Are the good times too good?

Don't worry if you can't understand Federal Reserve Chairman Alan Greenspan. You're not supposed to be able to.

The man some consider more powerful than the president is legendarily opaque, and he likes it that way. "Since I've become a central banker, I've learned to mumble with great incoherence," he once told a congressional committee. "If I seem unduly clear to you, you must have misunderstood what I said."

However frustrating this might be to investors, Washington policymakers, and other Fed watchers, most don't complain too much. A former jazz musician, Wall Street economic forecaster, and presidential aide, Mr. Greenspan has presided over a historic combination of high economic growth, low unemployment, and low inflation since 1987, when he took the helm of the Fed.

But can it last?

Recently the Fed chairman has become somewhat controversial-even a presidential campaign issue-as GOP candidates Steve Forbes and Gary Bauer attack him for keeping interest rates too high. They say Mr. Greenspan's obsession with inflation hurts the world economy in general and small businesses and farmers in particular. Deflation is the danger, they argue, so the Fed should lower interest rates.

The backdrop to this debate is an elementary economic concept called "the Phillips Curve," which has to do with the supply and demand of labor. This statistical model, which is extremely influential in Washington, holds that some unemployment is a good thing.

Why? Because too much growth and too much employment will cause the economy to "overheat." With "too few" looking for work, employees can demand higher wages because employers won't have anybody else to hire. Higher wages mean higher prices-because employers have to find ways to meet the salary demands-and higher prices mean higher inflation. So with low unemployment, then, the Phillips Curve solution calls for higher interest rates to "cool" the economy.

That's the theory, anyway.

In practice, though, some economists point out that the textbook Phillips Curve theory fails to explain why our low unemployment rate of 4.2 percent hasn't triggered higher inflation, which stands below 2 percent. Phillips also failed in the '70s and '80s: High inflation combined with high unemployment in the Carter years and produced an economic phenomenon called "stagflation"; strong economic growth during the Reagan years coincided with falling inflation and falling unemployment.

Still, policymakers take the theory seriously, so Wall Street must as well, which leads to the strange spectacle of stocks dropping when economic news is good and rising when economic news is bad.

On Sept. 23, for instance, the Labor Department reported that the number of Americans filing new claims for unemployment fell the previous week to a 25-year low.

Great news, right? Not on Wall Street, where investors feared that the Fed, concerned about overheating, would raise interest rates, which eat into corporate profits. The Dow Jones Industrial Average sank 205 points.

A week later, on Sept. 30, a report from the Commerce Department showed that economic growth had slowed to an anemic annual rate of 1.6 percent last spring.

Bad news, right? Not on Wall Street, where investors exulted that slower growth might cause the Fed to keep interest rates steady. The Dow rose 50 points.

Critics of the Phillips Curve say it's actually a curve ball. Mr. Forbes is especially vehement in denouncing the "flawed and disproven theory that prosperity causes inflation." He and Mr. Bauer contend that low commodity prices (which hurt farmers, who just happen to vote in the important Iowa caucuses, which are held early on the political calendar) signal the need for lower interest rates.

Mr. Greenspan isn't so sure. As with nearly everything about the Fed chairman, it's hard to tell exactly where he stands. He has suggested that new technologies have allowed workers to be more productive, which keeps wage gains from translating into price increases. But, this summer, he told Congress that continued tightening in labor markets would be inflationary, "absent the unlikely repeal of the law of supply and demand."

But something other than the Phillips Curve seems to be on Mr. Greenspan's mind as well-namely, what he calls "the wealth effect." In a recent speech, he worried that overly high stock prices may be causing people to feel richer and to overspend. For Mr. Greenspan, this isn't a concern about the moral use of money but about economic consequences.

The most recent income and spending data seem to confirm his fears. Personal income rose .5 percent in August, but consumer spending increased .9 percent.

Some Fed watchers believe that the stock market is now at the forefront of Mr. Greenspan's thinking. They say Mr. Greenspan's "wealth effect" speech helped trigger the stock market correction last month, so he didn't need to raise interest rates this month. But not wanting a stock market rally to reinvigorate consumer spending, he left the door open to an interest rate increase next month.

In any case, if prosperity continues, it's hard to believe that criticism of Alan Greenspan will be a winning campaign theme. Low commodity prices, after all, mean cheaper food for the more than nine in 10 Americans who don't farm.

But if the economy stumbles, voters may wonder why Washington and Wall Street seemed so concerned about too many people holding jobs.