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