Greenspan's Folly Is Believing in `Full Employment'

Article excerpt

The Federal Reserve didn't raise interest rates last week. But it looks inevitable that the Central Bank will boost borrowing costs at least one more time because it believes the U.S. economy is at "full employment."

Full employment? Where?

This is an uncommonly stupid belief on the part of Fed Chairman Alan Greenspan, who continues to be misled by statistics coming from the U.S. Labor Department.

Understand that Greenspan isn't a sadist who likes to see workers suffer. If the nation is at "full employment," then basic economic theory tells policymakers that companies will have to start paying more to steal workers from one another, rather than hire folks who are unemployed. That means there will be wage inflation, indicating the Fed would be doing the proper thing.

The trouble is, there is no indication yet that there aren't millions of people still out of work.

The government thinks that more than 4 million new jobs have been created in the last two years or so. And in an incredibly dumb move, President Bill Clinton's economic adviser Laura Tyson was out this month bragging that the Labor Department was undercounting the job growth by 500,000 positions.

Tyson's public statement pushed the Fed that much closer to tightening interest rates - probably the last thing Clinton wants at this point.

Washington is engaging in wishful thinking in believing the job figures. Forget for a moment that many studies have shown that the jobs being created today are inferior - in pay, benefits and opportunities for advancement - to jobs lost during the recession.

The government is miscounting the number of jobs being created.

The government has been reporting that the unemployment rate in this country is down to "just" 6.1 percent. Washington considers 6 percent unemployment - or nearly 8 million people out of work - not only the acceptable level, but the ideal level at which the system doesn't generate any wage inflation.

So in Greenspan's eyes, things are near perfect. And he can go about fighting the demon of inflation-to-be. …