Clinton team hints at split with go-slow Fed

Treasury wants brisk economic growth, while Greenspan hits brakes.

In a little-noticed development, the Clinton administration and the Federal Reserve are showing faint signs of clashing on economic policy.

Fed Chairman Alan Greenspan and his policymaking colleagues are hardening their insistence on slowing the US economy.

But Treasury Secretary Lawrence Summers, in an interview, underscored the importance of keeping the economy moving quickly. In fact, he said it should grow fast enough that "jobs look for people."

While it may be no surprise that the White House would be pushing for brisk economic growth in an election year, Mr. Summer's comments indicate that differences between the administration and Fed may be more than nuance.

When asked how the government could alleviate poverty in the nation, the secretary said: "Make the economy as strong and rapidly growing as possible." President Clinton, he said, wants a "strong economy" too.

Mr. Greenspan, for his part, has been interested in slowing business activity enough to ease job-market pressures that he regards as potentially inflationary. Speaking in Boston Tuesday, the central banker hinted again that the Fed will raise interest rates once more when its policymakers meet March 21.

The stock market immediately turned around and prices sank.

As a long-standing policy, Clinton administration officials never criticize the Fed publicly. Such words are considered counterproductive. They usually alarm the financial community. They may even stiffen the backs of the Fed governors and regional branch bank presidents that decide on monetary policy.

But Summers emphasized the need for continued strong job growth. He said employers should be so strapped to find employees that they transport workers out of the ghettoes, set up family-friendly policies to attract mothers, and use other methods to retain the workers they have. Companies would even hire ex-convicts to fill empty slots.

Summers spoke at the same Boston College conference on the "New Economy" as Greenspan.

Massachusetts Rep. Edward Markey (D) introduced the Fed chairman as the "Babe Ruth of our economic policy." Since it was Greenspan's birthday, an effusive Mr. Markey got the entire audience of several hundred to stand and sing "Happy Birthday Mr. Chairman."

Summers and his deputy, Stuart Eisenstadt, meet weekly with Greenspan in Washington for about 90 minutes. They have lunch, or meet, alternately, in an office at the Fed and the Treasury.

With the Fed tightening monetary policy and an election coming up in the fall, their conversation could well be lively.

Many political observers reckon that today's vigorous economy - if it lasts through the summer - gives Vice President Al Gore a big political boost toward the presidency. Summers said nothing about the politics of the economy.

But he did speak of how more must be done to ensure that all Americans are included in today's prosperity - that everybody gets "a chance to succeed."

As it is, he noted, the life expectancy of a male in the nation's capital is several years below one in Mongolia or Belarus. A child born of a single teenage mother who didn't finish high school has an 80 percent chance of living in poverty at the age of 10.

In his talk, Summers listed the various Clinton proposals to lift the poor - an expansion of the Earned Income Tax Credit, a New Markets Initiative to help inner cities and other disadvantaged areas, and the expansion of Head Start and the Child Health Insurance Program.

But like most economists, he recognizes that a hot economy does more than anything else to lift people out of poverty.

In Washington, Jeff Faux, president of the liberal Economic Policy Institute, says slowing the economy is unnecessary because there are no signs of inflation. The Fed's interest-rate boosts, he suggests, are "aimed more at preventing wage increases than at preventing inflation."

Greenspan, though, held that "imbalances" in the labor market may have "serious implications" for inflation. "While the pool of officially unemployed and those otherwise willing to work may continue to shrink,... there is an effective limit to new hiring, unless immigration is uncapped."

At some point, he warned, wage increases must rise "above even impressive gains in productivity." This would intensify inflationary pressures or squeeze profit margins. And either could bring "prosperity to an end."

Labor productivity grew at a 6.4 percent annual rate in the fourth quarter of last year, the highest rate since 1992.

"Any concerns that rising labor costs will lead to inflation are misplaced," says Stan Shipley, an economist at Merrill Lynch, a major brokerage house. But he expects the Fed to raise interest rates regardless at the next two policy meetings.

(c) Copyright 2000. The Christian Science Publishing Society

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