US Federal Reserve Chairman Alan Greenspan may be skeptical about the US economy's prospects for a swift bounce out of the recession, but his faith in technology-driven economic gains for the longer term appears as solid as ever.
If anything, the Fed chief indicated last week his belief in technology's potential has been strength-ened as a result of the downturn, saying growth in output per worker remained positive as the recession set in and "held up well" even after the Sept. 11 attacks on the US.
"Until last year, the hypothesis of an accelerated productivity trend had not been tested in the contracting phase of a business cycle," Greenspan said Friday in a speech to the Bay Area Council, a policy group sponsored by business and local governments in the heart of high-tech country.
"Recent developments have provided that test, and the early returns certainly look favorable to the hypothesis."
Making that point in the San Francisco area was significant, since it was the epicenter of the New Economy spurred by information technology and paid a stiff price when economic conditions soured last year.
An economic profile produced for the Bay Area Council, which includes more than 250 employers, underlined the impact that the end of the 1990s "dotcom frenzy" had on the region and the nation.
"Since December, more than 130,000 Internet workers nationwide have been laid off -- many of them in the Bay Area -- and hundreds of Internet companies in the region have closed their doors altogether," the study said.
Since the recession began, about 1.3 million jobs have been shed, which means high-tech industries have absorbed a substantial proportion of the overall losses.
But technology may change the nature and shape of downturns, making them sharper but shorter because businesses have the ability to access timely information and adjust operations accordingly, the Fed chief said.
"Contractions initially may be steeper, but because imbalances are more readily contained, cyclical episodes overall should be less severe than would be the case otherwise," Greenspan said.
The productivity boom of the 1990s, when output per worker surged, stemmed largely from increased applications and more efficient use of information. Greenspan has cited information technology developments as a key driver of the higher productivity that fostered a record expansion from March 1991 until the recession began in March last year.
Higher productivity rates translate into rising living standards since they allow companies to produce more goods at lower cost, meaning that wages and profits can rise.
Overall, Greenspan's message on Friday was one of caution. But he balanced it by saying that over the longer haul, prospects remained bright and added that advances in technology will help lead the way.
The Fed chief emphasized "the evolution of corporate profits and capital investment" will continue to drive the economic cycle and suggested he remained confident there was room for more innovative advances from technology, if not at the same accelerated pace as in the 1990s.
The Fed, under Greenspan's leadership since 1987, quickly spotted and reacted to the current economic downturn with a series of 11 relatively rapid-fire interest-rate reductions that it initiated more than a year ago.
RSS