Originally created 08/12/97

Economists sing Greenspan's praises



WASHINGTON - One night, Alan Greenspan's public persona - perpetually worried economist in black-rimmed glasses - gave way to party guy.

At a small gathering among friends, he participated with gusto in an intensely competitive game of "name that tune." His challenger, a fellow music buff, would shout out Koechel numbers, the system used to catalog hundreds of works by Mozart, and Mr. Greenspan unhesitatingly would hum the tune.

Now, as he wraps up a decade as chairman of the Federal Reserve Board, it is the economy that is humming. Grateful politicians from President Clinton on down are singing his praises.

With the United States now in its seventh year of uninterrupted growth, unemployment at its lowest level in nearly a quarter-century and inflation still a no-show, there is plenty to cheer.

"Alan Greenspan has had a stellar 10 years - one of the most outstanding periods in central bank history," said Allen Sinai, chief global economist at Primark Decision Economics.

Economists give Mr. Greenspan, 71, high marks for continuing the inflation battle launched by his predecessor. Former Fed Chairman Paul Volcker in the early 1980s pushed interest rates upward to levels not seen since the Civil War in order to tame double-digit inflation.

Mr. Greenspan has not had to resort to such extreme shock therapy. But his record on inflation has been even better - five straight years of consumer prices rising around 3 percent or less, the best performance in three decades.

Lately, however, Mr. Greenspan's fierce inflation-fighting views seem to have yielded to more dovish sentiments.

For the past year, he has been prodding his Fed colleagues to consider new theories that hold that the economy can grow more rapidly than previously thought without generating higher inflation.

While the central bank did nudge interest rates up slightly in March, that quarter-percentage-point increase came a year after many analysts had expected it.

In delivering his midyear report to Congress last month, Mr. Greenspan rejected suggestions that the Fed is embarked on a dangerous experiment to test the limits of just how fast the economy can expand.

But he still devoted 11 of the 19 pages of that testimony to an exploration of the "new age" argument that the huge investments businesses have made in computers and other high-tech products and other changes have given the economy a greater capacity for non-inflationary growth.

Mr. Greenspan even speculated that these trends, if they persist, could mean the country is on the threshold of a "once or twice in a century" leap in productivity - the key to rising living standards.

"Greenspan is very sympathetic to the view that the economy can perform at a higher rate now because of greater productivity coming from high-tech investments," said Lawrence Kudlow, economist at American Skandia Life Assurance Corp.

But other economists are not so sure. Mr. Greenspan, they argue, is well aware that much of the good news on inflation this year has been a result of temporary factors such as the strong dollar holding down import prices and depressed benefit costs stemming from the switch to managed health-care plans.

These analysts believe that Greenspan, the worrier who fretted about "irrational exuberance" in financial markets last December, is closely watching such developments as Friday's steep 157-point plunge in the Dow Jones industrial average.

While they do not think he is ready just yet to trigger higher interest rates, they believe Fed could begin raising rates this fall to cool off an overheated economy.

"Greenspan is happy that things are doing so well now, but he doesn't think all the problems of the world are over," said David Wyss, chief financial economist at DRI-McGraw Hill Inc.

If Greenspan does succeed in keeping inflation at bay and the current economic expansion lasts until 2000, setting the record as the longest on history, he might well accept a fourth term as Fed chairman as a reward. That would give him a longevity record surpassed only by William McChesney Martin, who presided over the current record expansion, the 1961-69 boom.

"Given that you have to go back to Martin to find a Fed chairman who has been as successful as Greenspan, another term would be entirely appropriate," said New York economist and longtime Fed watcher David Jones.