Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Lizzie Who. We learned, of course, that Alan Greenspan, the
Speaker 2: Chairman of the Federal Reserve for eighteen years, has died
Speaker 2: at the age of one hundred. One of the great
Speaker 2: central bankers of our time. He's did the US through
Speaker 2: stock market crashes in nineteen eighty seven, in two thousand
Speaker 2: and one after the September eleventh attack, but he faced
Speaker 2: criticism over easy monetary policy and the so called green span.
Speaker 2: Put now we wanted to think about green SPAN's legacy.
Speaker 2: Of course, contested joining us now is Mervin King, who
Speaker 2: is the former Bank of England governor. To discuss, Lord King,
Speaker 2: thank you so much for being with us. I mean,
Speaker 2: how to sum up such a life, the impact of
Speaker 2: this man on the United States and abroad. But I
Speaker 2: wanted your thoughts a contemporary in part, how do you
Speaker 2: think of Alan Greenspan?
Speaker 3: He was a great man, and I like to think
Speaker 3: that this is an end of an era, because I
Speaker 3: think in American public life there have been three great centurions,
Speaker 3: Alan Greenspan, George Schultz, and Henry Kissinger, and all three
Speaker 3: reached and died at the age of one hundred. I
Speaker 3: was privileged to know them are Alan. Of course I
Speaker 3: was closest too, because we were opposite numbers for several years,
Speaker 3: and I was a deputy at the Bank of England
Speaker 3: when he was chairing the Fair and I kept in
Speaker 3: touch with him and saw him quite often after he
Speaker 3: left the Federal Reserve, and when I was appointed Governor
Speaker 3: of the Bank, I went to Washington to see Alan
Speaker 3: unasked for advice, and he gave me the best advice
Speaker 3: I think that anyone gave me, which was keep the
Speaker 3: mornings free to think, read and write. And that was
Speaker 3: enormously helpful and important in working out how to play
Speaker 3: the role of a central bank governor.
Speaker 1: Lord King, thank you for joining us this morning. What
Speaker 1: other lessons should central bankers today take from green Span?
Speaker 3: Well, because he had an unrivaled ability to think for
Speaker 3: himself and delve into the details of data on the economy.
Speaker 3: He didn't just rely on someone putting a piece of
Speaker 3: paper in front of him saying this is the latest
Speaker 3: official statistic on a labor market or production. He would
Speaker 3: talk to business people directly and he would find out
Speaker 3: for himself what was going on. And I think you
Speaker 3: know the high peak of that performance was in the
Speaker 3: nineteen nineties when he was really the first to spot
Speaker 3: the impact of faster productivity growth in the US economy.
Speaker 2: Green Span in office, as you say, was widely respected.
Speaker 2: I mean, I remember market's hung on every word that
Speaker 2: he uttered, although cryptic as it often was, as our
Speaker 2: own editor in chief, John Mick, the way it has said,
Speaker 2: the green Span FED managed to avoid even one single
Speaker 2: quarter falling year on year GDP during his tenure, even
Speaker 2: in the dot com bust. You know, there was an
Speaker 2: incredible achievement and run over that eighteen year period. And
Speaker 2: yet Greenspan did fall out of favor in some senses,
Speaker 2: particularly after he left office. His policies were seen perhaps
Speaker 2: as having resulted in moral hazard in economic bubbles. Later
Speaker 2: he sort of departed just before the housing bubble burst.
Speaker 2: Now there also almost seems to be a reversal of
Speaker 2: that because he was out of office for so long,
Speaker 2: and maybe a rethink about that. But in terms of
Speaker 2: that moment where and those years where he was out
Speaker 2: of favor, how credible do you think that is? How
Speaker 2: do you think about that? You know that that moment,
Speaker 2: that time frame when his policies were criticized.
Speaker 3: Well, I think that would be an unfair thing to
Speaker 3: do for him. He presided, as you said, over a
Speaker 3: long period of sustained expansion and low inflation for almost
Speaker 3: twenty years. That's a remarkable feat to be able to
Speaker 3: manage circumstances were not difficult for part of that time, though,
Speaker 3: within two months of taking office he had to deal
Speaker 3: with the nineteen eighty seven stock market crash, where prices
Speaker 3: fell by around thirty percent, biggest crash since nineteen twenty nine,
Speaker 3: and he dealt with that definitely and swiftly, and received
Speaker 3: praise for that. So he did have to handle some
Speaker 3: quite tricky problems I think later on. I mean, my
Speaker 3: experience has been that politicians and others will always want
Speaker 3: to find someone to play, and once Alan had left office,
Speaker 3: he was an easy target for someone to play. But
Speaker 3: the problems that arose in the banking sector were largely
Speaker 3: the decisions taken by banks themselves, and I think admitted
Speaker 3: afterwards that he had assumed that banks would focus on
Speaker 3: managing the risks they were taking in their own self interest,
Speaker 3: and of course they didn't. They took wild risks which
Speaker 3: resulted in the need for them to be rescued by
Speaker 3: the faired and by the US Treasury. Now that didn't
Speaker 3: do the banks any good. I mean, it was a
Speaker 3: near death experience so many of them, and they came
Speaker 3: through it. That people leading the banks did not come
Speaker 3: through it. They left, so, you know, but Alan recognized
Speaker 3: that Nevertheless, the idea that somehow the state should manage
Speaker 3: and run everything is not an idea that's either be
Speaker 3: carried on. It really doesn't make much sense. Alan had
Speaker 3: deep convictions that sound money and a market economy were
Speaker 3: the way to prosperous democratic society. And what he demonstrated
Speaker 3: was that he had these deep inner convictions which enabled
Speaker 3: him to go through difficult ex periods and come out
Speaker 3: the other side still pursuing the right policies. When you
Speaker 3: have a leader of an institution, whether it's a central
Speaker 3: bank or any other institution, who doesn't have these personal
Speaker 3: intellectual convictions, they get blown around. They take advice from
Speaker 3: one person and they hit a difficult patch, so they
Speaker 3: get rid of the first advisor looking around for others,
Speaker 3: and that's a recipe for chaos and volatility in policy.
Speaker 3: While Alan brought to the FED, which the rest of
Speaker 3: the world admired enormously, it was a coherence and consistency
Speaker 3: of approach to monetary policy, and he was a figure
Speaker 3: that everyone revered about. I've never forgotten going to international
Speaker 3: meetings of which the finance ministers all politicians would fit
Speaker 3: around with absolutely rapped attention to Alan as he talked
Speaker 3: for about forty five minutes without stopping about what was
Speaker 3: happening in the world, and at dazzling them with an
Speaker 3: array of obscure sty statistics concrete production in Missouri and
Speaker 3: all kinds of numbers. They were absolutely amazed by it.
Speaker 3: They've never seen anything like it. But of course what
Speaker 3: he was doing was managing to grip their attention while
Speaker 3: trying to avoid being particularly clear. And he famously said
Speaker 3: in an appearance before Congress, you know, Senator, if I
Speaker 3: seem unduly clear to you, you must have misunderstood what
Speaker 3: I say. Well, that was a great secret of his success.
Speaker 1: On that point, Caroline hinted at the sometimes cryptic nature
Speaker 1: of the way he spoke, speaking deliberately in riddles, perhaps
Speaker 1: to try to keep markets guessing. Is that a model
Speaker 1: that you think the current FED chairman, Kevin Walsh, is
Speaker 1: returning to, not putting his dot on the plot, changing
Speaker 1: the way the FED communicates no.
Speaker 3: I think there's a difference. I think that Alan, together
Speaker 3: with his predecessor Paul Volka, represented the peak period of
Speaker 3: mystique in central banking and obscurity. I think that's gone.
Speaker 3: I think that central banking today has moved on to
Speaker 3: a world where it's very important to be clear about
Speaker 3: what you know and what you don't know. And I
Speaker 3: think what Kevin Walshould understands is that putting dots on
Speaker 3: a plot saying where you think interest rates will be
Speaker 3: in two or three years time is foolhardy because you
Speaker 3: don't know where interest rates will be even though you
Speaker 3: set them yourself, because the world is unpredictable, the world
Speaker 3: is always changing. What's important is to say to people,
Speaker 3: this is what we do understand about the economy, but
Speaker 3: this is what we do not understand, and there are
Speaker 3: things that will happen in the future that we can't
Speaker 3: easily predict, and we're not going to try and predict
Speaker 3: the unknowable. What we're going to do is to respond.
Speaker 3: And I think clarity in communications is not served well
Speaker 3: by pretending to know what policy you're going to implement
Speaker 3: in the future, and it attracts from focusing on today's decision.
Speaker 2: Yeah. Look, I think you've said a lot of very
Speaker 2: interesting things from first hand experience about Alan Greenspan, but
Speaker 2: also things that are very relevant to today. I like,
Speaker 2: you know, you mentioned mystique and obscurity, but also it
Speaker 2: was a time of intellectual heft, wasn't it and expertise.
Speaker 2: And this brings me to another point about the UK today.
Speaker 2: We are thinking about Brexit ten years on and the
Speaker 2: political instability that we've seen in those years. You know,
Speaker 2: we're in line maybe for another Prime Minister, possibly Andy
Speaker 2: Burnham within weeks, and so we're thinking about what that
Speaker 2: transition and what this new administration in the UK is
Speaker 2: going to look like. Who burn and may pick as chancellor.
Speaker 2: How do you think that the Labor government under Burnham
Speaker 2: delivers on the great challenge now for Breton of growth
Speaker 2: and prosperity. So only that you say, you know Greenspan
Speaker 2: was instrumental in helping to deliver in the US. I
Speaker 2: mean that's a massive challenge for Britain today.
Speaker 3: It is, and that's why I returned to the point
Speaker 3: I made earlier, which is I think Andy Burnham will
Speaker 3: need to develop and have clear intellectual convictions of his
Speaker 3: own which he believes in, which will enable him to
Speaker 3: ride through the occasional difficult patches which he's bound to confront.
Speaker 3: And we don't know what those convictions are. They're rather
Speaker 3: vague at the stage. Well, fair enough, he's not been
Speaker 3: in office, he hasn't been asked to produce an alternative plan.
Speaker 3: But from now on he will be asked and confronted
Speaker 3: with a whole series of very difficult questions. You know,
Speaker 3: how much would you spend on defense? What will you
Speaker 3: do about the triple lock for old age people? Are
Speaker 3: you going to start to change social care now rather
Speaker 3: than wait until the and of the Parliament. Their whole
Speaker 3: range of difficult questions, practical questions. But I think what's
Speaker 3: very important is the only way to tackle them in
Speaker 3: a convincing way so the public understands why difficult decisions
Speaker 3: are being taken is to have an overarching vision of
Speaker 3: what all this adds up to. So I'll give you
Speaker 3: one concrete example, polishing inter fuel allowance for old age pensioners.
Speaker 3: Did it made no sense as a single individual action.
Speaker 3: The only way you could explain and sell what you
Speaker 3: were doing was to do in the context of a
Speaker 3: budget for the public finances as a whole, where we
Speaker 3: needed to raise more money, we should contribute that, and
Speaker 3: why pensioners might benefit from some other the other measures
Speaker 3: in the budget even if they lost from this particular one.
Speaker 3: It needs an overall story to persuade people that there
Speaker 3: are difficult decisions to be taken, but the reason for
Speaker 3: taking them is to ensure that the economy will improve
Speaker 3: so that our children and grandchildren will not be burdened
Speaker 3: by an unnecessarily high level of debt which will raise
Speaker 3: taxes on them.
Speaker 1: Which helps make the case for more hope under Burnham
Speaker 1: than Starmer, because by all accounts, he is a better communicator,
Speaker 1: he's better at painting a vision. Let me ask you, then,
Speaker 1: what is the best case scenario for the UK economy
Speaker 1: under a Burnham premiership when he's going to be just
Speaker 1: as fiscally squeezed as his predecessors.
Speaker 3: Well, I think the best case is that he is
Speaker 3: bold and takes some difficult decisions but explains why they're
Speaker 3: being taken in the interest of future generations. And I
Speaker 3: do think that one thing that's been underestimated is that
Speaker 3: I think that growth in the UK economy, whatever the
Speaker 3: government does is likely to return to its pre financial
Speaker 3: crisis level of around two percent or so a year.
Speaker 3: We've been through a very unusual period in which interest
Speaker 3: rates have been held down to very low levels, and
Speaker 3: as a result, companies that would otherwise have gone out
Speaker 3: of business or contracted and released people and investment to
Speaker 3: more successful firms. Now that has been happening on a
Speaker 3: much smaller scale than would normally be the case, and
Speaker 3: that switch of people and resources from poor to good
Speaker 3: companies is always part of the underlying aggregate increase in productivity,
Speaker 3: and I think we'll get that back, so I don't
Speaker 3: think we should be pessimistic about the long run. What
Speaker 3: we need to find as a government that is prepared
Speaker 3: to put forward a comprehensive plan of difficult decisions which
Speaker 3: will not be seen as attractive to many voters, but
Speaker 3: they will understand the reason why, because it's being done
Speaker 3: in the interest of future generations. And the biggest issue
Speaker 3: in the UK is that we save as a country
Speaker 3: less a smaller proportion of our national income than any
Speaker 3: other major industrialized country, and we have to increase the
Speaker 3: national saving rate in order to switch resources to investment
Speaker 3: and to exports, and that means that we can't go
Speaker 3: on consuming at the same rate as we have. That's
Speaker 3: not a happy outcome in the short run, but it's
Speaker 3: a necessary condition of putting our country back onto a
Speaker 3: course for greater prosperity in the future.
Speaker 2: Yes, and it's really the question I think that has
Speaker 2: dogged a number of leaders. It's about whether voters will
Speaker 2: go for that, whether they'll stick with that kind of
Speaker 2: maybe tougher plan. Mervin King, thank you so much for
Speaker 2: being with us. We really appreciate your time. That is
Speaker 2: the former Bank of England Governor, Lord King