PALO ALTO, CA—Speaking at the gym at the high school where he used to play basketball in the 1960s, Sen. Ron Wyden (D-Ore.) gave a dire warning to a group of students and locals on Wednesday about the effects of government spying on Silicon Valley: "There is a clear and present danger to the Internet economy."

The Oregon senator led a roundtable discussion on the " Impact of Mass Surveillance on the Digital Economy " with representatives from major Silicon Valley firms, including Google, Microsoft, Facebook, and Dropbox. Wyden, a longstanding critic of the National Security Agency (NSA) and United States government’s policy on digital surveillance, made the case that active spying hurts the American economy

"The NSA ran an expensive and invasive bulk e-mail records collection program for years, and it turned out to be worthless," he said. "And its bulk phone records collection program is still up and running now, even though the President’s own surveillance review group has indicated that it is not necessary or effective."

Wyden said that the government needs to halt the collection of consumer data.

"It is time to end the digital dragnet, which harms American liberty and the American economy without making the country safer," he said.

There has been some evidence that American business, especially in this storied region of Northern California, has suffered in the wake of the disclosures provided by former NSA contractor Edward Snowden. In December 2013, Cisco essentially blamed the NSA for its falling sales. More recently, in June 2014, Germany ended its government contract with Verizon.

Don't hold your breath

Eric Schmidt, the chairman (and former CEO) of Google, who was one of the top officials in attendance, lauded Wyden for his efforts.

"I think you are a true patriot, and thank you for all you do," he said.

"The things you are describing are severe and are getting worse unfortunately," Schmidt continued. "We're going to end up breaking the Internet. What's going to happen is that governments will write bad laws and will end up creating their own Internet."

The panelists all lamented government overreach, congressional inaction (while praising the pending and weakened USA Freedom Act, which passed the House in May 2014), and the outdated Electronic Privacy Communications Act (which underpins the legal framework for much of this spying) but none had any real suggestions for meaningful reform.

"There seems to be a tendancy to overreach on [digital snooping]," Schmidt said. "It seems like you're optimizing one thing at the cost of 100,000 jobs or a huge industry. That's my reading of this. A more nuanced view would say that there's some limit to how much of this you should do. Put another way: just because you can do it, doesn't mean you should do it."

Wyden quipped: "There's no question that Washington, DC does overreach well."

The group appeared to agree that if neither President Obama or Congress would act, companies would make technological moves to thwart government spying—such as Apple’s recent move to make data handover on iOS 8 impossible.

"I’m not as optimistic as I would like," Brad Smith, the general counsel of Microsoft, told Ars after the panel ended. "We think Congress needs to act before the end of the year."

"Companies are left with no alternative if Congress doesn’t change the law."

“That's not the way we do it in America”

In a brief interview with Ars after the conclusion of his talk, Wyden re-iterated many of his main points from earlier in the day.

"You've never had leaders like these saying that the policies are going to break the Internet," he said. "Hello!? I've been doing this for years, and saying the government surveillance policies are going to break the Internet is a big deal. You'd better believe that I'm going to be using that with my colleagues."

When asked what changes he personally had made in his own digital security, Wyden declined to answer.

"I don't want to talk about myself," he said. "I think I have an obligation to the state and the country to show that liberty and security are not mutually exclusive."

He also declined to answer whether he knew or suspected that the NSA or any other intelligence agency maintains databases on Americans regarding financial information, gun ownership information, or something similar.

When asked about the use of license plate readers and similar forms of surveillance typically used without a warrant by local law enforcement, Wyden was unequivocal.

"There is no question in my mind that if government, at every level, decides that today we're going to take everybody in the community or state and turn them upside down and shake them, there is no question that some stuff will fall out," he said. "That's not the way we do it in America."

Finally, Wyden said that he planned on looking more closely into the legality and consequences of Executive Order 12333, which recently came back into the public eye.

"I intend to spend a significant of time unpacking this," he said. "It is an executive order, which means that the President is in effect arrogating to himself very significant powers. I am very concerned about it."