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I am not an economist. I am an honest man! ― Paul McCracken

Alan Greenspan was once both an economist and an honest man. He scornfully doubted the motives and methods of the Welfare State. He wrote eloquently of the virtues of honest, gold-backed money. In a 1966 essay he wrote, “…gold and economic freedom are inseparable….In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.…. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.”

Today Mr. Greenspan leads an organization that churns out paper money like the Medieval Church churned out heavenly indulgences. Gold bugs are the mad monks of modern economics. Greenspan is the High Priest of Debt, the Archbishop of Credit, the Ayatollah of Empty Promises, the Pope of Paper. His Federal Reserve has converted the world’s central bankers like Jesuits harvesting souls for the Church of Rome. Greenspan’s Fed has done globally what Money Ministers in the past could only do locally. He has convinced every central banker on earth, against all logic, that Federal Reserve Notes are as good as gold.

The world’s faith in the Fed appears as unshakable as mystic revelation, though it may be a holy dread of truth more terrifying than delusion. Either way, we’re all believers now.

Trained economists now serve as fawning acolytes in the Church of Debt. They espouse the most ridiculous twaddle. In a recent Wall Street Journal article, economist and former Fed governor Wayne Angell hangs the blame for the recession on Clinton’s Treasury Secretary, Robert Rubin. How did Mr. Rubin bring about the tragedy? According to Mr. Angell, Rubin paid down the national debt.

Nothing of the sort happened. The numbers on Rubin’s watch show no decrease in the national debt. Debt leveled off for a few months. Borrowing briefly slowed as Congress squandered a Social Security surplus as if there were no looming Geezer Boom.

For a few months Uncle Sam caught a little updraft in his cordless bungee jump to ruin. If that momentary slow-down in borrowing caused a recession, what will happen when the Chinese stop swapping power tools, TV’s and garden gnomes for our IOU’s?

According to Mr. Angell, Rubin was tragically ignorant of the “…first principle of macroeconomics.”  Seldom does an economist offer something plainly as a First Principle. I was keen to see it revealed.

Angell’s First Principle of Macroeconomics is this: "Output growth is not sustainable without a growth of total credit and debt." Yep, that’s it. A direct quote from an undisputed expert. And to think people once naively nodded at Ben Franklin’s, “A penny saved is a penny earned.”

To better understand this Principle let’s shrink it down to the microeconomic level. This is where we non-economists scratch out a living and buy booze, baloney and bullets. Mr. Angell’s First Principle says that if our debt is not increasing we cannot prosper. All a man needs to get as rich as Croesus is a no-limit MasterCard. To achieve “output growth,” just load up that plastic fun ticket a little more each month.

Only an economist could believe such drivel. We’ve all known families and businesses that constantly increased debt. The growth they enjoyed was chiefly in the number of nasty phone calls and visits from repo men. Eventually they borrowed just to pay old debt. Then they went bust.

The First Principle I’ve always found reliable for “output growth” is to make more money. To a business that would mean earn more profit, not float more bonds. To a nation it means saving and investing for tomorrow not borrowing and blowing the money on drugs for voters, democracy in the desert and trips to Mars. Economists knew this in the days before they started attending services at Our Lady of Perpetual Liability.

They may come to know it again, for among the proven but generally ignored principles of the Austrian school of economics are these:

Credit expansions lead to temporary business booms.

The inevitable collapse of credit leads to business depressions.

The size of the boom determines the size of the depression.

History has consistently demonstrated the truth of these principles. No country has ever recklessly expanded credit and paper money and gained lasting prosperity. The opposite is true. Wild expansion of credit, money and debt has in every case resulted in poverty and misery. 

Perhaps Mr. Greenspan intends to convert us to his youthful beliefs by sacrificing himself on the altar of history. When the unavoidable reckoning reveals the “shabby secrets” of his worldwide Church of Easy Money it will probably tarnish Mr. Greenspan’s legacy as the Money Messiah. But it may also bring about a new respect for the hard work, thrift and gold
whose virtues he preferred when he was an honest economist.