Outlook: Alan Greenspan
Friday 23 July 1999
The point he was making was two-fold: first, that gains in share prices had gone well beyond what was justified by the very real improvements in US productivity; and second, that productivity growth could not carry on accelerating.
Ardent free-marketeer that he is, Mr Greenspan was tentative on the extent of the share price bubble. As he put it, for a central bank to identify a bubble involves "pitting its own assessment of fundamentals against the combined judgement of millions of investors". However, his second point concerns a matter of arithmetic rather than judgement. For the long- term growth rate of corporate profits to increase, as required to justify continuing stockmarket gains, productivity growth too must continue to pick up. Once it stabilises, unit costs will start to increase more rapidly.
Productivity in the US economy has accelerated remarkably, from a lacklustre 1 per cent a year in the 1980s to more than 2 per cent in the 1990s and 2.5 per cent in the past couple of years. Mr Greenspan argues it is reasonable to attribute this to the implementation of new technologies across the economy. But can the improvement continue?
History urges caution, he rightly points out. Do investors agree with him? Do they hell. The extraordinary euphoria across the Atlantic suggests American investors are still inclined to believe that history is bunk. It will take more than Mr Greenspan's measured warning to deflate them.
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 PornHub turns masturbation into energy in bid to save the planet
- 4 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
- 5 Saudi Muslim cleric claims the Earth is 'stationary' and the sun rotates around it
British are sexually uptight, dirty and drink too much – according to Spanish book
PornHub turns masturbation into energy in bid to save the planet
Ukraine crisis: Top Chinese diplomat backs Putin and says West should 'abandon zero-sum mentality'
White and gold or blue and black – what colour is the dress? An eyewitness gives a definitive answer
Saudi Muslim cleric claims the Earth is 'stationary' and the sun rotates around it
New theory could prove how life began and disprove God
This is what it's like to be dead, according to a guy who died for a bit
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Ukip would cut billions from Scottish budget to fund English tax cuts
Russia's roadmap for annexing eastern Ukraine 'leaked from Vladimir Putin's office'
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...