Federal Reserve Chairman Alan Greenspan clearly falls within this camp. In congressional testimony last week, he pointed to a rising dollar, which lowers the cost of imported goods, and changes in the health care industry as two major elements of falling prices which cannot continue indefinitely. He further suggested that the restraint workers have shown in terms of higher wages may not last much longer. On the other hand, Greenspan noted that deregulation and higher capital investment have also been important in restraining prices. These factors may continue to exert downward pressure for some time to come, because they raise productivity.
Higher productivity allows businesses to increase both wages and profits without raising prices.
Historian Alvin Rabushka notes that rising productivity and declining prices were the hallmarks of Britain's greatest period of growth in the late 19th century. Falling prices meant that real wages were rising, which led to increased consumption and higher standards of living for workers, especially for those at the bottom of the income scale. As is the case today, the sources of this prosperity were capital investment, technological innovation and free trade. It may be too soon to proclaim the birth of a new Golden Age, but the signs are very positive. Chairman Greenspan points particularly to the fact that continued growth has forced employers increasingly to reach out to the hard-core unemployed for labor.