Federal Reserve Chairman Alan Greenspan on Thursday urged Americans not to turn high anxiety about U.S. job losses into support for protectionist trade measures that could hurt rather than help the situation.
In remarks to the U.S. House of Representatives Education Committee, the Fed chief waded into a burgeoning political argument with a call for an open trade environment that appeared to echo President George W. Bush’s sentiments.
“As history clearly shows, our economy is best served by full and vigorous engagement in the global economy,” Greenspan said a day after Bush warned against restricting access to U.S. markets by saying that doing so might hurt U.S. exporters.
Greenspan noted that some were advocating “new protectionist measures” but warned that these could be self-defeating.
“These alleged cures could make matters worse rather than better,” he said. “They would do little to create jobs and if foreigners were to retaliate, we would surely lose jobs.”
The influential Fed chief said he was “fairly well convinced” hiring will soon improve given current relatively strong economic growth. But he said extending unemployment insurance benefits was “not a bad idea”.
Hot election issue
In the runup to November’s presidential elections, Democrats have sought to tag the Bush administration with the blame for a jobless recovery, saying that “outsourcing” of U.S. jobs to cheap-labor countries like India and China could and should be slowed down.
Sen. John Kerry, who has the Democratic presidential nomination virtually locked up, sought union workers’ support on Wednesday by saying Bush’s tax cuts helped the rich while doing nothing to protect middle-class jobs.
Greenspan said job insecurity was “understandably significant” when nearly two million Americans have been on the unemployment lines for more than six months. But he said it must be borne in mind that the United States has benefited from freer global trade, and noted other industrial nations were adopting the U.S. model of flexible labor markets that induce more hiring because it is also easier to fire.
“I do believe that as far as the economic evaluation of what type of labor market one should want, I think there is an increasing awareness that flexibility more of our type is the way to go,” he said. “And I do believe that we will see Europe and Japan...moving in that direction over the next years.”
Can't fence jobs in
Greenspan said putting up barriers to foreign trade and guarding jobs might work in the short run but not indefinitely. He said it was ironic that U.S. job creation was “lagging badly”
Because productivity was high — a factor generally identified with rising living standards — and that would be hard to sustain if trade protectionist measures were adopted.
“Our standard of living would soon begin to stagnate and perhaps even decline as a consequence,” Greenspan suggested. In response to questions, he said it would be “a mistake to put up barriers that limit competition in hopes of saving jobs.
“The more competition we are exposed to, the more difficult it is for us, but the end result is it forces us to go to a higher level of production and technology and development which I think has been what has made this country great,” he said.
Greenspan said it would be more fruitful to consider reforms in the education system to ensure that workers with needed skills in technology are available. That would have the coincidental benefit of easing some of the pressure that has driven wages of highly skilled employees up while pay for less-skilled workers has been virtually stagnant.
“Anything that we do to enhance the skill level of the American work force is crucial to our long-term development and the stability of our society,” Greenspan said.
