Innovation is an essential ingredient to growing economies and living standards, but not for growing jobs, former Federal Reserve System Chairman Dr. Alan Greenspan said at a conference on innovation and technology in Washington this morning.
In a wide-ranging set of remarks, Greenspan also said that he did not think the U.S. economy would slip into a double-dip recession, but that underlying uncertainty among corporations and households and mounting concerns about the ability of European banks to deal with sovereign debts is having a direct effect on productivity growth.
He also expressed concern that productivity is also being hurt by the reversal of generational gains in educational achievement in the U.S. and an immigration policy that severely limits the number of well educated workers coming into the country each year.
“There are so many ways (the H1B Visa policy) is wrong,” he said. “My view is: Anyone (coming to this country) who gets a PhD ought to automatically get a green card. We absolutely need those people,” he said.
Greenspan estimated as skilled baby boomers retire, their replacement by a generation which has fallen behind in world education rankings is costing the U.S. economy “a tenth of a percent” in lower annual productivity growth.
Speaking with his usual command of how economies work, Greenspan distilled his view that innovation has a fundamental purpose in improving the welfare of nations, but that the notion that policies which promote innovation for the sake of creating jobs is misplaced.
“The measure of innovation as applied (to the marketplace) is the pickup (it produces) in productivity growth. It is proxied by output. If the purpose of innovation is to increase the ratio of GDP, or some other measure, by hours worked, then you’re really trying to constrict the number of hours worked,” he said, and by extension, the number of jobs.
“Innovations, going back to age of enlightenment…and the industrial revolution, were always an issue of how to leverage peoples’ work into more output,” he said.
“What innovation cannot be about is how do you create jobs,” he said. It is only when technologies and innovation “decrease unit and labor costs (and allow) companies to expand” that companies and a nation can hire more people. “There’s no way of getting around that syllogism that I’m aware of,” he said.
What will help promote jobs, he said, is less uncertainty.
“It’s very easy to demonstrate, the higher the degree of certainty by corporations and households,” the more they will be inclined to make long term investments.
Long term investment sentiment is at its lowest levels since the 1940s, he said. And unlike past recoveries over the past 50 years, residential and non-residential construction has been unable to gain traction.
“This means we’re dealing with a situation, where, if we excluded long term assets (investments of 20 years or longer, such as buildings) we get a rate of growth a percentage point or more than the published number,” he said.
That extra percentage point would translate into a lower unemployment rate. Instead of it being 9.1 percent, it would be “something like 6 percent, or maybe lower,” he said.
Greenspan, who spoke at the Innovation Nation Forum, hosted by MeriTalk, also addressed growing concerns over the near term future of the European economy, noting that the cultural differences between northern and southern Europe, and their respective views on debt and inflation are putting real strains on the 17-nation alliance of nations using the Euro. Those concerns have a direct impact on U.S.-based multi-national corporations, he said, with sizable stakes in Europe’s economy.