SYNOPSIS: Apologetically explains the reason for interest rate cuts and raises. Labor markets can't be pushed too hard or left too soft.

Alan Greenspan doesn't think you should get a raise. And he doesn't want you to feel too secure in your job, because otherwise you might demand that raise.   I'm not putting words in his mouth. A few weeks ago, addressing an audience of bankers, the usually Delphic chairman of the Federal Reserve Board was uncharacteristically clear, warning that the United States economy is ''steadily depleting the pool of available workers'' -- that is, giving jobs to the previously unemployed. As a result, ''labor market conditions can become so tight that the rise in nominal wages will start increasingly outpacing the gains in labor productivity'' -- that is, workers who know that jobs are plentiful will get big raises.

And that, Greenspan implied, would be a very bad thing. He didn't say what he would do about it, but markets got the hint: bond prices immediately plunged, on fears that the Fed would soon raise interest rates. Now to a man from Mars -- or for that matter to a normal human being -- Greenspan's concerns might sound very peculiar. After all, what's wrong with giving jobs to the jobless and higher wages to the employed? But Greenspan is probably right to be worried. What is less clear is whether it was a good idea for him to be so explicit.  

Think of it this way. Once upon a time (say, back in the mid-70's, when Gerald Ford was President and Alan Greenspan was his chief economist), the U.S. economy was like a trendy restaurant -- one of those places where the tables are set close together and the ceiling seems custom-designed to maximize the din. What happens in that kind of environment is that everyone tries to talk above the background noise so as to be heard by his or her companions. But by talking louder, you yourself raise the noise level, forcing everyone else to talk louder, praising the noise level still further, and eventually everyone is shouting themselves hoarse. Substitute wage and price increases for speaking volume and inflation for the overall noise level, and you have a capsule analysis of the kind of inflationary spiral that the U.S. faced in the 1970's. And the only way that the noise level (inflation) could be kept under control was to keep a substantial number of tables vacant -- that is, by maintaining a large reserve army of unemployed.  

Today, of course, the situation is vastly improved. The economy is flourishing, with unemployment at a 25-year low. (The restaurant is full again.) Yet so far inflation is quiescent. (The noise level is tolerable.) This is partly because exceptional productivity gains have made it possible for companies to pay higher wages without raising prices. (A sound-absorbing ceiling?) But it is also because, for reasons that nobody fully understands, workers have been remarkably diffident about demanding higher wages, even in the face of labor shortages. (Diners have mysteriously become more polite?) Everyone is happy. But will the very exuberance of the diners bring the bad old days back?

That's what Greenspan is worried about. What he said to the bankers was, in effect, that no matter how good the acoustics, no matter how well behaved the customers, if the restaurant gets sufficiently crowded there will be a shouting match. And if that happens -- well, he'll just have to limit the number of patrons. It's not that he is mean-spirited or a tool of capitalist oppression; he's just doing his job. But you still have to wonder whether it was a good idea to describe that job so explicitly and so honestly.

For there is, when you come down to it, always something slightly unsavory about the business of central banking. A market economy -- even the Goldilocks economy of America in the 90's -- requires that a certain number of people who want to work be unable to find jobs so that their example will discipline the wage demands of those who are already employed. Even liberal economists like myself grudgingly accept the conclusion that a responsible Fed must sometimes raise interest rates in order to limit the number of jobs and maintain a suitably high rate of unemployment. But the scene remains an ugly one: when the Fed acts to cool off an overheated economy, what that literally means is that a group of comfortable men and women in suits are deliberately acting to limit the job prospects of some of their worst-off fellow citizens.

How is one supposed to explain that scene to the general public? Many of Greenspan's counterparts deal with the ugliness by denying that it exists -- by denying that they have any influence over employment at all. Greenspan, to his credit, tells the truth about what he does, but until now, he has done it in a way that only the cognoscenti can understand. Well, now he has said it clearly. But is America ready to hear it?