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00:00When you were a young boy. Did you say I want to be chairman of the Federal Reserve Board. You were called by many the maestro or being such a great maestro of the economy who was going to do much of the credit you made in your key decisions in the bathtub in the morning. He was running speeches in the bathtub. Were you surprised by how much criticism you received at that point . Nobody forecast the 2008 crisis. Did you see any movement to solve let's say the deficit and debt problem. I saw a lot of talk. Would you fix your tie please. People wouldn't recognize me if my tie was fixed but it just seemed so sweet. All right I don't consider myself a journalist and nobody else to consider myself a journalist. I began to take on the life of being an interviewer even though I have a day job running a private equity firm. How do you define leadership. What is it that makes somebody tick . John Kenneth Galbraith once famously said that conventional wisdom is almost always wrong. Now the conventional wisdom today is that the US economy is very strong. I think your view is that might not be accurate. Is that correct. You don't think it's that strong. Well I think it's a different form of what we call stagflation. It has some of the characteristics of buoyancy but underneath it is an erosion which ultimately will disable the economy unless it's corrected. Do you see any movement to solve let's say the deficit and debt problem. I say a lot of talk but no realistic movement. Right now we're creating a deficit of a trillion dollars a year. And that has been added net to the stock of debt and debt as a percent of GDP is rising very rapidly. And the demographics of the age groups are such as that that's going to accelerate in the immediate future. So if you could wave a magic wand and help reduce this deficit and debt what would you do. Well the question is and what is the cause of it. And the consulate is essentially on both the expenditure and on the tax side. I actually fully approve of the tax cuts that were made but only in the context that it is funded. The words we went to a very significant cut in the marginal corporate tax rate. But you can't have a tax cut without funding the revenues or you run into problems. So the new tax cut bill that was passed in the first year of President Trump's administration by the Congress said in effect that will produce 3 percent or more growth for the foreseeable future. Do you think 3 percent annualized growth is realistic over the next five or 10 years. No certainly not as a consequence of the tax cut. The tax cut actually did Uber buoyancy and it was still feeling some of it . But it's nowhere near enough to offset the actual deficit. So there's no way around this without coming to grips with the expenditure side. OK. So President Trump called you up and said Alan you're a great former chairman of the Federal Reserve . I need some advice. I want to solve this such gritty problem and the Medicare Medicaid problem. What would you tell him to do. Go elsewhere. Go elsewhere because you think it's too difficult. But I think politically we are caught in a terrible problem. So let's talk about another issue that you've talked about which is productivity. Your point is that we don't have the productivity that we should have in part because we're borrowed so much money and that's squeezing out the money that would be otherwise available for productivity increases . Precisely it's the capital investment which ultimately determines what productivity will be a factor or equation Shery Ahn it can explain it all with their net capital stock. That spells different business plus some measures of educational efficiency. We're not doing it now . Harry Truman when he was listening to his economic advisers said you know please bring me a one handed economist because they always say well on the one hand this on the other hand yes he got tired of that. So let me ask you a direct question can you tell me when the next recession is going to happen sometime sometime. But we've had recessions every seven years on average since World War Two. It's going to be driven by the fact their that is rising dramatically and there's going to be some curtailments occurring you're not going to feed on itself . What I'm saying. We talk about stagflation stagflation was something that happened in 1980s when you had a situation where both unemployment and inflation were high something which original Keynesian models said was not possible and we're going into that type of period. Now if you look at all the guidelines if you are worried that we're going to go into recession at some point you do you invest your money in a certain way to protect against that you can't protect everything. And the point is you can't forecast very very accurately. Right now we've been in a very extreme period extremely low real long term streets and they're beginning now to move up. We'll continue to move up and that is going to cause a basic turn in the market. Are you worried about inflation right now. I think I'm beginning to see the first signs of it. We're seeing it basically and the tightening of the labor markets first which is you know we're getting very tight now. We're being finally to see average wages rise. And clearly there's no productivity behind it. Our productivity increase in the last two years has averaged under 1 percent a year. It's a historic low not a human error. It's not really we it's Europe and everybody else as well getting into a system now which has no outcome that's an equilibrium other than inflation and no productivity growth. And that is not something which says we're going to have a long term celebration. So what would you recommend that we do to solve the problems that you've pointed out. Well the basic problem is fundamentally on the expenditure side so that the issue is I would say 90 percent entitlements. These are as you know basically legislated payments to certain groups irrespective of what they're paying into funds. And so we've overdone it. Now the question obviously is what is overdone it why we're just pulling back. That is the economic conclusion. It is not a credible political analogy. Let me shift for a moment if I could to your own personal life and career when you were a young boy. Did you say I want to be chairman of the Federal Reserve Board. Now it's the last thing I could barely pronounce the words at that time. My aspiration was to be a musician. So I went to Juilliard for a few years. Your instrument was one I played the clarinet tenor saxophone bass clarinet a little flute. But for all of those you weren't good at any of them to be a really professional make your whole career at that. Let's put it this way I could have but I said I'll only be Class B because I sat next to a 15 year old by the name of Stanley Getz when I was 16 . We both had the same saxophone teacher and I said My God this kid is terrific. And I said to myself if you can't be this good why do you want to be second best . Why didn't you tell him he should go into economics and get rid of him. I should have done that I should have thought of that . I never thought of that thought it was a good idea. So you ultimately left Juilliard and you went to NYU. Yes. Well I actually was very surprised. I didn't think I was going to be a good student. I knew I did well in math in high school. I did know for sure I wasn't absolutely sure how all I would do in college it turns out that I graduate summa cum laude. But I had only two Bs and shop and gym shopping gym. So OK so I got a raise and everything else. And there was no one more surprised than I you were called by many the maestro. Did you ever think that people were giving you too much credit for being such a great maestro of the economy. I was getting much too much of the credit for what actually was going on. I said don't worry about it Little could come out on the other side it's my intention to nominate Dr. Alan Greenspan to a four year term as chairman of the Federal Reserve. I just wanted to say that I'm deeply grateful to the president for this opportunity to serve my country in one of its most sensitive economic posts . So you graduate summa cum laude from NYU you've given up your music career. What did you do when you graduated. Well first of all I went to the National Industrial Conference Board for the first time. I went into the business world. I was really all that interested in and found me so fascinated and I fairly young age was like 22 is writing articles for the Conference Board magazine and I was fascinated by what was getting quoted in The New York Times. OK very true. So the New York Times is quoting you and you're in your 20s and then you ultimately became a in fact a well-known openly well-known consultant on Wall Street and on the side you become close to or get to know a very famous writer named Ryan Rand. And what was the appeal of her to you first then it was her heroes. When I read her books Fountainhead then Atlas Shrugged. I was caught up in that science thing which said basically that you can't have anything rational about human emotions. And I had an argument about uncertainty and ruin because I ever since I met her and I kept saying that human values are irrational obviously in order not conceptually put together. And she then proceeded to take me apart piece by piece showing the contradictions in my position. But did you think she was smarter than you. She demonstrated she was smarter than you and I shall we. We actually became very close. You obviously built a very good reputation on Wall Street because Richard Nixon president United States ask you to serve as the head of the Council of Economic Advisers and you actually agreed to do so but then something happened to President Nixon. As I write something I've forgotten or Nixon resigned and Ford as vice president became president ultimately you got to be close to President Ford. But Ford lost the election to my former boss Jimmy Carter in 1976. And you went back to Wall Street. Is that right. You're pretty prominent now as the former head of the Council of Economic Advisers and then ultimately President Reagan says to you why don't you come in and be the chairman of the Federal Reserve Board. Did you meet with Reagan before you accepted the offer. Well I actually had met with him quite often during his campaign. I was part of the Reagan for President campaign staff. So Brad Stone I get to work for them fairly closely. So you take the job and you held the job for 18 or 19 years and in the 18 and a half years you were called by many the maestro and you were given a lot of credibility for the U.S. economy being in such good shape. Did you ever think that people were giving you too much credit for being such a great maestro of the economy or do you think they were pretty right . I think I right. Laughs You can't popularity in Washington is basically related to what it is you do and you have no. If you don't have 100 percent control of what it is that happens as a consequence then you do it. You get caught by the fluctuations up and down. My major concern and I was fully aware of it as I was too much to credit too much of the credit for what actually was going on I said don't worry about it it'll come out on the other side. Well in those years people often would say let's photograph Alan Greenspan walking into the Federal Reserve building. If he has a big fat set of books with him or papers that means he's about to make a historic decision. If he has nothing very much it means no historic decision. So was there any truth to the validity of your carrying a lot of things into the was my briefcase briefcase and whether my wife made me lunch. So there really was nothing to that theory. Well I know everybody admitted that of course. What about the theory that you made your key decisions in the bathtub in the morning because you had a bad back you would take a bath every morning and that you would write notes up to people and it would back kind of with little watermarks on it because you were doing this in the bathtub . Did you make good decisions there do you think. Oh of course it was right. Who was writing speeches in the bathtub. Thanks for that. The backwards is still but obviously still a problem. I was required to write on my back full time for six weeks by an orthopedist. I ran my business looking up at the ceiling. I'd say you stepped down and all of a sudden everybody in the world wants to get your advice on things. Was it a shock or you actually anticipated that would happen. I was shocked. I was shocked that the price that they built up on my first book. I was shocked by the fees I was getting . Oh pretty much for a number of years. So things went very well . And then the economy collapses. And so all of a sudden people were saying well it was Alan Greenspan's fault because he should have anticipated this. Did you think that was fair. And were you surprised by how much criticism you received at that point . One I did not think it was fair and I never expected it to be fair and I anticipated that it was going to happen. I just didn't know exactly when but nobody forecast the 2008 crisis . One of the things I've written for a second book I wrote was how the IMF missed it. The Federal Reserve missed have go down a whole series of major forecasting. Everybody got her wrong let's say every . But the preference was that I didn't find that surprise. You can't have a crisis of that nature. That is not a surprise. So if you look back on your time as the Federal Reserve chair would you have done anything different in light of events that happened after you left. Would you have done something differently. Not that I'm aware of when you testified in Congress. You were famous for not being that precise in terms of being clear clear I'd say you were it was what I would call Fed speak because you were off your skating a little bit was that on purpose. Oh yes. In other words it was a general rule . At that time that the Federal Reserve did not make public what it was going to do. We do now. But no not back then. And so the question was what ways could I figure around answering certain questions or not answering them. And I had I worked up on me 4 vote vocabulary which talked quite understand I was too ashamed to say the dollar . All right. So it was on purpose. Oh yes. Why do you think it is that we're not as creative as we were before a frenzy coming up with new companies and so forth. There's more to it than just strictly the issue of simple capitalism. We're hearing more and more regulation. His continued devotion to public service should be a cause of celebration in this country and around the world and is something for which I am very grateful . Mr. Chairman our actions have consequences and it's crucially important for us to try to discriminate in advance what those consequences are. And that is a challenge which I must say to you is as I said to the president before it's like eating peanuts you keep doing it keep doing it and you never get tired because the future is always constantly on your so let's talk a moment now about your book Capitalism in America . One of the key points of your book is that we have something in the United States called would you call it creative destruction creative destruction essentially means that entrepreneurs start new companies but you're worried according to the book that we're not doing that as much now. Is that right. That's correct. And why do you think it is that we're not as creative as we were before a frenzy coming up with new companies and so forth. There's more to it than just critically the issue of simple capitalism. We're hearing more and more regulation and in fact the one thing I'm I'm ready to see the consequences of what the current administration's deregulation operations are doing because what we saw in the book is examples of the extraordinary broadening of controls which mean people . This seems strange to use this example but to be a florist or something related which has no effect on human life or how smoothly you knew you needed a firm it never was the case. So your point is there's too much regulation. What is remarkable about the United States is we went up and down. You would have thought that after the 1930s that capitalism was shot come No not coming back. And ironically it's got resurrected during World War 2 where it was very obvious that the private sector was what essentially won the war. And today the ownership of capital is not as unequivocal as it used to be. The regulation and the taxation and the culture is not so well understood the main point of your book I thought was to say we've had a unique capitalist system but maybe there's some dangers that what we made us so unique aren't going to be available in the future is that you're exactly right. So you're now in your 90s. Yes . And that your parents lived to to be this age or you have long genes. My my mother lived in Normandy. So the success other than good genes is what would you attribute to it's eating well exercising a lot are reading a lot of productivity data reports . What is it that you attribute your longevity that's kind of the productivity product reading a lot of productivity data reports is probably what's done it one of your great accomplishments. We haven't talked about as you've been married to Andrea Mitchell for quite some time. A NBC correspondent among other things she's chief. So anything you would like to say about your marriage to Andrew Mitchell. It's been wonderful . And did she give you advice on economic matters ever. You give her advice on Media Matters ever Xi Jinping drives home everything. Sometimes I take it you've met a lot of famous people presidents United States heads of state from other countries finance secretaries ministers secretaries of treasury secretaries of state. Who would you say among the most impressive people you are privileged to meet. Let's say the two smartest two smartest were got impeached Bill Clinton Richard Nixon OK. I would say on a strictly ise basis those two had flaws. Were you ever have any regrets about anything you did in your career and do you ever regret not going into private equity . Well I'm an economist making money per say. It's never been my interest it's turned out to good fallout. But it was in from my real purpose we ever want to reinvent yourself as a private equity person. Let me know. You could learn this business and still be very good in it. After I've run out of economics I'll make a call. No problem since the economy keeps fascinating. All right. Well thank you very much for taking the time. Thank you .

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The David Rubenstein Show: Alan Greenspan

Former Federal Reserve Chairman Alan Greenspan sits down with David Rubenstein to talk about the economy, when the next recession might come and the dangers of rising debt and deficits -- fiscal and trade. The interview was recorded Nov. 9 at Bloomberg's headquarters in New York. (Source: Bloomberg)

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