- The Washington Times - Friday, April 7, 2000

When Federal Judge Thomas Penfield Jackson threw the whole book and the kitchen sink at Microsoft Monday night, it was the perfect ending to a catastrophic day that saw Microsoft's capitalized market value plummet by $80 billion. This was the biggest one-day drop in a company's market cap in U.S. history.

But wait. The market cap for Cisco fell $30 billion on the same day. This amounted to the second-biggest market cap drop in history. And Cisco wasn't even mentioned in the ruling.

What gives? Answer: Market investors are saying that if the government can stick it to Microsoft, then they can stick it to anyone. What is bad for the goose could be even worse for the gander. No one can be sure what additional regulatory shoes may fall in the future. This point helps explain why the whole Nasdaq index got shellacked along with Microsoft.

After the Jackson decision came down, Assistant Attorney-General Joel Klein piled on. Here's a revealing quote from Jimmy Carter's former Federal Trade Commission official who is currently the top Clinton trustbuster: "It will benefit America's consumers by opening the door to competition, increased innovation and increased consumer choice in the software industry. This landmark opinion will also set the ground rules for enforcement in the Information Age."

Benefit consumers? Set the ground rules for enforcement? It is exactly these regulatory attitudes that sent a very cold chill down the spine of the Nasdaq stock market index, including dozens of company shares whose CEOs thought they might benefit from Microsoft's regulatory and legal demise.

Think again, fellas. When Uncle Sam starts on a trustbusting tear, plenty of unsuspecting victims fall prey to its anti-market and anti-growth illogic. This was the case 100 years ago under Theodore Roosevelt and William Howard Taft; it also happened during Franklin Roosevelt's 1930s and again during the Jimmy Carter 1970s. Stock markets and the economy suffered mightily. When government thinks it knows best, stocks and the economy perform least.

The Microsoft revolution of the 1990s has been the backbone of our high-growth and low-inflation economic miracle. Software output has expanded, prices have fallen, and the economy flourished. In the past four years, as the software revolution evolved into the Internet economy, the high-tech Nasdaq index appreciated 33 percent yearly. This pulled the old economy Standard & Poor's and Dow indexes up 22 percent annually. Nearly 100 million investors gained extraordinary wealth. Does this picture really need fixing?

Even computer klutzes like myself were able to learn Internet Explorer. Software applications such as Excel, Word and Powerpoint made everything simpler and easier to understand and execute. Netscape sold plenty of software but Microsoft proved to be more popular. Meanwhile, the standardized integration of Microsoft software, bundled together with their browser, substantially lowered transaction costs and raised productivity everywhere.

Benefit consumers? Maybe consumers don't really want to be saved. Here's a very interesting poll from Rasmussen Research. Seventy-one percent of Americans say Microsoft has been good for consumers. This figure jumps to 83 percent among heavy computer users. Just 15 percent of American adults believe the government should break up Microsoft.

Rasmussen Research, a subsidiary of TownPagesNet.com, is an independent public opinion and market research firm that refuses to work for candidates, political parties and elected officials. Here is some more data from their March 30 survey. Thirty-seven percent of all Americans say the Justice Department is a greater threat to the software industry than Microsoft. Just 18 percent see Microsoft as the bigger threat.

Among heavy computer users, 47 percent say Justice is the bigger threat while 20 percent name Microsoft. Among heavy computer users, 70 percent have a favorable opinion of Microsoft, with only 14 percent unfavorable. Two-thirds believe the government is wasting taxpayer dollars on the lawsuit.

Set enforcement ground rules for the Information Age? This is exactly what shareholders are worried about. This is why the Nasdaq has collapsed in recent days. No one in their right mind wants Uncle Sam to regulate technology companies that have become the engine of U.S. economic growth.

Indeed, there's no surer way to create stock market overvaluation than to unleash regulators on the economy. Antitrust regulators were virtually unemployed during the Reagan years, when the long prosperity boom first began. After final decisions were made to throw out the IBM lawsuit and then finally break up AT&T;, actions that had started 10 years earlier, trustbusting was moved to the bottom of the economic priority list. Free enterprise prospered.

If, however, trustbusting is to dominate economic policy now, then the economic growth boom may be coming to an end. But here's the really good news: There are only nine months left for the current administration. It is to be hoped that shareholders will maintain their optimistic vision during the interim. Keep the faith. Better times are coming.



Lawrence Kudlow is chief economist of CNBC.com and Schroder & Co. Inc.

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