♪ david: when you were a young boy, did you say, i want to be chairman of the federal reserve board? alan: [laughter] david: you were called by many the maestro for being such a great maestro of the economy? alan: i always got too much of the credit. david: you made your key decisions in the bathtub in the morning? alan: i was writing speeches in the bathtub. david: were you surprised by the amount of criticism you received at that point? alan: nobody forecast the 2008 crisis. david: do you see any movement to solve the deficit and debt problem? alan: i see a lot of talk. >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪

david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer even though i have a day job of 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, conventional wisdom today is that the u.s. 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? alan: well, i think it is 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. david: do you see any movement to solve the deficit and debt problem? alan: i see a lot of talk, but no realistic movement. i mean, right now we are creating a deficit of $1 trillion 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 that it is going to accelerate in the immediate future. david: so if you could wave a magic wand and help reduce this deficit and debt, what would you do? alan: well, the question is what is the cause of it? and the cause of it 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.

in other words, we went to a very significant cut in the marginal corporate tax rate. but you can't have a cut without finding the revenues elsewhere. david: ok. alan: or you are going to have problems. david: the new tax cut bill that was passed in the first year of president trump's administration passed by the congress said it will produce 3% or more growth for the foreseeable future. do you think 3% annualized growth is realistic over the next five or 10 years? alan: no, certainly not as a consequence of the tax cut. the tax cut actually did get a buoyancy, and we are still feeling some of it, but it is nowhere near enough to offset the actual deficit. so there is no way around this without coming to grips with the expenditure side. david: ok, so president trump called you up and said alan, you are a great former chairman of the federal reserve. i need some advice.

i want you to solve the social security problem, and the medicare and medicaid problem. what would you tell him to do? alan: go elsewhere. david: go elsewhere. because you think it is too difficult politically? alan: i think politically we are caught in a terrible problem. david: so let's talk about another issue that you have talked about, which is productivity. your point is that we don't have the productivity that we should have in part because we have borrowed so much money, and that is squeezing out the money that would be otherwise available for productivity increases. alan: precisely. it is the capital investment. david: right. alan: which ultimately determines what productivity will be. in fact, our equations show that you can explain it all with the net capital stock that is built up in business, plus some measures of educational efficiency. david: ok. alan: but we are not doing it. david: now, harry truman, when he was listening to his economic advisers, said "please bring me a one-handed economist."

because they always said "well, on the one hand this, on the other hand this." and he got tired of that. let me ask you a direct question -- can you tell me when the next recession is going to happen? alan: sometime. david: sometime. alan: sometime. david: but we have had recessions every seven years on average since world war ii. alan: it is going to be driven by the fact that debt is rising dramatically. and it is going to be some curtailments occurring, and it is going to feed on itself. what i'm saying -- we talk about stagflation, stagflation is something that happened in the 1980's, when you had a situation where both unemployment and inflation were high, something which the original keynesian model said was not possible. david: ok. alan: and we are going into that type of period now if you look at all the guidelines.

david: if you are worried we are going to go into recession at some point, do you invest your money in a certain way to protect against that? alan: oh, you can't protect everything. and the point is you can't forecast very accurately. right now we have been in a period, an extreme period of extremely low, real long-term interest rates. and they are beginning now to move up, will continue to move up, and that is going to cause a basic turn in the market. david: are you worried about inflation right now? alan: i think i am beginning to see the first signs of it. we are seeing it basically in the tightening of the labor markets first, which, as you know, are getting very tight

now. we are beginning to finally see average wages rise, and clearly there is no productivity behind it. our productivity increases in the last 10 years has averaged under 1% a year. it is a historic low. now, i might add it is not only we, it is europe and everybody else as well. you are getting into a system now which has no outcome that is an equilibrium other than inflation, and no productivity growth. and that is not something which says we are going to have long-term acceleration. david: well, so, what would you recommend that we do to solve the problems that you pointed out? alan: well, the basic problem is fundamentally on the expenditure

side. so that the issue is, i would say, 90% entitlements. now, these are, as you know, basically legislated payments to certain groups, irrespective of what they are paying into funds. and we have overdone it. now the question obviously is, well, if we have overdone it, why don't we just pull it back? that is the economic conclusion. david: ok. alan: it is not a credible political solution. david: now, 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? alan: [laughter] david: no? alan: that is the last thing -- i could barely pronounce the words at the time. my aspiration was to be a musician. so i went to juilliard for a few years. david: your instrument was what? alan: i played the clarinet, tenor saxophone, bass clarinet, and a little flute. david: well, for all of those, you weren't good enough at any of them to be a professional, to make your whole career out of that? alan: let me put it this way -- i could have, but i said i would 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? david: well, why didn't you tell him he should go into economics and get rid of him? alan: i should have done that. david: should have thought of that. alan: i never thought of it. that would have been a good idea. david: so you ultimately left juilliard and went to nyu? alan: yes. well, i actually was very surprised. i did not think i was going to be a good student. i knew i did well in math in high school. i did not, was not absolutely sure how well i would do in college. it turns out that not only did i graduate summa cum laude, but i had only two b's, in shop and gym. david: shop and gym. so, ok, so -- alan: i got a's in everything else, and there was no one more

surprised than i. david: you were called by many the maestro. did you ever think people were giving you too much credit for being such a great maestro of the economy? alan: i was getting much too much of the credit for what actually was going on. and i said, don't worry about it. it will come out on the other side. [laughter] ♪

pres. reagan: it is my intention to nominate dr. alan greenspan to a four-year term as chairman of the federal reserve. alan: i just wanted to say that in i am deeply grateful to the president for this opportunity to serve my country in one of its most sensitive economic posts. david: so you graduate summa cum laude from nyu, you have given up your music career. what did you do when you graduated? alan: well, first of all, i went to the national industrial

conference board. for the first time, i went into the business world. i wasn't really all that interested in it, and found myself fascinated. and i, at a fairly young age, like 22, i was writing articles for the conference board magazine. and i was fascinated by it. i was getting quoted in the new york times. david: ok. alan: at a very early age. david: ok, so the new york times is quoting you and you are in your 20's. you ultimately became a well-known consultant on wall street. and on the side, you become close to or get to know a very famous writer named ayn rand. and what was the appeal of her to you? alan: what fascinated me was her heroes. and when i read her books, "fountainhead" and 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 inand i had an argument about uncertainty with ayn rand -- -- uncertainty with ayn rand -- this was when i met her. i kept saying that human values are irrational. you know, they are not conceptually put together. and she then proceeded to take me apart piece by piece, showing the contradictions in my position. david: but did you think she was smarter than you? alan: she demonstrated she was smarter than me. david: ok. we actually -- alan: and i, we actually became very close. david: you obviously built a very good reputation on wall street because richard nixon, the president of the united states, asked you to serve as the head of the council of economic advisers. and you actually had agreed to do so, but then something happened to president nixon, is that right? alan: something. i've forgotten what it was. yeah.

nixon resigned and ford as vice president became president. david: 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 are 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? alan: well, i had actually met with him quite often during his campaign. i was part of the reagan for president campaign they had, so that i got to work with him fairly closely. david: so you take the job and you held the job for 18 or 19 years? alan: 18 and a half. david: 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 partly right saying that? alan: i said, wait. it won't last. you can't -- popularity in washington is basically related to what it is you do. and if you have no -- if you don't have 100% control over what it is that happens, as a consequence of what you're doing, you get caught by the fluctuations up and down. my major concern, and i was acutely aware of it, was i was getting much too much of the credit for what actually was going on. and i said, don't worry about it. it will come out on the other side. david: 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 is about to make a historic decision.

if he has nothing very much, it means no historic decision. was there any truth to that, the validity of you carrying a lot of things into the -- alan: yeah, it was my briefcase. david: briefcase. alan: it depends on whether my wife made me lunch. david: so there really was nothing to that theory? alan: everybody knew about that, of course. david: what about the theory 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 to people, and it would come 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? alan: oh, of course. and i was writing speeches in the bathtub. david: ok. alan: the back, which is still, obviously still a problem -- it required lying on my back full-time for six weeks by an orthopedist. i ran my business looking up at the ceiling. david: all right, so you step 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? alan: i was shocked. i was shocked by the price they bid up on my first book. i was shocked by the fees i was getting. pretty much for a number of years. david: ok. so things went very well, and then the economy collapses. and so all of a sudden, people are 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? alan: one, i did not think it was fair, but i never expected it to be fair. and i anticipated that it was going to happen. i just did not know exactly when. but nobody forecast the 2008 crisis. one of the things i put in the second book i wrote was how the imf missed it, the federal reserve missed it.

you go down a whole series of major forecasts. david: ok. well, everybody everybody got it wrong, let's say. alan: everybody. the purpose was i did not find that a surprise. you can't have a crisis of that nature that is not a surprise. david: ok. so, as you look back on your term 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? alan: not that i am aware of. no. david: when you testified in congress, you were famous for not being that precise in terms of being clear, let's say. you used what i would call fed speak because you were obfuscating a little bit. was that on purpose? alan: 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. david: ok. alan: we do now, but 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 a vocabulary which no one could quite understand. david: ok. alan: and they were too ashamed to say they did not understand. david: ok. so it was on purpose? alan: oh yes. david: why do you think it is we are not as creative as we were before, coming up with new companies and so forth? alan: there is more to it than strictly the issue of simple capitalism. we are getting more and more regulation. pres. clinton: in his continued devotion to public service, it should be a cause of celebration in this country and around the world, and it's something for which i am very grateful. mr. chairman? alan: our actions have consequences, and it is crucially important for us to try to determine 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 is like eating peanuts. you keep doing it, keep doing it, and you never get tired because the future is always ultimately unknowable. ♪

david: so let's talk now about your book, "capitalism in america." one of the key points of your book is that we have something in the united states that you called creative destruction. creative destruction essentially means that entrepreneurs start new companies, but you are

worried, according to the book, that we are not doing that much as now, is that right? alan: that is correct. david: and why do you think we are not as creative as we were before in coming up with new companies and so forth? alan: there is more to it than just strictly the issue of simple capitalism. we are getting more and more regulation. in fact, the one thing i am waiting to see the consequences of what the current administration's deregulation operations are doing, because what we show in the book is examples of the extraordinary broadening of controls, which -- i mean, people -- this may seem strange to use this as an example, but to be a florist or something related which has no effect on human life or health rather, you need a permit.

that never was the case. david: so your point is there is too much regulation? alan: what is remarkable about the united states is we went up and down. you would have thought that after the 1930's that capitalism was shot, gone, no, not coming back. and ironically, it got resurrected during world war ii, 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 --

-- is not what it used to be. david: so the main point of your book, i thought, was to say we have had a very unique capitalist system, but maybe there are some dangers and what made us so unique will not be available in the future. is that fair? alan: that is exactly right. david: you are now in your 90's. alan: yes. david: and did your parents live to be this age, or do you have long genes? alan: my mother lived to mid 90's. david: so the success, other than good genes, is -- what would you attribute it to? it is eating well? exercising a lot? reading a lot of productivity data reports? what is it that you attribute your longevity to? alan: oh, it has got to be the productivity. david: reading productivity data reports is probably what has done it. one of your great accomplishments we have not talked about is you have been married to andrea mitchell for quite some time, an nbc correspondent, among other things she has achieved. so anything you would like to say about your marriage to andrea mitchell? alan: it has been wonderful. david: ok. and does she give you advice on economic matters ever? do you give her advice on media matters ever? alan: she gives me advice on everything. david: ok. alan: sometimes i take it. david: you have met a lot of famous people, presidents of the

united states, heads of state from other countries, finance secretaries, ministers, secretaries of treasury, secretaries of state. who would you say are among the most impressive people you have been privileged to meet? alan: i would say the two smartest -- david: the two smartest were? alan: got impeached. bill clinton and richard nixon. david: ok. alan: i mean, i would say on a strictly iq basis, those two, but they had other flaws, obviously. david: do you ever have any regrets about anything you did in your career, and do you ever regret not going into private equity? alan: well, i'm an economist. making money, per se, has never been my interest. it has turned out a good fallout, but it was never my real purpose. david: if you ever want to reinvent yourself as a private equity person, let me know. you could, you know, learn this business and still be very good

in it. alan: after i run out of economics, i -- david: you will give me a call. alan: the problem is the economy keeps fascinating me. david: all right, well thank you very much for taking the time. thank you. ♪

jonathan: from new york city for our viewers worldwide, i'm jonathan arrow with -- i'm jonathan ferro. a special edition of "bloomberg real yield" starts right now. coming up, markets drawing attention as the fed keeps the balance sheet reduction on autopilot. doubts increasing on whether president draghi can hike rates before his term ends. and a monster year for leverage loans ending with some serious concerns. we start with the big issue, going into 2019 with one certainty. >> there is significant uncertainty about the path and ultimate destination. >> uncertainty is playing into