We've heard a lot from political candidates who want to be known as the education president. Now we ...
We've heard a lot from political candidates who want to be known as the education president. Now we are hearing from Federal Reserve Chairman Alan Greenspan who seems to want to go down in history as the 'education' central banker.
At least that was what I was hearing in Greenspan's address to the National Governors Association earlier this month. Kids should stay in school because a high school diploma isn't enough to get a good job; and when kids do get a job, above all, they should know that a person can be fired.
Education, hard work, and worker insecurity is what made America great.
Greenspan has always been somewhat at a loss to understand why there isn't more inflation in the US given the rapid growth. He keeps coming back to the idea that America's workforce is fortuitously more productive and more paranoid. That powerful combination is what is holding down real wage growth and, in turn, growth in consumer goods prices.
Greenspan, in what must have seemed at times like a history lecture, traced the phenomenon of how information technology led productivity growth back to the invention of the transistor.
Greenspan has a theory of why productivity growth in Europe and Japan has lagged that of the US. He said the problem is employers in Europe and Asia have a harder time firing workers than their counterparts in the US, where "labour displacement is more readily countenanced both by law and by culture." Hence, Europe and Japan have been structurally unable to exploit the information technology bonanza. They don't dare expand as fast as companies in the US because they worry about it being hard to fire people if things don't work out.
Yet if you believe Greenspan, then you have to confine Europe and Japan to second-class futures because the information technology revolution shows no sign of slowing down. And who knows what the next revolution will be?
But get this - if Europe and Japan, with their educated populations and advanced civilisations, have been laggards when it comes to embracing technology, where does that leave the lesser-developed countries? But we knew that already, didn't we.
The divergence between nations is growing at leaps and bounds.
Maybe Greenspan is right about all of this. But maybe there are other reasons Europe and Japan haven't been as quick to jump on technology. My explanation calls for you to take a look at their telephone systems.
Telephone companies play a role in today's economy parallel to what the railroads were in the age of industrialisation.
The railroads were critical to industrialisation because they hauled coal, iron ore, and finished products.
Today, the phone companies transport the raw materials and finished goods of the information age, namely data, e-mail, and files.
My point is that the telecommunications in Europe and Japan were going through a conversion to private, and hopefully competitive, companies at the same time that the information technology came on line.
One revolution coming on top of another revolution was a tall order to fill.
This induced a one-time rigidity that now doesn't exist.
All of this takes us very far from what you would expect the Fed chief to be pondering. It would be a mistake to read too much into the speech concerning the immediate future of American monetary policy.
We didn't get a clue about whether the Fed is at the end of its interest rate policy cycle for having heard the speech.
What we did learn is something about how Greenspan views the big picture. And what is the chairman's big picture? Dr Greenspan is 100% attuned to what people like to call the new economy. He wanted to tell the state governors to get behind it too, probably in the only way that they make a difference, by supporting education.
It is a bit strange to have a Fed Reserve chairman sounding like the secretary of education. But what the hey. What good is it being a Fed chairman if you can't use your bully pulpit for a good cause now and then?
Now, what is the Fed going to do about interest rates?
David DeRosa in the Bloomberg New York newsroom
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