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To: Dr. David Gleitman who wrote (20743)	5/30/2000 2:30:00 AM
From: bela_ghoulashi	Read Replies (1) \| Respond to of 35685

Good Fed article: nytimes.com May 30, 2000 Should Fed Consider Alternatives? Filed at 12:01 a.m. EDT By The Associated Press NEW YORK (AP) -- A day without the stock market is a rest for tired minds, a boon for reflection and an opportunity to consider issues larger than the significance of bouncing fractions. To consider, for example, whether a soaring economy, such as ours, must be cooled by the application of higher interest rates or face the fires of inflation, perhaps followed by recession. The Federal Reserve has publicized what it views as the necessity of slowing the expansion, warning that an economy depleted of workers will be forced to raise wages, then prices. It has always happened that way. There is, however, a developing point of view that questions whether higher interest rates and a possibly dangerous slowdown is called for. Rising productivity, some note, means more and less expensive goods. They have a point, one with which even Fed Chairman Alan Greenspan agrees. There can be little doubt, Greenspan conceded last month, that rising worker productivity has tended to offset price increases. But he and others worry that the 3.9 percent jobless rate means we are running out of qualified workers, and that the rapid pace at which Americans are buying foreign goods will simply run up the trade imbalance. Repeated explanations of that sort rouse the ire of critics. First, the jobless rate: Yes, the critics say, unemployment has dropped far below what almost anyone had foreseen, the lowest in 30 years. But, they contend, that's because we've taxed older, productive workers out of the labor force. In a nutshell: The average lifespan grows, but the average workspan doesn't. Productive workers opt to retire in their 60s and collect Social Security. Many would rejoin the work force if they could do so without losing some of their Social Security benefts. Why not allow them to do so? That's one suggestion made by critics. Others contend that the industrial culture has not fully adjusted to benefits of the information age, which allows for a greater variety of part-time and at-home jobs. Still another criticism questions whether we fully understand the relationship between low unemployment and rising productivity. Some ask: Could low unemployment be a greater spur to productivity than realized? Does it lead to greater productivity investment and not necessarily to higher prices? As for the balance of international payments, actually an imbalance in which the United States imports more from foreigners than they do from us, the critics observe that foreign economies are resurrecting. If that is so, they say, isn't it logical to assume that with their new wealth they will increase their purchases of American goods, thus tending to correct the imbalance? Well, anyway, that's the contention. However, contentions sometimes have a poor record when faced with the realities of the marketplace. The Fed, for example, has utterly failed to undermine the spending and optimism of consumers. After six interest-rate increases totalling 1.75 percentage points in one year, the latest University of Michigan consumer survey, out today, shows Americans unimpressed. They refuse to slow down; they plan to spend. The May index of consumer confidence rose to 110.7 from 109.2 in April. For the five months of 2000, the index has averaged higher than ever before in its 50-year history. And that, of course, means that it is higher than a year ago, when the Fed set out to supress it. The Fed eventually is likely to have its way; every buyer sooner or later succumbs to the higher costs that higher interest rates impose, and the Fed seems determined to continue raising those rates. But so far the plan hasn't worked out as intended, and it lends volume to the voice of critics. It provides an opening for them to argue that other approaches, other viewpoints, other contentions be considered.