Greenspan: Productivity low despite ‘tightest labor market I’ve ever seen’

Former federal reserve chairman Alan Greenspan on Thursday said the U.S. labor market was the ‘tightest’ he’d ever seen it, but also noted that productivity growth remained low.

“This is the tightest market, labor market, I’ve ever seen,” he said in a CNBC interview, “but concurrently, we have got a very slow productivity increase.”

Economists link wages to productivity, which Greenspan said was growing at less than half the rate it had in the past. 

{mosads}“This is having a significant impact on the GDP growth, and therefore, it’s ultimately the source of populism, which has infected the United States as it has Europe and others,” he said.

Economists define productivity as the ratio between inputs, such as the labor and investment, and the outputs the produce.

As labor becomes more productive, economists argue, workers should get paid more because their work produces more goods and services. Other economists have questioned whether workers ultimately end up seeing those benefits in the real world.

Greenspan predicted that wage and price increases would eventually take hold.

Greenspan, who served as America’s top central banker from 1987 through 2006, also brushed aside criticism of President Trump for complaining about the Fed’s current monetary policy.

“Every President has an insight into how the markets work and where interest rates ought to be, which is always superior to that of the federal open market committee,” Greenspan said.
“The best thing you can do if you are in the Fed is put earmuffs on and just don’t listen.”

President Trump has expressed vocal displeasure with his own appointee, Federal Reserve Chairman Jerome Powell, over rising interest rates, saying that “the Fed has gone crazy.”

An independent central bank that can set monetary policy without regard to political constraints is a central tenet of functional financial system.

Greenspan himself raised interest rates in the late 1980s, which led to a recession that was seen at the time as hurting President George H.W. Bush’s reelection effort in 1992.