Three centuries ago, the novelist and sometime tradesman Daniel Defoe described what happened when credit collapses: “If private Credit falls off, the Stock, the Trade, and, by Consequence, the Wealth of the Nation decays.” Modern economists tend to be more sanguine. As long as prices remain stable and the financial system continues to function, they see little lasting damage to the economy from a credit bust. This belief is likely to be tested as the current credit crunch continues into 2008.Few people have thought as long and hard about the subject of credit as Albert Wojnilower. In the late 1970s the then–chief economist of First Boston Corp. was known on Wall Street as “Dr. Gloom.” (His Salomon Brothers counterpart, Henry Kaufman, was known as Dr. Doom.) Yet today Wojnilower, who advises a hedge fund on a part-time basis, is a beacon of hope among the many doomsayers thrown up by...
