New Economy Defies Old Models

The good news about the new economy at a White House conference Wednesday came with a caveat: that in this era of unprecedented growth and prosperity, inflation still threatens to undo it all.

CBS News Chief White House Correspondent John Roberts reports that while the overall tone of the new economy summit was optimistic—with top economists and corporate leaders saying they see no reason why the prosperity won't continue—they also cautioned that as the new economy plies uncharted territory, the normal rules don't apply.

"The significant uncertainty surrounding these new economic forces counsel prudence," said Federal Reserve Chairman Alan Greenspan. "We need to be careful to keep inflationary pressures contained."

While lauding strong economic growth, the lowest unemployment rate in 30 years and rising worker productivity, Greenspan cautioned that growing imbalances must be dealt with to make sure the good times continue.

He also reiterated his belief that at some point, demand for workers will push prices up, spur inflation and slow down America's economic boom.

He said no economist could say with certainty exactly where this danger point was.

But he added: "When we reach that point, short of a repeal of the law of supply and demand, the scarcity of labor will almost surely induce a rise in hourly compensation gains that increasingly outpaces an even faster productivity growth."

Greenspan insisted that his recent interest rate rises were not aimed at the stock market. But some experts feel Wall Street should heed the Fed chairman's call for caution.

"The current level of stock prices is not only unrealistically high, but I think it's also economically damaging," said Professor William Nordhaus of Yale University. "Inflated assets make people feel wealthier than they are."

"There's going to be a correction. It's probably going to be a sharp one," said former Treasury Department official Roger Altman. "And we are already seeing all of the preliminary signs of that typof correction."

One person who sounded surprisingly optimistic was Microsoft founder Bill Gates

Gates, whose company was found guilty of violating federal antitrust statutes on Monday, sat next to the president.

"We're at the beginning of what the computer can do to change our lives," he said. "The best is yet to come."

Gates reflected on the changes he had seen since launching Microsoft 25 years ago. But some of his comments could have referred to his company's legal troubles.

"It's this pace of change, and the contribution of these changes to our prosperity that are changing our laws," Gates said. "There's really an obligation for all of us to not only embrace the new technology but to figure out how to make it available to everyone."

Later Gates said, "If you had to pick the big winner of all of this you'd have to pick consumers."

Ironically, in the decision that found Microsoft guilty of violating, the Sherman Antitrust Act, the judge decided that Microsoft's anti-competitive behavior had harmed consumers.

Gates also talked about the small percentage of teachers using the Internet in the classroom and said rich countries had to make sure that third world children received basic vaccines.

Gates said the economy will not have reached its potential until, "computers in inner city classrooms equal the computers in suburban classes, until the vaccinations a child gets in Ghana equals those a child gets in Baltimore."

President Clinton, who chaired the meeting, agreed.

"I believe the computer and the Internet give us a chance to move more people out of poverty more quickly than any time in all of human history," Clinton said. "I believe we can harness the power of the new economy to help people everywhere fulfill their dreams."

America's markets, still reeling from a rough Tuesday, offered no clear reaction to Greenspan's remarks. The Nasdaq composite index rose 20 points, the Dow Jones industrial average dropped 130, the S&P slipped 7.36 and the Russell 2000 rose 11.92.