Greenspan sees jobs growth

Economy: The Fed chairman is hopeful before a key House panel.

March 12, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Touching on an array of hot-button election issues, Federal Reserve Chairman Alan Greenspan predicted yesterday that employment will soon grow more quickly, warned that protectionist trade barriers are not a good answer to the outsourcing of American jobs and said taxes probably will have to be raised to help eliminate a projected shortfall in Social Security funding.

Greenspan told members of a House committee that America's anxiety over the loss of manufacturing and white-collar jobs to low-wage countries is understandable, given the weak job growth the country has experienced since the 2001 recession, but blocking trade was not the answer.

"As history clearly shows, our economy is best served by full and vigorous engagement in the global economy," Greenspan told committee members.

On Social Security, Green- span said that after the government cuts prospective benefits it will have to turn to new taxes to fund the program for 77 million baby boomers. Benefit cuts should come first, he said, because of the harm higher taxes would inflict on the economy.

"We do not have enough in real resources to meet the promises that we have already made," Greenspan told the House Committee on Education and the Workforce. "We have to construct a pattern in which the benefits we do promise we do, in fact, deliver and not have these people retire in very large numbers and find out that they were betrayed by the government."

The Fed chairman's comments came as investors suffered a fourth consecutive day of losses on Wall Street. The Dow Jones industrial average lost 168.51 points yesterday and has plunged 467 points, or 4.4 percent, since the week began.

The struggling economy has become a nexus of the presidential election campaign with President Bush and Sen. John Kerry, who appears to have the Democratic nomination sewn up, trading barbs on trade and jobs.

Kerry is painting Bush as presiding over an economy that can't generate jobs. Since Bush took office in January 2001, more than 2 million jobs have been lost, and many companies are still reluctant to add workers to their payrolls.

Even though the unemployment rate has fallen to 5.6 percent, the jobs issue will be key for Bush's re-election. To date, 8.2 million workers are unemployed and hundreds of thousands have dropped out of the work force. Treasury Secretary John W. Snow predicted last fall that by the November election, 2 million jobs will have been created.

Greenspan said yesterday that he is optimistic that corporations will soon start hiring.

"In all likelihood, employment will begin to increase more quickly before long as output continues to expand," Greenspan said. "As our economy exhibits increasing signals of recovery, job loss continues to diminish."

But he acknowledged that job creation is "lagging badly - the ironic consequence of accelerated gains in productivity."

"Job insecurity is understandably significant when nearly 2 million members of our work force have been unemployed for more than six months," Greenspan said.

Economists agreed with the Fed chairman, saying that companies will soon have to hire because demand for their products and services is picking up as the economy continues to roll.

"Everybody is absolutely convinced that it [jobs] is coming," said Ken Goldstein, an economist at the Conference Board, a New York-based research group that tracks consumer confidence. "I would be absolutely floored if we got another report of only 21,000 jobs" from the Labor Department.

He said the next unemployment report could show as many as 100,000 jobs created in March. Economists estimate that it will take growth of at least 150,000 jobs a month to absorb all who want to work as the population grows.

"It really is just a matter of time before we get job creation," said Michael Englund, chief economist at Boulder, Colo.-based Action Economics LLC. "The economy is really roaring. How it can roar based on productivity growth rather than job creation remains a mystery."

But productivity isn't the only culprit behind poor job growth. Companies are increasingly hiring foreign workers in China, India and other countries because they are vastly less expensive than American workers. Many of the jobs that are being lost overseas are held by white-collar workers, such as designers, engineers, information technology specialists and accountants.

"It is a serious matter," said Robert T. Sweet, economist at MTB Investment Advisors in Baltimore, a division of M&T Bank. "The talk about outsourcing is going to be an election issue."

Greenspan said that outsourcing has created a "palpable unease that businesses and jobs are being drained from the United States, with potentially adverse long-run implications for employment and the standard of living of the average American." As a result, "a new round of protectionist steps is being proposed," he said.

Kerry is proposing to slash tax advantages for companies that move jobs overseas, which he calls "Benedict Arnold" companies. While he campaigns across the country, Kerry has talked to workers about protecting American jobs.

But Greenspan said measures to block trade and discourage innovations that will result in job losses will help only for a short time.

"Our standard of living would soon begin to stagnate and perhaps even decline as a consequence," Greenspan said. "These alleged cures would make matters worse rather than better. They would do little to create jobs; and if foreigners were to retaliate, we would surely lose jobs."

The Associated Press contributed to this article.

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