US Department of State
March 11, 2004

New protectionist measures proposed in the United States would do little to create jobs and would "surely" cause US job losses if other countries were to retaliate, Federal Reserve Chairman Alan Greenspan says.

In March 11 testimony before the House of Representatives' Education and the Workforce Committee, the head of the US central bank said that erecting barriers to foreign trade and discouraging innovation that brings about job-displacement could somehow temporarily ease tensions on the job market.

He said, however, that such easing would be short-lived and "our standard of living would soon begin to stagnate and perhaps even decline as a consequence."

"Time and again through our history, we have discovered that attempting merely to preserve the comfortable features of the present rather than reaching for new levels of prosperity, is a sure path to stagnation," Greenspan said.

He said US job loss continues to diminish and employment, "in all likelihood," will begin to increase more quickly as output continues to expand and new jobs replace old ones.

But Greenspan cautioned that job turnovers will never be painless and that the country needs to be prepared to deal with unwanted consequences of the economic change.

The US economy has shed more than two million mostly blue-collar manufacturing jobs since 2001. This loss and more recent "outsourcing" of white-collar jobs to countries such as India and China have become a recurring theme among Democrats competing for their party's nomination to oppose President Bush in the November election.

In March, the Senate passed a measure that would restrict the outsourcing to foreign workers of many jobs paid for by the federal US government, and some US states have moved to prohibit the outsourcing of state government work to India and other countries.

Greenspan said he recognized a "palpable unease that businesses and jobs are being drained from the United States" as a result of the globalization and the accelerated pace of innovation in the economy. And he acknowledged a "large gulf" between the arguments of economists pointing to the long-term benefits of free and open trade and the stress felt by displaced workers.

But he said that the US economy gains most from "full and vigorous" engagement in the global economy and added that the best way to deal with stresses and anxieties accompanying economic advance is to ensure that as many workers as possible have the opportunity to sharecapture the benefits coming with that engagement.

Calling education and training a "critical" element of any move in that direction, Greenspan urged renewed commitment to adapting the US educational system to the evolving needs of the economy.

Following is the text of Greenspan's testimony as prepared for delivery >>>