamed.

The A&M System is pretty complex, you know.

There’s not only the 9 universities and statewide health science center, but it also includes 7 state agencies.

When people ask me why I would take such a hard job so late in my career, I give them Roger Miller’s answer when he was asked how someone talked him into writing the score for a Broadway play. He said they made him an offer he couldn’t understand.

Now, when I’m asked what’s next, I quote Kinky Friedman. He said he was looking for a profession that didn’t require his actual presence. I believe he was referring to writing novels rather than being Governor.

I would also like something that doesn’t require my actual presence. Maybe something virtual, that I could do on-line at Starbucks and Barnes & Noble.

Baxter Black has the best combination of jobs: cowboy poet, philosopher, and former large-animal veterinarian. I don’t think he became a large animal veterinarian at our world-class Vet School at A&M. If he had, he wouldn’t have had to moonlight to make ends meet.

The “A” in “A&M” has kept up with the times. Researchers there have cloned 6 different species of animals, a world record as far as I know. My best day as chancellor was the day I took my barnyard tour of our cloned animals.

First on the tour was CC the cat. CC stands for copy cat. Our newest clone was a horse, named Paris Texas. Our most appropriately named clone is a big black bull named 86 squared. Years ago Research Bull # 86 was studied intensely because it had a natural immunity to several diseases. When he finally died, someone thought to save an ear. Years later they made a new bull from the ear and named it 86 squared. It had the same immunities.

Is this a great country, or what?

My first meeting as Chancellor was in Austin to discuss a research project we were involved in—The Bovine Genome Project. (Being a lifelong advocate of fiscal responsibility, I was relieved to discover that bovines were made of beef rather than pork.) I’d rather deal with bull my first day than with pork.

During a break in the bovine meeting, I learned that in the world of genomics, mice are bigger than cows. I’m told that a mouse has 99 percent of its genes in common with man, and that the mouse genome is easier to model than other species.

Lexicon Genetics, a large biotech firm in The Woodlands, had patented a procedure to block or knock out a single gene from mice so the gene’s function could be studied in clones of the mice--with strong implications for their human counterparts.

Fast forward about a year, and I’m signing a 3-way partnership agreement with Lexicon Genetics and the State of Texas to form the “Texas Institute for Genomic Medicine.” The acronym for the “Texas Institute for Genomic Medicine” is “TIGM.” Coincidentally.

The Governor’s Enterprise Fund invested $50 million to enable TIGM to purchase from Lexicon and house two “libraries” of 350,000 embryonic mouse stem cell lines each, one in College Station and one at our Institute of Biosciences and Technology in Houston.

Prior to this, as an economist observing the dot com boom and bust, all I knew about mice was that while the early bird gets the worm, it’s usually the 2nd mouse that gets the cheese.

Not long after TIGM was formed, I had breakfast with Alan Greenspan in Washington. He asked me what was going on in my new world. When I started explaining all this to him, he interrupted me to ask why it was that most research mice are white rather than brown. After a long moment that seemed like an hour—a place I’d been before with him—I finally said, “Mr. Chairman, It’s a conundrum.”

Pretty soon, Guy Diedrich, who had brokered the TIGM deal (and who will be on your program tomorrow) brought me another deal to sign. The A&M System had been chosen to host the statewide Texas Life Sciences Center for Innovation and Commercialization, under the auspices of the new Emerging Technologies Fund. Soon after, an A&M spin-out company was one of the first to receive funding from that Fund.

Guy didn’t do as good a job of negotiating this one, since one of the conditions was that it be located in Austin.

Soon thereafter, Texas A&M won the Big 12 competition for the most promising start-up company. You may have heard of the Big 12; yhey also sponsor a football competition.

Going down the list . . .

Over the past year, we’ve built an investor and technology commercialization network that spans the globe—hence the trip to China with Skipper.

We will soon break ground on the Texas Institute for Preclinical Studies, or TIPS, a 100,000-sq. ft. facility associated with our world class Vet School.

TIPS will have a 25,000-sq. ft. core-imaging center and conduct GLP preclinical testing of medical devices and pharmaceuticals.

TIPS should create innovations that will spawn the next generation of biotech companies in Texas. You will soon be able to go from concept to market with new medical devices and pharmaceteuticals without ever leaving Texas and without leaving the A&M System for that matter.

Most recently, the A&M System was chosen to lead the Texas Statewide Bioenergy Strategy, which will enhance our state’s national leadership position in new energy discoveries and commercialization.

And given our strength in Agriculture and Engineering, and given the current quest for alternative energy sources, our Ag and Engineering Colleges recently formed the Texas A&M Agriculture and Engineering Bioenergy Alliance.

System entities have put a lot of emphasis on research in recent years. Externally funded research by our universities and agencies recently passed $600,000,000 per annum. But not enough of this research has been reached the marketplace.

Research universities are costly: the research is partially funded by external sources, but mainly by taxpayers, directly and indirectly. We owe it to our principal investigators, inventors, our universities and Texas and U.S. taxpayers to recover as much of their investment as possible, . as a reward for past innovation and an incentive for future innovation.

With that in mind, we recently raised our commercialization efforts from the university level to the system level. We created the position of Vice Chancellor for Technology Commercialization reporting directly to the Chancellor—that’s Guy Diedrich.

We’ve also restructured the A&M Research Foundation to make it more efficient and responsive to the needs of our principal investigators without leaving commercial opportunities on the table.

The most important initiative during my tenure as Chancellor probably was the creation of the Texas Institute for Genomic Medicine, or TIGM, since it will eventually help prevent and cure human disease and raise our quality of life. But I was only one of several players in that effort, which had begun before I arrived.

The most important initiative I can call my own was reform of the faculty tenure process—known as the 3rd rail of academic politics:

The reform was to give credit for patents and the commercialization of research, when appropriate, in tenure decision.

to provide for a time-out in the tenure clock to permit faculty to engage in special projects, such as commercialization efforts, without jeopardizing tenure.

While I didn’t think of it in these terms, much of what we’ve been doing in the past two years can be classified as economic development, with direct and indirect benefits to Texas citizens and taxpayers.

Many good jobs will be created as a by-product of our efforts. But job creation is secondary to the primary goals of our efforts.

Hence, my title: “Don’t count jobs; but make jobs count.”

To illustrate what I mean by that let me tell you a little story from one of my favorite dead economists, Frederick Bastiat, who lived in France from 1801 to 1850.

In 2001, I was invited to Dax France to give the keynote address at Bastiat’s 200th birthday party. The quickest way to explain Bastiat is to call him the French Adam Smith who fought an uphill battle for free trade, free enterprise and against socialism. Known more recently as a pamphleteer, his writing was easier and more fun to read than Adam Smith’s, however. He made his points with wit and humor, using satire as his main weapon.

For example, in arguing against trade protectionism, he wrote a tongue-in-cheek petition to the French Parliament on behalf of the French candle makers urging the passage of a law requiring everyone to shut their blinds to keep out the sunlight because the sun was unfair competition to candles in the provision of light. He emphasized all the jobs that would be created in many industries if only the sun were shut out and the candle makers could compete “on a level playing field.” Sound familiar?

Another example of his attack on misguided job creation was the railroad from Paris down to Spain—through Dax, in fact. Someone in a railroad town along the way wrote an op-ed piece arguing that the train should be required to stop at their town, so the passengers could get off and refresh themselves and spend some money in the town before resuming their trip. Many local jobs would be created.

Bastiat saw the editorial and wrote a response, agreeing that it was a good idea. So much so, he said, that there was no reason to limit those benefits to one town only. There should be mandatory stops at all the towns along the way so all could participate in the prosperity and new job creation. Bastiat said that, with all the stops, they could call it a “negative railroad.”

In my remarks at his birthday party, I likened the negative railroad to the negative bridges we had on the U.S.-Mexico border where trucks were required to unload their cargo, load in onto another truck, cross the border and then reload again to continue. Just think of all the good jobs created.

The front page of my local newspaper recently quoted a local politician talking about how last year was a good year for the local economy because of the hurricanes. Given our national income accounting system, he was right. The property destroyed isn’t subtracted, but spending on rebuilding is added. But “hurricane prosperity” isn’t the best kind of prosperity.

When I came to Texas in 1991, a big issue was the superconducting supercollider. It was hard for me to tell from reading the newspapers what it was and what it was supposed to do. The only thing they made clear was that it would create lots of jobs. People whose judgment I respected told me it was a good science project and should have been funded.

But, if all the proponents can say about a project is that it will create jobs, they haven’t made much of an argument.

If job creation is your primary goal, you can achieve it by replacing all the heavy equipment on construction projects with shovels.

If that doesn’t create enough jobs, just replace the shovels with spoons.

Or, in France, you might shorten the work week to make a fixed number of jobs go to more people.

By the way, did you know that Texas is bigger than France?

The point is that jobs are easily created. The limiting factor is finding qualified people to fill the jobs. So we shouldn’t waste good people on bad jobs or on less than optimum jobs.

Hence, my title, once again: “Don’t count jobs; make jobs count.”

Okay, here is Bastiat’s little story as retold by Henry Hazlitt:

A bunch of rowdy teenagers threw a rock and broke the window of the local bakery. A crowd soon gathered and said, “What a shame! The baker will have to replace his window.” But it wasn’t long before a philosopher in the crowd saw a silver lining. Because the baker will have to replace his window, the window maker will have some income he wouldn’t have had otherwise. And he will spend it. And whoever he spends it with will, in turn, spend it again. More and more income—and jobs—will be created.

There will be multiplier effects.

To bad about the window, but this spending will create some good business, and jobs.

But Bastiat says, wait a minute! You are only talking about what happened. You are only considering what is seen. You must also consider what didn’t happen. Consider what was not seen because it never happened.

If the baker didn’t have to spend his money replacing the window, he could have spent it on that new suit of clothes he’d been saving for. Or, a new oven to expand his bakery. Then a tailor or oven maker would have extra money to spend. Then someone else would get it and spend it. And so on.

The chain of spending and re-spending initiated by the broken window wasn’t net new spending. It was a diversion of spending.

In all such diversions—and we have them every day—we tend to see the spending and good results that happen and forget to consider the spending and good results that didn’t get to happen. If not spent immediately by the owners, it remains in the bank to be loaned to others to invest.

The broken window fallacy is a simple little story, but we hear versions of it every day. We hear about all the jobs created by new government programs, but we rarely hear about the jobs not created because of it. That includes jobs not created by taxpayers spending their own money, for example.

It was my honor to sign the TIGM contract, creating the Texas Institute for Genomic Medicine. Because it will eventually prevent diseases, cure diseases, and improve lives. And, coincidentally, I would argue, it will create new jobs; good jobs. The contract I signed on TIGM had milestones, but, interestingly, they were job milestones not scientific milestones—the Enterprise Fund being, after all, an economic development fund.

I’m not arguing against economic development here. Hopefully, the new jobs created by economic development in Texas will be at the expense of jobs that might have been created in California, or maybe France, by Jingo.

Did I mention that Texas is bigger than France?

A couple of quotes:

Stanley Jevons, another dead economist, once said: “In political economy, there is much to learn and little to do.”

Sometimes the best thing government can do to promote economic development is nothing—nothing, but get out of the way, and do no harm.

Remove obstacles to free enterprise created by ill-informed past government decisions and actions and create no new ones.

Adam Smith didn’t invent free enterprise, or even discover it. What he did was describe it and explain its beautiful logic. What he described was only what people do naturally when they are free.

If I had been your only speaker on this topic, I would have given a different speech. But, my guess is that most if not all of the other speakers will take an enthusiastic, exuberant, aggressive rah-rah approach to economic development.

I just thought it important that at least one person play the role of devil’s advocate and urge caution. Not to stop you, or slow you down much, but to make you think twice.

Thank you.

Martin Luther King

January 16, 2006, Sulphur Springs, Texas

It’s an honor to be invited to talk about Martin Luther King on Martin Luther King Day. But, frankly, I don’t know why you invited me, of all people. But I accepted your invitation because it is an honor. And it just seemed like the right thing to do.

I greatly admired Martin Luther King, especially in the early years of the civil rights movement, but I’ve never mentioned that publicly. My invitation must be based on the fact that Dr. McFarland was a previous speaker and did a good job. So, if the president of A&M-Commerce did a good job, then maybe the chancellor would too.

Maybe, but that logic is suspect since university presidents are probably more scholarly than chancellors. That’s certainly true in this case. You may not know what a chancellor’s job is. I didn’t until Mark Yudof, the chancellor of the University of Texas System, explained it to me. He said being chancellor is like managing a cemetery: There are lots of people under you, but most of them aren’t listening.

I admired Dr. King, both the man and his work. But I never marched with him, or against him. I was on his side: for desegregation, for an end to discrimination based on race, and for equal rights. I was against separate public bathrooms, separate water fountains, and separate and unequal schools—the most visible signs of discrimination at the time.

I was a supporter, but I watched the civil rights movement on television, as a spectator.

There were no marches or sit-ins in my little town in the foothills of north Georgia. This part of the state had never been plantation country, so we didn’t have rich whites and poor blacks. In my little town of Ranger, we only had poor whites. And no blacks at all.

I attended grade school—it was called grammar school back then—in a three-room schoolhouse in Ranger, Georgia, population about 100, maybe a few more. As I said, there were no black families in Ranger. I went to high school five miles south in Fairmount, which, I believe, had three black families. I remember that because my school bus passed their houses on the way to school. I don’t know if they had school-aged kids, but, if they did, they went to the black school in the county seat of Calhoun, 18 miles to the west. Both my grade school and my high school got consolidated away, so now everyone travels 20 miles to Calhoun’s consolidated and integrated Calhoun schools.  

I just used the term “blacks” and “black families.” I trust that’s not offensive to anyone. Back then the proper term—and the term Dr. King used—was “negroes.” Today it’s “African American.” Since this is an historical account, I’m using the term that emerged during the civil rights movement.

Martin Luther King Jr. was born in Atlanta, about 75 miles south of Ranger, on this day in 1929—77 years ago. He attended Morehouse College in Atlanta and studied theology at Boston University. Like his father and grandfather before him, he became a Baptist preacher.

On December 1, 1955, Rosa Parks—who died last October at age 92—refused to give up her seat on a Montgomery, Alabama, bus to whites. (For perspective, this was just over a year after Brown vs. the Board of Education.) 26-year-old Martin Luther King, a local pastor and member of the Montgomery Improvement Association, was drawn into the ensuing bus boycott and, as they say, the rest is history. I was barely 13 at the time, and had been baptized as a Baptist four months earlier in a muddy creek behind Liberty Church outside Ranger. A deep-water Baptist!

I mention my Baptist credentials so I can tell a Baptist joke, hopefully, without getting into trouble:

They say being Baptist doesn’t keep you from sinning; it just keeps you from enjoying it. That’s why you can probably classify me now as a backsliding Baptist.

On occasion, one might have classified MLK the same way, but that doesn’t take away from the greatness of the man, in my opinion. If we set the bar for our role models and heroes too high, I’m afraid we won’t have any. You don’t have to be perfect to be great.

In an interview years later, they asked Rosa Parks if she kept her seat on the bus because she was tired. She said no, she was just tired of giving in.

MLK emerged from the successful Montgomery bus boycott, which lasted over a year, as a civil rights leader.

He became the founding president of the Southern Christian Leadership Conference (SCLC) in 1957.

His belief in nonviolent tactics was based in part on Gandhi’s teaching, and a trip to India in 1959 strengthened that commitment.

He didn’t initiate or lead the sit-in movement (at lunch counters and the like), but he got drawn into it by activists in SNCC, the Student Nonviolent Coordinating Committee.

He was arrested in October 1960, during an Atlanta sit-in, just before the presidential election. John Kennedy called King’s wife, Coretta, to express his concern. This attention reportedly helped get King released, and probably helped Kennedy get elected president.

By then, I was a freshman at the University of Georgia and voted for Kennedy in that, my first election—partly because he seemed stronger on civil rights and partly because my Dad had always voted for the Democrat, whoever he was, because, in his words, “Democrats are for the little man.” My Dad dropped out of school in the seventh grade to work in the sawmill. He always considered himself a little man. He was a very smart man who was borderline illiterate, and I’m here today because of him.

(But I still don’t think it was smart for him to allow his vote to become automatic—to be taken for granted. Especially if it’s based on the slogan of a past era.)

That January—on January 9, 1961—the University of Georgia was integrated by two black students: Hamilton Holmes and Charlayne Hunter. He later became a doctor in Atlanta, and she made it big in journalism as Charlayne Hunter-Gault on The NewsHour with Jim Lehrer.

Hamilton Holmes registered for the psychology class I was taking. As I recall, he sat apart from the other students, and they (that is, we) pretty much ignored him. I wish I could report to you that I went out of my way to make him welcome, but honestly, I felt like I was just barely hanging on myself as a freshman from a tiny rural town in a big university. I didn’t do anything ugly. I just didn’t do anything, and I was typical. If I was feeling overwhelmed, think how he must have felt.

Looking ahead two years, I sat next to Harold Black in an international trade class. Harold told me he had been the third black student at UGA, and we became classroom friends of sorts.

I stayed at Georgia and got a Ph.D. in economics. He left and got his Ph.D. in economics from Ohio State. He’d told me he’d been subjected to some minor harassment early in his freshman year—people banging on his dorm room door and so on—but it was not too bad. What I admire most about Harold is that he says he has fond memories of his Georgia days and he doesn’t hold a grudge. I believe he sent his daughter to Georgia.

[As a footnote, so did Hamilton Holmes, who graduated Phi Beta Kappa, went on to Medical School at Emory in Atlanta, and latter became an ardent UGA supporter. He died in 1995 at age 54. Georgia named a professorship after him in 1999 and named the academic building after him and Charlayne Hunter in 2001, on the 40th anniversary of their arrival.]

Back to Harold Black. At one point, I thought I’d probably lost his friendship when he asked me to sign a petition to bar the ROTC from campus. I declined to do so, but he didn’t take it personally. Following several important positions in government, Harold has been in recent years a professor of finance at the University of Tennessee, another one of those schools that wear those awful orange-colored football jerseys. In preparing these remarks, I googled Harold and his picture indicated that he as lost more of his hair than I have.

Harold’s asking me to sign the ROTC petition created quite a moral dilemma for me. I wanted to support him as a friend, and, frankly, as a black student in a white school. But I didn’t see the connection with ROTC, one way or another. Later on, of course, Martin Luther King presented the country with the same dilemma by bringing Vietnam into the Civil Rights Movement. More about that later.

Charlayne Hunter had a rougher start at the University of Georgia. One night during her first or second week, Georgia lost a basketball game, and as the upset fans piled out of the arena, someone yelled out, “Let’s go to Center Myers”—which was her dormitory. A crowd of students and locals gathered there, threw some rocks, broke some windows and made news acting like the redneck idiots they were. My roommate and I were in our room, listening to it on my portable radio. He wanted to go over there and watch—just watch, he promised. I wouldn’t go. So he called me a bad name that you can imagine.

After the first couple of weeks, I don’t recall much fuss about race or desegregation on the Georgia campus. I graduated in 1963—the year James Meredith entered the University of Mississippi with the help of 5000 federal troops—and won a fellowship to stay at Georgia for graduate school.

When my fellowship ran out in 1966, I became a full-time instructor for two years and didn’t leave Georgia until August 1968, about four months after King’s assassination at age 39. So his remarkable civil rights career began when I was roughly 13 and ended just before I was 26. Where I was and what I was doing are, of course, not important, but it helps me keep track.

As a civil rights leader, Dr. King had his failures as well as his successes. Through it all, he adhered to a nonviolent approach, despite the urgings of more militant leaders like Malcolm X and Stokely Carmichael. He achieved a great victory in Birmingham in 1963 when his organization, the SCLC, orchestrated a series of clashes with the police. Remember Bull Connor? The use of police dogs and fire hoses on peaceful protestors attracted much media attention and national sympathy and prompted President Kennedy to introduce major civil rights legislation in June 1963. Kennedy was assassinated that November, and it was left to Lyndon Johnson to get the legislation through Congress the following year.

King’s most famous and most-quoted writing was his letter from the Birmingham jail in 1963, in which he defended the use of civil disobedience to unjust laws.

His most famous speech also came in 1963—his “I Have a Dream” speech, following the march on Washington.  

Time magazine, fittingly, named him “Man of the Year” for 1963.

1964 wasn’t a bad year either: He became the youngest person to win the Nobel Peace Prize, at age 35.

Voting rights protests and the march from Selma to Montgomery, Alabama, came in 1965. That August, President Johnson signed the Voting Rights Act.

King took a major turn in 1966, moving into a Chicago ghetto and launching a campaign against poverty.

He also became increasingly vocal against U.S. involvement in Vietnam and delivered a strong antiwar speech at Riverside Church in New York on April 4, 1967.

His antiwar stance attracted more attention from J. Edgar Hoover’s FBI, which used bugs and wiretaps to find something damaging.

Dr. King became involved in a Memphis sanitation workers’ strike in April 1968. On the evening of April 3, he made the following familiar comments regarding his optimism for the future despite the obstacles that lay ahead.

He said . . .

“. . . it really doesn’t matter with me now, because I’ve been to the mountaintop . . . and I’ve seen the Promised Land. . . .

I may not get there with you. But I want you to know tonight, that we, as a people, will get to the Promised Land.”

He was murdered the next day, on April 4, 1968, as he stood on the second-floor balcony of his room at the Lorraine Motel in Memphis, Tennessee.

He was only 39 years old.

Martin Luther King Day was first celebrated in 1986.

So far I’ve been summarizing facts that many of you remember, at least vaguely.

It goes without saying that I was, and still am, a great admirer of Martin Luther King.

He was a great man, a great leader, a great orator—right up there with Winston Churchill.

When I taught a weekend mini-course on public speaking at Johns Hopkins University in the 1980s, I assigned his speeches because I considered them some of the most eloquent ever written.

Earlier I said I admired Martin Luther King, especially in the early years of the civil rights movement.

What I meant by that qualification was that in the early years, he was trying to right clear wrongs, to end racial discrimination and demeaning treatment, and promote equal opportunity and respect for all.

His philosophy was to turn the other cheek, despite attacks by thugs with badges and their dogs.

He avoided returning violence that would likely have caused many more casualties and polarized the nation rather than won its support, as he did.

His message was accepted not only because it was right, but also because it was pure and unencumbered by extraneous issues. He fought clear and plain evil in those early years.

I personally thought it was a mistake for him to mix his messages in his later years and put our Vietnam efforts and fighting poverty on the same plane with ending racial discrimination.

Many others and I believed at the time that our cause was noble in Vietnam—that what we were trying to do was right, even if we weren’t doing it very well. I think King’s position on Vietnam muddied his message on civil rights.

Public opinion on Vietnam after all these years has moved in King’s direction. History will probably declare him right on the war, but I still think our cause was noble and that millions of people would have been better off had we won. But in the context of tonight, I just want to offer the opinion that Vietnam diluted King’s main message, which was a purer and more righteous message.

Similarly, I also thought it was a mistake for him to take on some of the economic issues that he made part of his movement.

Make no mistake about it: We are all against poverty and unemployment, which were especially severe among his people, and still are to a lesser extent. His goals were and are shared by all people of goodwill.

The problem comes not with the goals of ending poverty and unemployment but with the means of doing so—with the economics.

Good people disagree on that—especially economists, even good economists.

You’ve all heard the economist jokes.

One is that if you laid all the economists end to end they would never reach a conclusion

My point here is that those who care the most don’t necessarily have the best answers. Some well-intentioned remedies end up doing more harm than good.

I would even define economics as the study of unintended consequences.

President Kennedy’s assassination left it to President Johnson to get most of the civil rights program through Congress.

Having been Senate majority leader, Johnson was good at that, perhaps too good.

The Civil Rights Act was needed. The Voting Rights Act was needed.

My Dad, in his Truck Stop, needed the Civil Rights Act as an excuse to do the right thing.

But laws have their limits.

You can’t eliminate poverty by making it illegal, and you can’t achieve prosperity by voting for it.  

Attempts to do so generally run afoul of the law of unintended consequences.

Economists generally agree, for example, that legislating higher minimum wages can raise wages for a few while contributing to the unemployment of many.

Getting the incentives right can create a needed safety net for the poor. But getting the incentives wrong can lead to welfare dependency for generations of the poor.

I don’t mean to turn this into a polemic on economics.

My point is simply that the drive for freedom and the end to discrimination is probably more successful if it doesn’t become part of a larger ideology with unrelated features that weaken the total message.

I don’t know what Martin Luther King would say about some of the major issues of today.

But because he was a very intelligent man, I believe his thinking would have evolved with the times, with changing facts and circumstances, and with our better understanding of economic issues.

If he were here today, I think he would say the job is not finished, that more needs to be done.

But I think he would also recognize the enormous progress that has been made.

I think he would caution his people against thinking of themselves as victims—even though they have been victims—and urge them to take responsibility for their progress and prosperity.

It takes time. Usually generations.

I’m relatively prosperous. I have a good job.

But I can’t take much of credit for that. Most of the credit goes to my Dad, the seventh grade dropout who quit school to work at the sawmill.

From the time I can remember, he told me I had to go to college so I wouldn’t have to work as hard as he did.

I assumed I had no choice in the matter.

He saved enough money to start a gas station and saved enough there to build a truck stop, which is where I grew up—raised by my folks and long-haired waitresses.

The truck stop was successful enough to send me to college before Interstate 95 bypassed it and drained off its business.

We are all poor until someone steps up and, with sheer will, decides to break the cycle of poverty.

Government safety nets are needed to catch us if we fall, but we can’t depend on them to help us soar.

That depends on us, with the help of our family and friends.

Martin Luther King was a great man. A great leader.

He gave his people freedom and dignity and a more level playing field.

He gave his people a beginning toward the good life.

I’m not sure what a 77-year-old Martin Luther King would say if he were here tonight.

But with more eloquence than I could ever muster, I think he would say something like the following to his people:

Don’t forget the past, but don’t dwell on it.

Continue to seek justice, but look inward and to God for the strength to move onward and upward.

Don’t use the past as an excuse for failure in the future.

Use the past as an incentive to break the cycle of poverty through education, dedication and hard work.

Take responsibility for your own progress and success.

What I will leave you with tonight is that I hope we in the Texas A&M University System can help in the noble quest.

We have nine universities—not as many flavors as Baskin- Robbins, but enough to meet diverse needs.

The closest is Texas A&M Commerce, but they are all in Texas.

We have Texas covered.

We are proud that a high percentage of our students are first-generation college students, just as I was.

We want to help.

I can’t think of a better way to celebrate Martin Luther King’s birthday than to be here with you tonight.

Commencement Address to Economics Graduates

University of Texas, Austin, May 17, 2003

Congratulations. Today is the day you thought would never come. Thanks for letting me share it with you. I seriously doubt I’m the speaker you dreamed of having today—a president of a Reserve Bank. I’m your punishment for majoring in economics. I’ll try to make it quick and painless.

Commencement speakers, like graduates, get lots of advice. Everyone wants in on it. The most common advice, of course, is, “Be brief and be seated.” My wife, Suzanne, instructed me not to tell you to go out and change the world—it's such a commencement cliché. She has more positive advice, however, for you new career women: “Remember to moisturize.” The main thing that separates Texas women from the animal kingdom, she says, is their ability to accessorize and use products. A little moisture probably wouldn’t hurt you guys, either.

My assistant at the Dallas Fed puts her advice on the tag end of her e-mails:

Happiness is a journey, not a destination.
Work like you don't need money.
Love like you’ve never been hurt.
Dance like no one's watching.

Last month I had lunch with the smartest woman in the world: Marilyn vos Savant, the “Ask Marilyn” columnist in Parade magazine. According to the Guinness Book of World Records Hall of Fame, Marilyn has the world’s highest recorded I.Q. She is interested in economic education, of all things, and we met at a board meeting of the National Council on Economic Education. I told her I think economics is a good major for smart students, but if they are really, really smart, I’d rather they become doctors so they could do somebody some good.

She said, “Yes, but doctors help people one at a time, while an Alan Greenspan can help millions of people at a time." She has a point, although, ironically, she is also heavily involved in medical research, along with her husband, Robert Jarvik, the inventor of the Jarvik-7 artificial heart.

Come to think of it, Alan Greenspan is an excellent example of someone making a big difference by applying good economics. I don’t have time to defend that assertion this morning. I’ll just remind you how much the misery index has declined during the Greenspan years. The misery index, you’ll recall, is the sum of the inflation rate and the unemployment rate.

I understand that some of you may have the miseries this morning because of the current bulge in the unemployment rate, but we’re working on it. It's temporary. At least you will have the advantage in a weak labor market of a good degree from a good university.

Even though you majored in economics, my guess is that most of you have no ambition to be the next Alan Greenspan. Good. Diminishing marginal utility would set in. Or is it diminishing returns? Only a few of you, primarily the Ph.D. candidates, will ever have little cards with the title “economist” on them. Your cards will probably say something else. But if you are having buyer’s remorse over your choice of a major, don’t. While accounting or welding majors may have an easier time getting that first job—especially in the propane and propane accessories business—a major in economics will serve you better over the long run. You won’t end up like the guy in the Austin Lounge Lizards song who is 40 years old and living in his mother's garage—because he majored in decoupage. He was probably the one from the shallow end of the gene pool, another song admits.

My take on training in economics is that it becomes increasingly valuable as you move up the career ladder. I can’t think of a better major for corporate CEOs, congressmen or presidents of the United States. You’ve learned a systematic, disciplined way of thinking that will serve you well.

The economically challenged must be perplexed about how economies work better, the fewer people they have in charge. Who does the planning? Who makes the decisions? Who decides what to produce? And how? And how much? Where? When? By whom? And for whom? Etc. etc.

For my money, Adam Smith’s invisible hand is the most important thing you’ve learned in economics. You understand how we can each work for our own self-interest and still produce a desirable social outcome. You know how uncoordinated activity gets coordinated by the market to enhance the wealth of nations. You understand the magic of markets and the dangers of tampering with them too much. You know better what you first learned in kindergarten: that you shouldn't kill or cripple the goose that lays the golden eggs.

You’ve learned other useful things as well. Like opportunity cost and marginal analysis and the importance of distinguishing between fixed, variable and marginal costs. You know that elasticity means more than the stretch left in your capri pants or boxer shorts. You know about equilibrium. And rents.

You know from Herbert Stein that if something is unsustainable, it isn’t likely to be sustained. You know from Irving Fisher’s example the hazards of forecasting the stock market, or anything else for that matter. Especially if it’s about the future. The public looks askance at economists because they think of them primarily as forecasters. Don’t let yourself get labeled a forecaster.

You have learned from offer curve analysis in international trade class that the terms of trade worsen for the more-eager trader. Of course, you already knew that truth when it comes to romance.

You understand why free trade is a good thing, even though you have difficulty convincing your dads and uncles. Go easy on your dads, especially you women. Your dads have had it hard these past few years. Have you noticed that as you have become more liberal here at UT–Austin, he has become more conservative? You might even define a conservative as a father with a daughter in college. Even Texas A&M. A dad with a daughter at UT–Austin risks becoming a right-wing extremist. Sixth Street may have something to do with that.

Your economics training will help you understand fallacies, non-intuitive outcomes and unintended consequences. In fact, I’m inclined to define economics as the study of how to anticipate unintended consequences. Most fallacies in economics probably are fallacies of composition. For the benefit of your little brothers and sisters, let me give an example of the fallacy of composition. You may be able to see better if you stand up—but not if everyone stands up. What’s true of the individual may not be true of the whole. Keynes’ paradox of thrift provides a currently relevant example: Individually, most consumers need to save more. But if all or many consumers start trying to save more, the economy will be in deep doo-doo. Doo-doo is a technical term that economists use.

Little in the literature, in my opinion, is more relevant to contemporary economic debates than what’s usually called the broken window fallacy. Let me briefly review that for your families.

It seems that some teenagers, being the little beasts that they are, toss a brick through a bakery window. A crowd gathers and laments, “What a shame.” But before you know it, as always happens, someone suggests a silver lining to the situation: Now the baker will have to spend money to have the window repaired. This will add to the income of the repairman, who will spend his additional income, which will add to another seller’s income, and so on. You know the drill. The chain of spending will multiply and generate higher income and employment. If the broken window is large enough, it might produce an economic boom. Other catalysts to such booms might be a hurricane, a tornado or just about any government spending boondoggle. Whenever a government program is justified not on its merits but by the jobs it will create, remember the broken window.

Most voters fall for the broken window fallacy, but not economics majors. You will say, “Hey, wait a minute!” If the baker hadn’t spent his money on window repair, he would have spent it on the new suit he was saving to buy. Then the tailor would have the new income to spend, and so on. The broken window didn’t create net new spending; it just diverted spending from somewhere else. The broken window does not create new activity, just different activity. People see the activity that takes place. They don’t see the activity that would have taken place. Plus, there’s the waste of the broken window.

The broken window fallacy is perpetrated in many forms. Most of the time, jobs are invoked. Whenever job creation or retention is the primary objective I call it the job-counting fallacy. Economics majors understand the nonintuitive reality that real progress comes from job destruction. It once took 90 percent of our population to grow our food. Now it takes less than 3 percent. Pardon me, Willie, but are we worse off because of the job losses in agriculture? The would-have-been farmers are now college professors and computer gurus or singing the country blues on Sixth Street.

If you want jobs for jobs' sake, trade in the bulldozers for shovels. If that doesn’t create enough jobs, replace the shovels with spoons. Heresy! But you know that there will always be more work to do than people to work. So instead of counting jobs, we should make every job count. Don’t waste any. We will occasionally hit a soft spot when we have a mismatch of supply and demand in the labor market. But that is temporary. Don’t become a Luddite and destroy the machinery, or a protectionist and try to grow bananas in New York City.

Labor productivity is growing rapidly and substituting in the short run for employment growth. But as businesspeople get their animal spirits back and take advantage of historically low interest rates to invest in America's future, we’ll have employment growth in addition to productivity growth. That’s a recipe for prosperity.

It’s almost time for most of you to go, but don’t go far. I know Austin is a hard place to leave. Where else can you hear George Jones and the Platters on successive nights, as I did with my son in Austin last weekend? Where else can you create a generation of Dellionaires from your dorm room? Just think what Michael Dell and Bill Gates could have accomplished if they had gotten their degrees. In economics. If the sky is the limit, remember no place has a bigger sky than Texas.

And enjoy your life. Remember, life is like a roll of toilet paper. The closer you get to the end, the faster it goes.

Let me leave you with Ted Turner’s recipe for success:

Early to bed
Early to rise
Work like hell
And advertise.

And don’t forget to moisturize.

God bless Texas, and God bless America.