Staff Reports
In an article titled “Was Alan Greenspan’s ‘World Without Debt’ a Pipedream?”, Barry Poulson discusses the controversial prediction made by former Federal Reserve Chairman Alan Greenspan in 2001. According to Greenspan, he believed that public debt would be retired by the end of the decade, a prediction that received both skepticism and ridicule at the time. But before we dismiss Greenspan’s idea as a mere fantasy, it’s important to consider the underlying truth and relevance of his comments in the context of our current debt crisis.
Was Alan Greenspan’s ‘World Without Debt’ a Pipedream? https://t.co/dCOdqoExMy
— RedState (@RedState) July 7, 2023
Poulson explains that Greenspan’s prediction was based on the “Great Moderation” of the 1980s and 1990s. During this period, tight limits were imposed on discretionary spending, defense spending decreased significantly after the end of the Cold War, and debt held by the public was reduced by $450 billion. This reduction in debt coincided with increased productivity advancements and strong economic growth. Poulson emphasizes that this was all thanks to the prudent monetary policies pursued by Fed Chairmen Paul Volcker and Greenspan, which led to price stability.
It’s worth noting that Greenspan was not alone in his prediction. The Office of Management and Budget, the Congressional Budget Office, and even the Federal Reserve all forecasted the elimination of public debt. Economists at the time believed that if the Great Moderation continued, the long-term result would be a world without debt.
However, over the past two decades, the U.S. government has strayed from the prudent fiscal and monetary policies of the Great Moderation, leading to the downfall of the rosy forecasts of a debt-free world. Greenspan himself acknowledged the growing debt crisis, urging that federal spending was spiraling out of control and warning of the unsustainable liabilities in entitlement programs. He even mentioned the risks of accelerated inflation and sharp increases in interest rates.
It’s clear that Greenspan saw the predicament we are in today. He expressed hope that Congress would respond to the crisis with a significant shift in fiscal policy. Sadly, Poulson notes, we are still waiting for that response. Under current law, public debt is projected to more than double national income in the coming decades.
Poulson concludes by discussing the changing perception of public debt. He points out that the idea of debt fatigue, where large deficits are accepted as the norm, is relatively new. Previously, in the 1950s, federal budget deficits were frowned upon, and spending beyond means was considered unacceptable. Poulson refers to this period as the “Old Time Religion” of balanced budgets.
Greenspan, however, argued that financial markets could function efficiently without public debt. He even explored alternatives to U.S. Treasury securities, suggesting that a sinking fund, similar to the one implemented by Alexander Hamilton, could be an option. With such a fund in place, Poulson suggests that current Treasury Secretary Janet Yellen could potentially eliminate public debt within a generation. However, he acknowledges that the world we live in now is dominated by debt fatigue, making a debt-free existence seem impossible.
In closing, Poulson laments the absence of leaders like Alan Greenspan who were willing to address the issue of public debt head-on. He urges readers to consider the importance of fiscal responsibility and the need for a significant shift in fiscal policy. It’s clear that Poulson’s conservative perspective favors a return to balanced budgets and highlights the dangers of excessive public debt.
