Why the US economy has not created all the jobs lost.

Undecided · Jul 27, 2004

United States Chairman of the Federal Reserve Alan Greenspan said that the growing productivity in the US economy and the rather shallow recession of 2001 are the main reasons for the weak job creation response of the latest recovery.
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“We’ve had a historic rise in productivity. This means that even when the economy is expanding most of it comes from growing efficiencies rather than jobs”, indicated Mr. Greenspan
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Mr. Greenspan said that with the growth of aggregate demand looking more sustainable and with employment expanding broadly,
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“If economic developments are such that monetary policy neutrality can be restored at a measured pace, a relatively smooth adjustment of businesses and households to a more typical level of interest rates seems likely. Even if economic developments dictate that the stance of policy must be adjusted in a less gradual manner to ensure price stability,our economy appears to have prepared itself for a more dynamic adjustment of interest rates. Of course, considerably more uncertainty and hence risk surrounds the behavior of the economy with a more rapid tightening of monetary policy than is the case when tightening is more measured. In either scenario, individual instances of financial strain cannot be ruled out”.
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Mr. Greenspan argued that the protracted period of low interest rates has facilitated a restructuring of household and business balance sheets. Businesses have been able to fund longer-term debt at highly favorable interest rates and, by extending the maturity of their liabilities, have rendered net earnings and capital values less exposed to destabilizing interest rate spikes. Households have made similar adjustments Between mid-2002 and mid-2003, homeowners were able to refinance at lower interest rates almost half of total outstanding home mortgage debt and thereby to substantially reduce monthly debt service payments. Households also substituted mortgage debt for more-expensive consumer credit. Moreover, those households and businesses that held long-term investment-grade bonds in that year accumulated realized and unrealized capital gains as long-term rates declined.
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Mr. Greenspan believes that in short financial markets along with households and businesses seem to be reasonably well prepared to cope with a transition to a more neutral stance of monetary policy. Some risks necessarily attend this transition, but they are outweighed by those that would be associated with maintaining the existing degree of monetary policy accommodation in the current environment. Although many factors may affect inflation in the short-run, inflation in the long-run, it is important to remind ourselves, is a monetary phenomenon.
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http://www.mercopress.com/Detalle.asp?NUM=3993
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Why the US economy has not created all the jobs lost.

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