Greenspan Sees Productivity Continuing Despite Slowdown in Economic
Growth
Wall Street Journal, April 27, 2001
The remarkable improvement in productivity in recent years is likely to continue despite the slowdown in the economy, Federal Reserve Chairman Alan Greenspan said Friday.
There likely will be some moderation in productivity growth because of the weaker economy, but the lull should be only temporary, Mr. Greenspan said.
Productivity -- the amount of output per hour of work -- is the key ingredient determining Americans' living standards. The significant pickup in productivity growth that has occurred since 1995 has been a major factor supporting the record-long economic expansion.
In a speech delivered by satellite to a bond-traders convention in West Virginia, Mr. Greenspan indicated that he has not lost faith in the belief that massive investments in computers and other high-tech equipment in recent years has permanently improved the outlook for productivity.
Such a development is especially important to the record government budget surpluses, Mr. Greenspan said.
"The dramatic improvement in projections of the budget balance in recent years reflects, in large part, the pickup in underlying productivity growth in the U.S. economy, which has boosted corporate profits and household incomes and thereby tax receipts," Mr. Greenspan said.
Mr. Greenspan noted that projections by congressional and White House economists that the surplus will total $5.6 trillion over the next decade are based on a belief that the upturn in productivity seen since 1995 will continue.
Mr. Greenspan said he agreed with this assessment even though the measured rate of productivity will slow somewhat as the economy cools.
For the two decades from 1973 to 1995, productivity averaged lackluster gains of just more than 1% per year. However, since 1995 increases have more than doubled, allowing companies to pay workers higher salaries without raising prices.
Mr. Greenspan also expressed confidence in the ability of U.S. financial markets to adapt to the growing scarcity of Treasury securities as the federal debt of more than $3 trillion is paid down. He said the loss of Treasury securities as benchmarks for the bond market "seems unlikely to result in major difficulties for market participants because alternative benchmarks are easy to envision."
"Of course, the resulting adjustments will not be perfect and, in some cases, will impose costs on financial market participants," he said. "However, I believe that these costs are very likely to be outweighed by the benefits to the country of a higher capital stock and the resulting increases in productivity and income that appear to be the consequence of debt reduction."
He repeated past comments that the U.S. government should continue to pay off its debt, while cautioning that the total elimination of Treasury securities would cause difficulties not only for domestic and foreign investors but for the U.S. central bank, as well.