Alan Greenspan is proving to be a "courageous" Federal Reserve chairman.
Mr. Greenspan deserves that praise, oddly, because he hasn't hit the brakes hard on the American economy. Usually a central banker is admired for his toughness when he hikes interest rates to avoid or curtail inflation. Already, economists frequently note that Greenspan has guided the US economy into a "golden age" of low unemployment, shrinking inflation, and rising prosperity.
It would be relatively safe from a central banker's point of view for Greenspan to ask his policymaking colleagues at the Fed for a modest hike in short-term interest rates as a preemptive measure against inflation. Unemployment is under 5 percent, a level many economists believe eventually will boost inflation.
But Greenspan has held off, recognizing, no doubt, the many economic benefits from today's husky economy. It has virtually eliminated the federal budget deficit. It has raised corporate profits and stock market prices.
Perhaps most important, prosperity is giving those at the bottom of the economic ladder a better chance to move up that ladder. Because many businesses need new workers, those being shoved out of welfare dependency are more likely to find jobs. They and other less-skilled Americans are getting crucial work experience and training.
Still, the average income for the poorest 20 percent of the population slid 1.8 percent in 1996. The most affluent 20 percent saw average earnings climb 2.2 percent after inflation. This year, however, the earnings of poorer Americans may be advancing fast enough to halt the deteriorating distribution of income in the US. There are some statistical hints of that. But it is less likely to happen if the Fed slows the economy sufficiently to increase the jobless rate again.
Greenspan is a sly veteran of the Washington scene. Last week he raised the prospect of an interest rate hike in telling the House Budget Committee that the economy has been on "an unsustainable track." He added: "If labor demand continues to outpace sustainable increases in supply, the question is surely when, not whether, labor costs will escalate more rapidly."
Economists have some quibble with Greenspan's numbers concerning annual growth in the labor force. But there can be no quarrel with his basic message that should unemployment continue to drop, at some point labor shortages would stimulate big, perhaps inflationary, wage gains.
At the moment, though, wage hikes have been modest. If the bottom half of the income scale gets a somewhat bigger slice of the economic pie, it would be a stabilizing trend in a nation where the rich have been getting richer at a fast pace.
Meanwhile, Greenspan's congressional testimony achieved what he probably intended. He dampened just a little any speculative fever on Wall Street - and that's a good thing. His words raised interest rates slightly in the bond market, increasing the chances for more modest economic growth.
Many economists suspect the economy is already slowing a little. We encourage the Fed, though watching developments, to be brave and patient enough to refrain from tightening monetary policy a while longer, giving the less fortunate a better environment for catching up.