Greenspan And The Productivity Slowdown
"Still pumped up" (News: Analysis & Commentary, Nov. 13) gives Alan Greenspan a big pat on the back for forecasting the post-1994 productivity boom. Yet Greenspan is portrayed as a passive observer of the current situation, when his six consecutive increases in the Fed funds rate have exacerbated the risk of a productivity bust.
The investment boom of the past five years that you cite as the engine of productivity is in danger of being choked off by higher interest rates. The article cites companies cutting back on capital spending because higher interest rates and lower stock prices are boosting the cost of capital. But these higher rates were engineered by Greenspan, in part in an effort to cool off stock prices. That Greenspan should be able to take a pass on the negative economic consequences of his massive interest rate increases is beyond the pale.
To Greenspan's delight, stock prices are reflecting a slowing economy. We should put into perspective the possible impact on corporate performance.
The U.S. economy has been expanding for almost two decades. Since the 1981-82 recession, we have performed with exceptional vigor most of the time. In fact, there were only four quarters in which gross domestic product did not increase in absolute terms--two in 1990, one in 1991, and another in 1994. Therefore, growth has occurred in 68 out of 72 quarters. The "recession" of 1990-91 was merely a speed bump on the road to prosperity. We submit that any slowdown in the next year or two is likely going to be another speed bump.
The $9 trillion U.S. economy is a diversified and growing engine that has brought benefits to most U.S. citizens. Its global corporate structure is now embracing and benefiting from a true revolution of efficiency brought on by the integration of Internet technology into almost every aspect of economic activity. Cost-containment strategies are being implemented across the board. If we do enter a period of recession, it will likely be short and mild. Instead of getting excited about the short term, decision makers and investors should continue to plan for long-term expansion.
White Plains, N.Y.