WEBVTT - Former BoE Governor King Talks Alan Greenspan's Legacy, UK Economy

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Lizzie Who. We learned, of course, that Alan Greenspan, the

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<v Speaker 2>Chairman of the Federal Reserve for eighteen years, has died

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<v Speaker 2>at the age of one hundred. One of the great

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<v Speaker 2>central bankers of our time. He's did the US through

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<v Speaker 2>stock market crashes in nineteen eighty seven, in two thousand

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<v Speaker 2>and one after the September eleventh attack, but he faced

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<v Speaker 2>criticism over easy monetary policy and the so called green span.

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<v Speaker 2>Put now we wanted to think about green SPAN's legacy.

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<v Speaker 2>Of course, contested joining us now is Mervin King, who

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<v Speaker 2>is the former Bank of England governor. To discuss, Lord King,

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<v Speaker 2>thank you so much for being with us. I mean,

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<v Speaker 2>how to sum up such a life, the impact of

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<v Speaker 2>this man on the United States and abroad. But I

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<v Speaker 2>wanted your thoughts a contemporary in part, how do you

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<v Speaker 2>think of Alan Greenspan?

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<v Speaker 3>He was a great man, and I like to think

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<v Speaker 3>that this is an end of an era, because I

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<v Speaker 3>think in American public life there have been three great centurions,

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<v Speaker 3>Alan Greenspan, George Schultz, and Henry Kissinger, and all three

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<v Speaker 3>reached and died at the age of one hundred. I

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<v Speaker 3>was privileged to know them are Alan. Of course I

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<v Speaker 3>was closest too, because we were opposite numbers for several years,

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<v Speaker 3>and I was a deputy at the Bank of England

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<v Speaker 3>when he was chairing the Fair and I kept in

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<v Speaker 3>touch with him and saw him quite often after he

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<v Speaker 3>left the Federal Reserve, and when I was appointed Governor

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<v Speaker 3>of the Bank, I went to Washington to see Alan

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<v Speaker 3>unasked for advice, and he gave me the best advice

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<v Speaker 3>I think that anyone gave me, which was keep the

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<v Speaker 3>mornings free to think, read and write. And that was

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<v Speaker 3>enormously helpful and important in working out how to play

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<v Speaker 3>the role of a central bank governor.

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<v Speaker 1>Lord King, thank you for joining us this morning. What

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<v Speaker 1>other lessons should central bankers today take from green Span?

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<v Speaker 3>Well, because he had an unrivaled ability to think for

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<v Speaker 3>himself and delve into the details of data on the economy.

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<v Speaker 3>He didn't just rely on someone putting a piece of

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<v Speaker 3>paper in front of him saying this is the latest

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<v Speaker 3>official statistic on a labor market or production. He would

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<v Speaker 3>talk to business people directly and he would find out

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<v Speaker 3>for himself what was going on. And I think you

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<v Speaker 3>know the high peak of that performance was in the

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<v Speaker 3>nineteen nineties when he was really the first to spot

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<v Speaker 3>the impact of faster productivity growth in the US economy.

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<v Speaker 2>Green Span in office, as you say, was widely respected.

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<v Speaker 2>I mean, I remember market's hung on every word that

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<v Speaker 2>he uttered, although cryptic as it often was, as our

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<v Speaker 2>own editor in chief, John Mick, the way it has said,

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<v Speaker 2>the green Span FED managed to avoid even one single

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<v Speaker 2>quarter falling year on year GDP during his tenure, even

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<v Speaker 2>in the dot com bust. You know, there was an

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<v Speaker 2>incredible achievement and run over that eighteen year period. And

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<v Speaker 2>yet Greenspan did fall out of favor in some senses,

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<v Speaker 2>particularly after he left office. His policies were seen perhaps

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<v Speaker 2>as having resulted in moral hazard in economic bubbles. Later

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<v Speaker 2>he sort of departed just before the housing bubble burst.

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<v Speaker 2>Now there also almost seems to be a reversal of

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<v Speaker 2>that because he was out of office for so long,

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<v Speaker 2>and maybe a rethink about that. But in terms of

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<v Speaker 2>that moment where and those years where he was out

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<v Speaker 2>of favor, how credible do you think that is? How

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<v Speaker 2>do you think about that? You know that that moment,

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<v Speaker 2>that time frame when his policies were criticized.

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<v Speaker 3>Well, I think that would be an unfair thing to

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<v Speaker 3>do for him. He presided, as you said, over a

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<v Speaker 3>long period of sustained expansion and low inflation for almost

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<v Speaker 3>twenty years. That's a remarkable feat to be able to

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<v Speaker 3>manage circumstances were not difficult for part of that time, though,

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<v Speaker 3>within two months of taking office he had to deal

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<v Speaker 3>with the nineteen eighty seven stock market crash, where prices

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<v Speaker 3>fell by around thirty percent, biggest crash since nineteen twenty nine,

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<v Speaker 3>and he dealt with that definitely and swiftly, and received

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<v Speaker 3>praise for that. So he did have to handle some

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<v Speaker 3>quite tricky problems I think later on. I mean, my

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<v Speaker 3>experience has been that politicians and others will always want

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<v Speaker 3>to find someone to play, and once Alan had left office,

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<v Speaker 3>he was an easy target for someone to play. But

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<v Speaker 3>the problems that arose in the banking sector were largely

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<v Speaker 3>the decisions taken by banks themselves, and I think admitted

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<v Speaker 3>afterwards that he had assumed that banks would focus on

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<v Speaker 3>managing the risks they were taking in their own self interest,

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<v Speaker 3>and of course they didn't. They took wild risks which

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<v Speaker 3>resulted in the need for them to be rescued by

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<v Speaker 3>the faired and by the US Treasury. Now that didn't

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<v Speaker 3>do the banks any good. I mean, it was a

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<v Speaker 3>near death experience so many of them, and they came

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<v Speaker 3>through it. That people leading the banks did not come

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<v Speaker 3>through it. They left, so, you know, but Alan recognized

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<v Speaker 3>that Nevertheless, the idea that somehow the state should manage

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<v Speaker 3>and run everything is not an idea that's either be

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<v Speaker 3>carried on. It really doesn't make much sense. Alan had

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<v Speaker 3>deep convictions that sound money and a market economy were

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<v Speaker 3>the way to prosperous democratic society. And what he demonstrated

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<v Speaker 3>was that he had these deep inner convictions which enabled

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<v Speaker 3>him to go through difficult ex periods and come out

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<v Speaker 3>the other side still pursuing the right policies. When you

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<v Speaker 3>have a leader of an institution, whether it's a central

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<v Speaker 3>bank or any other institution, who doesn't have these personal

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<v Speaker 3>intellectual convictions, they get blown around. They take advice from

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<v Speaker 3>one person and they hit a difficult patch, so they

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<v Speaker 3>get rid of the first advisor looking around for others,

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<v Speaker 3>and that's a recipe for chaos and volatility in policy.

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<v Speaker 3>While Alan brought to the FED, which the rest of

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<v Speaker 3>the world admired enormously, it was a coherence and consistency

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<v Speaker 3>of approach to monetary policy, and he was a figure

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<v Speaker 3>that everyone revered about. I've never forgotten going to international

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<v Speaker 3>meetings of which the finance ministers all politicians would fit

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<v Speaker 3>around with absolutely rapped attention to Alan as he talked

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<v Speaker 3>for about forty five minutes without stopping about what was

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<v Speaker 3>happening in the world, and at dazzling them with an

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<v Speaker 3>array of obscure sty statistics concrete production in Missouri and

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<v Speaker 3>all kinds of numbers. They were absolutely amazed by it.

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<v Speaker 3>They've never seen anything like it. But of course what

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<v Speaker 3>he was doing was managing to grip their attention while

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<v Speaker 3>trying to avoid being particularly clear. And he famously said

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<v Speaker 3>in an appearance before Congress, you know, Senator, if I

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<v Speaker 3>seem unduly clear to you, you must have misunderstood what

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<v Speaker 3>I say. Well, that was a great secret of his success.

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<v Speaker 1>On that point, Caroline hinted at the sometimes cryptic nature

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<v Speaker 1>of the way he spoke, speaking deliberately in riddles, perhaps

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<v Speaker 1>to try to keep markets guessing. Is that a model

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<v Speaker 1>that you think the current FED chairman, Kevin Walsh, is

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<v Speaker 1>returning to, not putting his dot on the plot, changing

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<v Speaker 1>the way the FED communicates no.

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<v Speaker 3>I think there's a difference. I think that Alan, together

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<v Speaker 3>with his predecessor Paul Volka, represented the peak period of

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<v Speaker 3>mystique in central banking and obscurity. I think that's gone.

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<v Speaker 3>I think that central banking today has moved on to

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<v Speaker 3>a world where it's very important to be clear about

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<v Speaker 3>what you know and what you don't know. And I

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<v Speaker 3>think what Kevin Walshould understands is that putting dots on

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<v Speaker 3>a plot saying where you think interest rates will be

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<v Speaker 3>in two or three years time is foolhardy because you

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<v Speaker 3>don't know where interest rates will be even though you

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<v Speaker 3>set them yourself, because the world is unpredictable, the world

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<v Speaker 3>is always changing. What's important is to say to people,

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<v Speaker 3>this is what we do understand about the economy, but

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<v Speaker 3>this is what we do not understand, and there are

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<v Speaker 3>things that will happen in the future that we can't

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<v Speaker 3>easily predict, and we're not going to try and predict

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<v Speaker 3>the unknowable. What we're going to do is to respond.

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<v Speaker 3>And I think clarity in communications is not served well

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<v Speaker 3>by pretending to know what policy you're going to implement

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<v Speaker 3>in the future, and it attracts from focusing on today's decision.

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<v Speaker 2>Yeah. Look, I think you've said a lot of very

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<v Speaker 2>interesting things from first hand experience about Alan Greenspan, but

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<v Speaker 2>also things that are very relevant to today. I like,

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<v Speaker 2>you know, you mentioned mystique and obscurity, but also it

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<v Speaker 2>was a time of intellectual heft, wasn't it and expertise.

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<v Speaker 2>And this brings me to another point about the UK today.

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<v Speaker 2>We are thinking about Brexit ten years on and the

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<v Speaker 2>political instability that we've seen in those years. You know,

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<v Speaker 2>we're in line maybe for another Prime Minister, possibly Andy

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<v Speaker 2>Burnham within weeks, and so we're thinking about what that

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<v Speaker 2>transition and what this new administration in the UK is

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<v Speaker 2>going to look like. Who burn and may pick as chancellor.

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<v Speaker 2>How do you think that the Labor government under Burnham

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<v Speaker 2>delivers on the great challenge now for Breton of growth

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<v Speaker 2>and prosperity. So only that you say, you know Greenspan

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<v Speaker 2>was instrumental in helping to deliver in the US. I

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<v Speaker 2>mean that's a massive challenge for Britain today.

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<v Speaker 3>It is, and that's why I returned to the point

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<v Speaker 3>I made earlier, which is I think Andy Burnham will

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<v Speaker 3>need to develop and have clear intellectual convictions of his

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<v Speaker 3>own which he believes in, which will enable him to

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<v Speaker 3>ride through the occasional difficult patches which he's bound to confront.

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<v Speaker 3>And we don't know what those convictions are. They're rather

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<v Speaker 3>vague at the stage. Well, fair enough, he's not been

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<v Speaker 3>in office, he hasn't been asked to produce an alternative plan.

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<v Speaker 3>But from now on he will be asked and confronted

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<v Speaker 3>with a whole series of very difficult questions. You know,

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<v Speaker 3>how much would you spend on defense? What will you

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<v Speaker 3>do about the triple lock for old age people? Are

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<v Speaker 3>you going to start to change social care now rather

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<v Speaker 3>than wait until the and of the Parliament. Their whole

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<v Speaker 3>range of difficult questions, practical questions. But I think what's

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<v Speaker 3>very important is the only way to tackle them in

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<v Speaker 3>a convincing way so the public understands why difficult decisions

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<v Speaker 3>are being taken is to have an overarching vision of

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<v Speaker 3>what all this adds up to. So I'll give you

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<v Speaker 3>one concrete example, polishing inter fuel allowance for old age pensioners.

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<v Speaker 3>Did it made no sense as a single individual action.

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<v Speaker 3>The only way you could explain and sell what you

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<v Speaker 3>were doing was to do in the context of a

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<v Speaker 3>budget for the public finances as a whole, where we

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<v Speaker 3>needed to raise more money, we should contribute that, and

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<v Speaker 3>why pensioners might benefit from some other the other measures

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<v Speaker 3>in the budget even if they lost from this particular one.

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<v Speaker 3>It needs an overall story to persuade people that there

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<v Speaker 3>are difficult decisions to be taken, but the reason for

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<v Speaker 3>taking them is to ensure that the economy will improve

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<v Speaker 3>so that our children and grandchildren will not be burdened

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<v Speaker 3>by an unnecessarily high level of debt which will raise

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<v Speaker 3>taxes on them.

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<v Speaker 1>Which helps make the case for more hope under Burnham

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<v Speaker 1>than Starmer, because by all accounts, he is a better communicator,

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<v Speaker 1>he's better at painting a vision. Let me ask you, then,

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<v Speaker 1>what is the best case scenario for the UK economy

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<v Speaker 1>under a Burnham premiership when he's going to be just

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<v Speaker 1>as fiscally squeezed as his predecessors.

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<v Speaker 3>Well, I think the best case is that he is

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<v Speaker 3>bold and takes some difficult decisions but explains why they're

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<v Speaker 3>being taken in the interest of future generations. And I

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<v Speaker 3>do think that one thing that's been underestimated is that

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<v Speaker 3>I think that growth in the UK economy, whatever the

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<v Speaker 3>government does is likely to return to its pre financial

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<v Speaker 3>crisis level of around two percent or so a year.

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<v Speaker 3>We've been through a very unusual period in which interest

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<v Speaker 3>rates have been held down to very low levels, and

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<v Speaker 3>as a result, companies that would otherwise have gone out

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<v Speaker 3>of business or contracted and released people and investment to

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<v Speaker 3>more successful firms. Now that has been happening on a

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<v Speaker 3>much smaller scale than would normally be the case, and

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<v Speaker 3>that switch of people and resources from poor to good

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<v Speaker 3>companies is always part of the underlying aggregate increase in productivity,

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<v Speaker 3>and I think we'll get that back, so I don't

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<v Speaker 3>think we should be pessimistic about the long run. What

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<v Speaker 3>we need to find as a government that is prepared

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<v Speaker 3>to put forward a comprehensive plan of difficult decisions which

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<v Speaker 3>will not be seen as attractive to many voters, but

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<v Speaker 3>they will understand the reason why, because it's being done

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<v Speaker 3>in the interest of future generations. And the biggest issue

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<v Speaker 3>in the UK is that we save as a country

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<v Speaker 3>less a smaller proportion of our national income than any

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<v Speaker 3>other major industrialized country, and we have to increase the

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<v Speaker 3>national saving rate in order to switch resources to investment

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<v Speaker 3>and to exports, and that means that we can't go

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<v Speaker 3>on consuming at the same rate as we have. That's

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<v Speaker 3>not a happy outcome in the short run, but it's

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<v Speaker 3>a necessary condition of putting our country back onto a

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<v Speaker 3>course for greater prosperity in the future.

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<v Speaker 2>Yes, and it's really the question I think that has

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<v Speaker 2>dogged a number of leaders. It's about whether voters will

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<v Speaker 2>go for that, whether they'll stick with that kind of

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<v Speaker 2>maybe tougher plan. Mervin King, thank you so much for

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<v Speaker 2>being with us. We really appreciate your time. That is

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<v Speaker 2>the former Bank of England Governor, Lord King