Economy Better, But Needs Work, says Greenspan
By Morgan Kelly
WASHINGTON -Federal Reserve Chairman Alan Greenspan told the House Financial Services Committee Wednesday that the economy is recovering, though the comeback is being held back by a lack of job growth and an increasing federal budget deficit.
Mr. Greenspan met with the panel to discuss the state of the economy and to urge Congress to prolong the economy’s recent upturn by reducing the deficit and promoting free trade. Committee Democrats warned him that the Fed’s policies would meet political resistance if American jobs and contracts continued to move overseas.
Rep. Barney Frank (D-Mass.), the committee’s senior Democrat, said jobs are being lost because of globalization that sends jobs and contracts overseas, generating profits for U.S. companies while leaving American workers without jobs and benefits.
“There is a growing perception in the country that the benefits of recovery are being unequally shared,” Rep. Frank said. “Our part is to contain excessive inequality.”
He commended Mr. Greenspan for keeping interest rates at appropriate levels, but said that if “excessive inequality” persists as a result of lost jobs, Mr. Greenspan can expect “political resistance” to his policies.
Rep. Frank supports holding U.S. trading partners to environmental and labor standards equal to America’s and providing health benefits to American workers who lose jobs because of trade.
“Overall, the economy has made impressive gains in output and real incomes,” Mr. Greenspan said, adding that the economy has seen an increase in productivity, wages and household income despite only a slight increase in employment.
Three million jobs have been lost since 2001, and only 300,000 new jobs have been created in the last year. The unemployment rate continues to hover between five and six percent, nearly twice as high as it was in the late 1990s.
Mr. Greenspan said that the loss of manufacturing jobs in the Midwest , the South and New England is the result of the country’s shift from a labor-based economy to one dependent on the information and technology sectors.
Mr. Greenspan was most concerned about the federal budget deficit, saying that if not addressed now, it will be nearly impossible to control when the baby-boom generation retires and the ratio of workers to retirees will “fall substantially.”
He criticized Congress for being more concerned about partisan advantage than reducing the deficit.
“The debate over budget priorities appears to be between those advocating additional tax cuts and those advocating increased spending,” Mr. Greenspan said. “To date, no effective constituency has offered programs to balance the budget.”
Democrats say the projected 2004 federal deficit of $521 billion will increase dramatically if Congress approves President Bush’s fiscal 2005 budget proposal.
Committee members divided along party lines in comments on the economy and the president’s economic policies.
Committee Chairman Michael Oxley (R-Ohio) was optimistic that 2.6 million jobs will be created this year, as the president and Republicans are projecting. He said that the economy is doing well considering the Sept. 11, 2001 , terrorist attacks, the Iraq war and corporate scandals, such as Enron.
Rep. Bernard Sanders (I-Vt.) lambasted Mr. Greenspan for supporting policies that have accelerated the movement of U.S. jobs to foreign countries and for presiding over an economy in which the rich have grown richer and the poor poorer.
“I am always amazed by how your forecasts are so far removed from the reality that I see everyday in my state for middle-class people and what I see all over the country,” Rep. Sanders said, citing a litany of problems from underpaid Wal-Mart employees to seniors fearing for their pensions.
Mr. Greenspan said the despair Rep. Sanders described is not due to the Fed’s economic policies but to a lack of new jobs.
“My view is that the pattern is about to change,” he said, adding, “I don’t know when it’s going to change.”
