Fed chief sees growth ahead

Federal Reserve chief Ben Bernanke shied away from comments that could move world markets in his commencement address at the Massachusetts Institute of Technology yesterday, saying the US economy still had more to grow based on technological advances from the 1990s.

Before more than 2,000 graduates, the Fed chief gave parting words of advice and long-term looks at the US economy. When he took over from longtime Fed chairman Alan Greenspan in February, Bernanke had pledged more transparency about the bank's direction. But the last few times the new chief has spoken, the stock market has reacted wildly as investors try to interpret which way the Fed will move on interest rates.

This week, for example, the Dow Jones industrial average fell almost 200 points after hawkish words from Bernanke on Monday. At MIT, Bernanke gave a more analytical speech, saying the US economy is still posting productivity gains spurred by the spread of the Internet in the mid-1990s. He said there is often a time lag between when a new technology is introduced and when its benefits are felt throughout society.

After two decades of sluggishness, US productivity growth picked up during the Internet boom of the mid-1990s. He said research suggested that ``the current productivity revival still has some legs, as the full economic benefits of recent technological changes have not yet been completely realized."

Productivity -- a measure of output per worker -- is considered a major factor in setting living standards in a country. US productivity grew a healthy 3.7 percent in the first quarter this year.

Bernanke said the time lag had a historical parallel with the impact of computers. For decades, economists had trouble finding any clear effect from computers on productivity until the mid-1990s when the growth rate picked up, he said.

But countries benefit at different levels from technology depending on their culture and laws, he added. Bernanke said when the US economy began to take off, it diverged from Europe because flexible labor laws had allowed it to adapt faster.

``Regulations that raise the costs of hiring and firing workers and that reduce employers' ability to change work assignments -- like those in a number of European countries, for example -- may make such changes more difficult to achieve," he said. The nation's entrepreneurial culture, strong financial markets, and respect for market economics also helped stimulate start-ups with money and ideas.

``Competition is one of the key benefits of free and open trade," he said.

However, a potential drag on future growth is the country's weak K-12 school system and its waning interest in the sciences, he said.

Bernanke also touched on the evolution of the economics field. He praised the growth of a more mathematical emphasis in economics, noting that the financial industry was transformed when it adopted complex mathematical and financial tools called derivatives. MIT's mathematical focus helped its economics department gain prominence in the field, said Bernanke, who earned his PhD in economics from MIT in 1979 after receiving his undergraduate training at Harvard. He pointed out that the school had trained four current heads of central banks, in Chile, Israel, Italy, and the United States.

Bernanke, who was an economics professor briefly at MIT, reminded the graduating class that it is ``OK to fail."

``Remember that the path to success and fulfillment may not be well marked, the scaling of some predetermined ladder; it may instead be a road without signs or maps," he said.

More than 2,000 graduates attended the ceremony with friends and family in tow. Graduates tossed their caps, pumped their arms and grinned for an onslaught of photographers. Some had family fly in from across the world. MIT student Rong Wang's family was lucky enough to receive visas from Beijing to see her graduate with a PhD in nuclear engineering.

``It's been a very long journey. I came here in 2000 and never changed my subject or my professor. This is really a dream," she said.

Others left the pomp and circumstance at home. MIT student Josiah Seale graduated without pants, instead wearing cowboy boots and red MIT briefs under his gown.

``I'm glad it didn't rain. They said the colors would bleed if it did," said Seale, who earned a master's in comparative politics.

Kim-Mai Cutler can be reached at kcutler@globe.com.