Greenspan warns of 'new economy' pitfalls in summit speech

Clinton convenes daylong conference at White House

By Ian Christopher McCaleb/CNN

April 5, 2000
Web posted at: 4:07 p.m. EDT (2007 GMT)

WASHINGTON (CNN) -- Federal Reserve Board Chairman Alan Greenspan told a crowd of policy-makers, high-tech entrepreneurs and economic luminaries assembled at the White House on Wednesday that the economic boom fueled by the growth of the high-tech sector would seem to have no end, but stark economic realities must be monitored and addressed if the boom is to continue.

Federal Reserve Board Chairman Alan Greenspan

Greenspan, who opened the afternoon session of the Clinton Administration's high-profile "White House Conference on the New Economy," echoed the day's previous speakers, including the president, when he said there was direct evidence that the surge in production of and demand for information technologies -- most notably computers, networking and communications hardware and software -- has created an unprecedented economic expansion.

"It is becoming increasingly difficult to deny that something profoundly different than the postwar business cycle has emerged in recent years," Greenspan told the summit's after-lunch crowd.

"There are various competing explanations," Greenspan said, but "the extraordinary surge in technological innovation has yielded a sharply higher return in investments."

The opening of the administration's one-day summit on Wednesday looks to have been expertly timed.

With the perilous adventure the stock markets led investors on throughout the day Tuesday -- with a sharp dip that looked irreparable before a late-afternoon recovery -- there would seem to be no better time than the present to discuss the risks and rewards of an economic system so dependent on nascent technologies and scads of unproven Internet startup companies.

And the breadth of Greenspan's address covered both risk and reward, with the reward being classified as a continued upswing in productivity, which he maintained could be sustained under the right conditions.

The risk side of the equation, however, is perilous, Greenspan said, and a number of delicate factors must be held in check for the nation's economic prosperity to continue.

Chief among the Fed chairman's concerns is the ability of industry to meet growing demand by pushing enough product in the supply pipelines to keep consumers happy. His comments hinted that further interest rate hikes may be in order, perhaps as early as the next Fed meeting to discuss interest rates, which is scheduled for next month.

Linked to the ability of industry to maintain adequate supply levels, Greenspan continued, is evidence of a sharp decrease in the number of available, skilled workers. Should companies face labor shortages, hourly wages are certain to rise -- a trend that could easily translate into higher costs for consumers.

"Should the pool of workers continue to shrink," Greenspan said, "the 'safety valve' for demand will continue to close." The result: Consumers will not be as inclined to spend as freely as they might have been, starting a chain reaction that will eventually lead to decreased productivity, and some level of economic decline.

To avoid such a scenario and some other rather unpleasant possibilities, Greenspan recommended that the administration and Congress continue efforts to pay down the public debt using vast portions of the Social Security surplus, and invest in education programs that will foster life-long learning and skills training for members of the workforce.

Lastly, control of inflation -- as Greenspan has maintained through much of his career -- and an open international trade policy, will be necessary to continued prosperity.

"Maintaining an environment of low and stable inflation provides the greatest opportunity for the dramatic increases in structural productivity to show through fully into higher standards of living," he said.

High-level brainstorming

Greenspan's voice was just one of many heard during Wednesday's high profile summit.

President Bill Clinton

President Bill Clinton opened the long-awaited 'new economy' conference by saying the Internet and the home computer may one day create the possibility of equal economic and social opportunities for all.

"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 Wednesday morning. "I believe we can harness the power of the new economy to help people everywhere fulfill their dreams."

"This conference is designed to focus on the big issues of the new economy," Clinton said. "How do we keep this expansion going? How do we extend its benefits to those still left behind in its shadows? What could go wrong if we avoid it?"

Clinton has been aggressive in his efforts to bridge an understanding between the so-called new and old economies, with the high-technology driven "new" economy roundly credited for fueling America's unprecedented period of economic expansion.

With as many promises as may be offered by newly emerging economic paradigms, Clinton and others in his administration, most notably Commerce Secretary William Daley and National Economic Council director Gene Sperling, have expressed concern that the poor in urban and rural areas alike will not benefit from the economic boom because they do not have access to the required technology.

Clinton has argued that the economic trends created by the growth of the high-tech industry must be monitored and understood, and all must be given access to the technology needed to keep pace, for long term benefits to take hold.

"We are at the beginning stages of a new economy, which is beginning to rewrite the rules of business and economic growth and cyclicality," said former U.S. Deputy Treasury Secretary Robert Altman, while attending the morning phase of the summit.

"The new economy is real, and it's impressive, but we cannot let it cloud our judgment," said Yale University economics professor William Nordhaus, who is also attending the conference.

Microsoft founder Bill Gates

The list of those in attendance Wednesday at the White House featured some of the most active and visible high-tech, governmental, economic and social thinkers in the nation, and included the likes of Greenspan, a handful of Cabinet officials, and Microsoft founder Bill Gates, in attendance despite the Justice Department's antitrust ruling against his firm.

Gates, speaking on an afternoon panel, sought to divert attention from his own work as an information technology innovator, choosing instead to urge audience members to think beyond the accepted realm of new technologies into other areas. His newest area of interest, Gates said, is the sort of technology advancement that will improve health worldwide.

"Global health is a top priority," he said. "Having healthy children and families is more important than anything else."

Among the technologies championed by Gates and his philanthropic efforts -- widely available, cutting-edge vaccines for deadly diseases, and diagnostic equipment.

"The technology gap of most importance is the one affecting world health," he said.

Though White House officials acknowledged earlier Wednesday that Gates' attendance appeared somewhat awkward given the fact that the anti-trust ruling against Microsoft came down just two days ago, publicly they insisted that the ongoing court proceedings were not likely to be discussed.

Clinton acts as facilitator

On the day's docket was an ambitious array of panel discussions focusing on the ever-changing rules of business, most of which will be moderated by the president.

Following a brief opening statement by the president Wednesday morning, attendees listened as Treasury Secretary Lawrence Summers and Martin Baily, Chair of the Council of Economic Advisors, discussed the changing rules of industrial productivity, then the entire conference was broken into a series of working groups focusing on such issues as government debt, economic risk, the so-called "divide" between digital "haves" and "have nots," and the continuing evolution of the Internet.

Greenspan's address followed a lengthy lunch break, and was followed in turn by more digital divide discussions, and a closing chat on the creation of a new civil society and government with the help of information technology.

"We're all continuing to focus like a laser beam on the economy," Sperling said Wednesday. "And that means not sitting around and patting yourself on the back because unemployment and inflation rates are low."

Reuters and the Associated Press contributed to this report.