Greenspan Urges Caution
America's low inflation is no secret, Alan Greenspan said Monday. It's based on a fundamental shift in the economy toward high technology processes that boost productivity and force companies to compete.
But the information technology revolution has its limits, the Federal Reserve chairman warned. "The rate of growth of productivity cannot increase indefinitely," he said.
"While there appears to be considerable expectation in the business community, and possibly Wall Street, that the productivity acceleration has not yet peaked, experience advises caution," Greenspan said.
In a speech kicking off a three-day High Technology Summit at the Joint Economic Committee on Capitol Hill, Greenspan recycled themes from his earlier musings on high technology's contributions to the economy. Greenspan's remarks broke no new ground. He did, however, explain his thoughts in greater detail than before.
In his prepared remarks, Greenspan made no comments on current monetary policy. He will testify to the same committee about the economy and monetary policy on Thursday, less than two weeks before the Federal Open Market Committee meets to consider an increase in short-term rates to slow the economy.
Improved flow of information has allowed companies to shorten their time horizons for planning, thus eliminating the need for large inventories or pools of workers as insurance against unforeseen circumstances, Greenspan said.
"Owing to advancing information capabilities and the resulting emergence of more accurate price signals and less costly price discovery, market participants have been able to detect and to respond to finely calibrated nuances in consumer demand," he said.
He speculated that labor market structures, government regulations and other roadblocks are holding back Europe and Japan compared with the rapid embrace of new technologies in the United States economy.
The committee will hear from a who's who of American technology: IBM's Louis Gerstner, Intel's Craig Barrett and Netscape's Jim Barksdale on Monday, followed by Microsoft's Bill Gates and nearly a dozen others over the next few days.
Sen. Connie Mack, R-Fla., set the tone for the hearings with an impassioned plea for government to let the high tech industries flourish without interference.
Many of the other witnesses elaborated on Mack's theme. Barksdale, the former chairman of Netscape who is now an investor in Net companies, urged the government to police the information economy carefully to make sure no one entity - public or private - can dominate what he called "chokeholds."
"As more and more economic activity is conducted over the Internet, the harm to the economy from undue concentration of power could be far greater than in the Old Economy," Barksdale said. Perhaps Gates or Sun Microsystems' Scott McNealy will have more to say on this Tuesday and Wednesday.
Gerstner said government's biggest contribution would be timprove public education. "Unless we arrest the wasting decline of our public schools - and do it now - America is destined to be an also-ran in the emerging digital economy," Gerstner said.
Written By Rex Nutting, CBS MarketWatch