Conferees Debate U.S. Prosperity

Federal Reserve Board Chairman Alan Greenspan warned Wednesday that the phenomenally robust economy may attain even greater heights--but only if policymakers correct emerging “imbalances,” such as the shrinking pool of skilled workers.

“Only a balanced prosperity can continue indefinitely. One that is not [balanced] will eventually falter,” Greenspan said during a White House conference convened by President Clinton. The one-day meeting was intended to assess how to keep the nation prosperous and to further extend the benefits of what is widely being called “the new economy.”

Greenspan’s message dovetailed neatly with what has become a near-obsession with Clinton as his second-term winds down.

Having entered the Oval Office more than seven years ago focusing on the economy “like a laser beam,” the president now rarely lets a day pass without speaking about finding ways to tap new technologies to help lift many Americans out of poverty.

“I believe the computer and the Internet give us a chance to move more people out of poverty more quickly than at any time in all of human history,” Clinton said.

With relish, he recalled seeing on his recent trip to South Asia, villagers in India, some of them illiterate, using computers and the Internet to obtain illustrations on topics such as infant care and conducting rudimentary business transactions.

Convened against the backdrop of a wild week on Wall Street, Wednesday’s session was attended by scores of corporate leaders, economists, financial gurus and high-tech entrepreneurs including Bill Gates, chairman of Microsoft.

The daylong gabfest, with Clinton presiding, allowed the president to showcase his role in overseeing the largest peacetime economic expansion in history--and to boost the presidential hopes of Vice President Al Gore.

No policy initiatives emerged at the end of the day, but plenty of ideas and opinions were exchanged. And many of those attending humbly expressed surprise at how the economy’s performance has shattered paradigms.

Until recently, it has been virtually an article of faith among economists that inflation would rise if the unemployment rate remained below 6% or 5.5%. But that has not happened, as Clinton noted, even though the unemployment rate now hovers around 4%.

Greenspan put it this way: “It has certainly become increasingly difficult to deny that something profoundly different from the typical postwar business cycle has emerged in recent years.” He described the current economy as “without precedent in our annals.”

And, the Federal Reserve chairman said, “the significant uncertainties surrounding these new economic forces counsel prudence. We need to be careful to keep inflationary pressures contained.”

Greenspan also defended the Federal Reserve’s five interest rate increases over the last 10 months, saying that imbalances represented by tight labor markets and the rising trade deficit had to be addressed. The interest rate hikes have been intended to dampen consumer spending, thus slowing the economy and alleviating the threat that tight labor markets will trigger inflationary wage demands.

William Nordhaus, a Yale University economics professor, said he is concerned about inflation. “The speed limit [for economic growth] has been raised but there is still a speed limit,” he said. “The betting odds are long against another four years as strong as the last four years.”

International economist C. Fred Bergsten said he was troubled by “the huge and growing trade deficit,” which hit a record high of $267.6 billion last year.

Bergsten said that the deficit could trigger a panic response in which foreign investors start fleeing U.S. markets, triggering a sharp decline in the value of the dollar. “A sharp decline in the dollar would push up interest rates and push down the stock market,” he said.

Roger Altman, a former Clinton administration Treasury official and now an investment banker in New York, said that he believes the stock market is already in a market correction that is likely to be a “sharp one, at least in terms of technology” stocks.

As the president opened the session, he said: “The conference is designed to focus on the big issues of the new economy: How do we keep this expansion going? How do we extend its benefits to those still left behind in its shadow? What could go wrong and how do we avoid it?”

As part of his effort to help the disadvantaged, Clinton last summer launched “new market” tours around the country to highlight business opportunities in impoverished regions, ranging from the Mississippi Delta to Watts.

The president’s next such trip has been scheduled for April 17-18, with stops in East Palo Alto and rural New Mexico. The tour’s aim will be to spotlight what many call the “digital divide,” or the socioeconomic disparity in access to computers and the Internet.

Participants broke into smaller sessions to discuss topics such as: “Is a Debt-Free U.S. Government Good for America’s Economic Future?” and “Globalization and Jobs.”

During one session, Clinton and Gates sat at the head table, participating in a discussion about the economy. The president praised Gates for his philanthropic efforts to combat poverty and illness around the world.

Not a word was uttered about the administration’s antitrust case against Microsoft, in which a federal judge earlier this week ruled against the software giant.