Growth is good
Mellon was far from alone in valuing severe downturns as purgatives. The depression-is-desirable crowd included such legendary economists as Joseph Schumpeter, Friedrich Hayek, and Lionel Robbins, according to University of California at Berkeley economist J. Brad DeLong in his essay "'Liquidation' Cycles and the Great Depression."

Mainstream economists of all schools, from Keynesianism to monetarism, turned away from hairshirt economics after the Great Depression. They realized that the government could play a positive role in counteracting contractionary forces in the economy. Since then, Washington has been comfortable using the levers of fiscal and monetary policy to limit the economy's downward trajectory during recessions.

But Greenspan goes further. Despite his dour demeanor during periodic congressional testimony, he's fundamentally an economic optimist. His speeches are laced with references to innovation and risk-taking, the wellsprings of economic growth. In essence, Greenspan realizes that growth is good for the economics of discovery.

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A winning bet
Case in point: The chairman came under heavy criticism during the 1990s for not "taking the punchbowl away" when the economy picked up steam and the unemployment rate fell. The fear among most economists was that inflation would take off as the economy heated up. But Greenspan gambled that in a global, high-tech economy inflation wouldn't ignite because competitive pressures were forcing business to become more efficient, boosting productivity. The bet paid off handsomely.

American productivity has been running at an average annual rate of 3 percent since 1995, about double the pace of the previous two decades. Productivity is what economists really care about, because its growth rate is the foundation of higher living standards. "Without a punchbowl to enjoy, there will be no innovation, no technological change, no rise in living standards, no dreams of a brighter future — which include a home of one's own," says Peter Bernstein, a New York financial economist and adviser to endowments and other institutions.

Indeed, most economists systematically overestimate the limits to growth and underestimate the extent of the possible. Nobel laureate Robert Forgel points out that since the end of World War II, there have been wide-ranging debates about future developments and that the forecasts of mainstream economists were uniformly too pessimistic. For instance, economists focused on the likelihood of secular stagnation after World War II even during the "Golden Age" of economic expansion.

Future shock
Alarms sounded during the late 1960s and early 1970s about rapid population growth smothering less-developed countries even while fertility rates in the Third World began to decline rapidly. The extraordinary economic growth in Southeast and East Asia were largely unforeseen. Fogel archly suggests you might be better off paying more attention to the prognostications of science-fiction writers than economists.

Perhaps there is a bubble in the housing market. Certainly, home prices have strayed far from fundamental values on both coasts. The popularity of interest-only mortgages and other speculative financing techniques is worrisome. But a record 70 percent of American households now own their own homes. And growth is also persuading business leaders to invest in new high-tech gear and venture capitalists to back innovation in everything from fuel-efficient engines to nanotechnology.

Look, Greenspan is no economic wizard, and this isn't a brief to defend him. He has made his share of mistakes, although fewer than many of his predecessors. But what should be defended is the economics of growth. Remember, not all price increases are bubbles, booms are better than busts, and growth is not only good — it's vital.

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