productivity, the net worth of households has expanded dramatically, relative to income. this has spurred private consumption to rise even faster than the incomes engendered by the productivity - driven rise in output growth. moreover, the fall in the cost of equity capital corresponding to higher share prices, coupled with enhanced potential rates of return, has spurred private capital investment. there is a wide range of estimates of how much added growth the rise in equity prices has engendered, but they center around 1 percentage point of the somewhat more than 4 percentage point annual growth rate of gdp since late 1996. such overall extra domestic demand can be met only with increased imports ( net of exports ) or with new domestic output produced by employing additional workers. the latter can come only from drawing down the pool of those seeking work or from increasing net immigration. thus, the impetus to spending from the wealth effect by its very nature clearly cannot persist indefinitely. in part, it adds to the demand for goods and services before the corresponding increase in output fully materializes. it is, in effect, increased purchasing from future income, financed currently by greater borrowing or reduced accumulation of assets. if capital gains had no evident effect on consumption or investment, their existence would have no influence on output or employment either. increased equity claims would merely match the increased market value of productive assets, affecting only balance sheets, not flows of goods and services, not supply or demand, and not labor markets. but this is patently not the case. increasing perceptions of wealth have clearly added to consumption and driven down the amount of saving out of current income and spurred capital investment. to meet this extra demand, our economy has drawn on all sources of added supply. our net imports and current account deficits have risen appreciably in recent years. this has been financed by foreign acquisition of dollar assets fostered by the same sharp increases in real rates of return on american capital that set off the wealth effect and domestic capital goods boom in the first place. were it otherwise, the dollar ’ s foreign exchange value would have been under marked downward pressure in recent years. we have also relied on net immigration to augment domestic output. and finally, we have drawn down the pool of available workers. the bottom line, however, is that, while immigration and imports can significantly cushion the consequences of the wealth effect and its draining of the pool of unemployed workers for a while, there are limits. immigration is constrained by law and its enforcement ; imports, by the willingness of

driven wholly by gains in productivity and growth of the working age population, including immigration, we would not need to be as concerned about the potential for inflationary distortions. clearly, we cannot know for sure, because we are dealing with world economic forces which are new and untested. while we endeavor to find the proper configuration of monetary and fiscal policies to sustain the remarkable performance of our economy, there should be no ambiguity on the policies required to support enterprise and competition. i believe that we as a people are very fortunate : when confronted with the choice between rapid growth with its inevitable insecurities and a stable, but stagnant economy, given time, americans have chosen growth. but as we seek to manage what is now this increasingly palpable historic change in the way businesses and workers create value, our nation needs to address the associated dislocations that emerge, especially among workers who see the security of their jobs and their lives threatened. societies cannot thrive when significant segments perceive its functioning as unjust. it is the degree of unbridled fierce competition within and among our economies today - not free trade or globalization as such - that is the source of the unease that has manifested itself, and was on display in seattle a month ago. trade and globalization are merely the vehicles that foster competition, whose application and benefits currently are nowhere more evident than here, today, in the united states. confronted face - on, no one likes competition ; certainly, i did not when i was a private consultant vying with other consulting firms. but the competitive challenge galvanized me and my colleagues to improve our performance so that at the end of the day we and, indeed, our competitors, and especially our clients, were more productive. there are many ways to address the all too real human problems that are the inevitable consequences of accelerating change. restraining competition, domestic or international, to suppress competitive turmoil is not one of them. that would be profoundly counterproductive to rising standards of living. we are in a period of dramatic gains in innovation and technical change that challenge all of us, as owners of capital, as suppliers of labor, as voters and policymakers. how well policy can be fashioned to allow the private sector to maximize the benefits of innovations that we currently enjoy, and to contain the imbalances they create, will shape the economic configuration of the first part of the new century.