The so-called new economy -- where gains in the efficiency of workers allows economic growth above historical trends without inflation -- does not show any glaring threat of disappearing
, Federal Reserve Chairman Alan Greenspan
said in a speech Tuesday. But until economic growth slows from the stellar pace seen in recent years, he said, it is unclear whether the new economy trends will be permanent or fleeting.
"The recent period has been marked by a transformation to an economy that is more productive as competitive forces become increasingly intense and new technologies raise the efficiency of our businesses," Greenspan told the
National Governors' Association
in a speech.
The remarks were another acknowledgement from the nation's top central banking official that gains in worker productivity have allowed the current economic expansion to run longer and stronger than any in the nation's history. But Greenspan also cautioned that it is so far unclear what portion of productivity gains are permanent, and what portion could vanish.
He said certain components of the nation's productivity growth, such as the ability of computers to more intelligently manage inventories and production schedules, appear to be permanent. But other views of productivity growth, he said, suggest that the strong economy is merely forcing businesses to stretch their resources further to keep up with demand, a phenomenon that would reverse if demand were to decline.
"Until we experience an economic slowdown, we will not know for sure how much of the extraordinary rise in output per hour in the past five years is attributable to the irreversible way value is created and how much reflects endeavors on the part of the business community to stretch existing capital and labor resources that are not sustainable over the longer run," Greenspan said.
Despite such uncertainty, Greenspan suggested there are some permanent innovations that will continue to change the face of the economy. Long-lasting productivity gains, he said, include the biotechnology revolution and its effect on medicine, and changes in information technology that have diminished the cycles of bloating and shrinking inventories, which in the past has proved deadly for economic expansions.
Greenspan also dismissed fears that job creation will slow as technology allows businesses to get more done with fewer workers. "Because technological change spawns so many opportunities for businesses to expand, the introduction of new efficiencies has today, as in the past, created a vibrant economy in which opportunities for jobs have blossomed," he said.
In his speech, Greenspan gave no indication of whether Fed policymakers intend to change U.S. interest rates when they meet Aug. 22. The Fed has raised short-term interest rates six times in the past year, influencing financing costs for everything from credit cards to mortgages, as the central bank attempted to lessen the risk of inflation by slowing economic growth.
At its most recent meeting
June 28, the Fed held interest rates steady citing "tentative and preliminary" signs of an economic slowdown, such as fewer home sales and retail sales in the second quarter. But many economists expect that the Fed will continue to raise rates if economic activity picks up again in the third quarter.