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it’s useful to understand how the system

works and the key turning point is a

very remarkable period it’s William

Jennings Bryan William Jennings Bryan in

1896 was a fairly young 36 year old

Nebraskan who got up in the middle of

that particular I guess you could say

Association of then the Democratic Party

and it was the one of those

extraordinary events which turns

politics around the Democratic Party was

a highly conservative party prior to

them and essentially it’s characterized

by presidents who thought that the least

government the best it was essentially

lazy fair he got up Bryan got up and

made this extraordinary speech which is

now historical and then cross of gold

speech about the American worker and the

American farmer of being crucified on a

cross of gold called being the gold

standard and that propelled him

strangely enough into the head of the

party he got nominated he never became

president because he kept losing

you think he went three times and failed

each time but left a very major

indelible stamp which led to Woodrow

Wilson and all the way through to

Franklin Roosevelt and I you know I

looked at Bryan as the root of Franklin

Roosevelt’s New Deal

that’s fascinating cause I think most

people that part of it’s often being

obscured in history it’s again one of

the reasons why this book is so

interesting is it throws up these

creating the existing tax pattern [M]y

view is that that’s the right thing to

do provided you funded the result of

that is a bit of variance is going to be

a very large federal budget deficit and

federal budget deficits invariably down

the road out qualification in gender

inflation at the moment we have the

tightest labor market I have ever seen

that is the number of job openings is

significantly greater than the number of

people looking for work and that must

inevitably begin to push on wages it

always has and always will but it’s

always delayed

and my told you that is something has

got to give and that’s I don’t know

where it all comes out well your blyat

comes out with inflation well the

problem basically is if we do nothing

we’re going to end up with probably

stagflation which is an inflation rate I

should say it’s partly stagnation which

as mentioned was very significantly

slowed output per our output per hour

now which used to be 3/4 percent per

year

back in the early post-world war ii

period it’s now well under 1% which

brings me very nicely on to the next

question from the audience which is

someone has asked for you to share your

thoughts about president Trump’s recent

criticism of Jay Powell and the Fed I

like him to answer that with all the

answers I think it’s very short-sighted

the issue of the Federal Reserve is

required by the Congress to maintain a

stable currency which means no inflation

no deflation and the policy they’re

embarked upon at the moment seems very

sense it will be caused as I mentioned

before the wage rates are beginning to

show signs of moving and you cannot have

real wages rising without it ultimately

think if they continue on the road would

that we will

going Pretlow I should say that the

president wants to go we’re gonna end up

with a very significant budget deficit

and very significant inflation

ultimately not not in the short term

that it takes a while

political system doesn’t care about

deficits what they do care about is

inflation when the inflation rate was 4%

in the 1970s

President Nixon imposed wage and price

controls were nowhere near there yet but

it’s wrong our way

if we are though heading towards a

potential rise in inflation rise in debt

at a time of growing populism do you

think there’s a chance that the Federal

Reserve will lose independence I’m

trying to follow you which I mean well

cheating is a chance at Congress or the

president will try to control the

Federal Reserve or take away some of its

independence I really don’t know one of

those forecasting aspects which is

difficult another question from the

audience as the Federal Reserve’s reach

grows do you think that leged of

oversight will become necessary again

that’s above my pay grade

or do you think that Congress should

exert more control or oversight of the

Fed I think the Federal Reserve is by

statute

remember the Federal Reserve Act of 1913

which essentially did something very

unusual we had a long period we

discussed this in the book in which

financial crises kept surging up and

then collapsing which is a typical cycle

with

which went on to a decade upon decade

and the populism that evolved as a

consequence of this looked at

ever-increasing lead to find a way to

solve the problem of why the crises

occur and the general solution was if

the economy is accelerating and it’s

running out of gold species and you’re

going to get into a situation in which

they are always going to be crises so

what the Federal Reserve Act actually

did was very very interesting it

substituted the sovereign credit of the

United States for gold and then if no we

stayed on the gold standard technically

that was a major change in American

financial history and debate the basic

consequence of that is that Federal

Reserve determines what in effect is a

sensible level of money supply expansion

and one of the reasons the Federal

Reserve Act was actually passed was to

prevent the political system when

becoming so very dominant in determining

monetary policy which is exactly what

you don’t want to happen and I mean I

was you know eighteen and a half years

as you mentioned getting letters from

everybody who won very little

congressmen or otherwise who wants it’s

a the issue of and don’t worry about the

issue of inflation

and nobody was well when I would be

getting people who say we want lower

interest rates I got tons of that mail I

never got a single letter saying please

raise them and it tells you that there

are some views which go against reality

and reality always wins but if you look

at that the history of populism some of

the worst populism you got was in the

1970s some of the work that the anger

that was generated by inflation in the

nineteen seventies were roiled right the

way through the political system

eventually leads to the rise of of

Ronald Reagan because and who comes in

and then you know crushes crushes

inflation so inflation is is not a

solution to populism it drivers it makes

people very angry do you think the

current populism is going to get worse

chairman Greenspan well let’s remember

where populism comes from it’s I don’t

know whether this is a general

proposition but I find it’s difficult to

get around the answer that when the

inflation rate or that must the

inflation ratings as much as the levels

of income slow down when you get

productivity for example which is that

the major determinant of income and you

get productivity slowing down you get a

much lower increase in JD GDP and gross

domestic income and wages and salaries

alike and there’s a great deal of unease

in the population which is saying things

are not good somebody come help us and

somebody necessarily on the white horse

because comes up and says I’ve got a way

to handle this and if you look at Latin

America the history of

goodly part of Latin America is a

remarkable amount of people like Peron

coming in and all the subsequent post

World War two governments in Latin

America and it’s really quite

unfortunate and surprising it’s not that

they try it and it fails which it does

always it always fails but it doesn’t

eliminate the desire to do it in other

words of Peru Brazil and like they’ve

all undergone very significant periods

of huge inflation and collapsing and

nobody wears a lesson

yeah well we’re almost out of time but

there’s one other question from the

audience which I think cuts to the heart

of a lot of what we’re talking about

right now which is this does the success

of capitalism come at the cost of

enormous wealth disparity is it possible

to have this vision of creative

destruction of capitalism of dynamism

without having massive income inequality

I doubt it and I doubt it for the reason

I said earlier namely that we’ve got the

problem that human beings don’t change

but technology as it advances and it’s

embodied in the growth of an economy is

always growing and when you have

something that’s growing and the other

thing that’s flat you get obviously

inequality and the political

consequences of that can I qualify that

just a little bit I mean there – there

are different sorts of inequality

there’s a there’s the inequality that

you get from suddenly like Bill Gates or

Steve Jobs producing a fantastic new

innovation and idea which means that

they reap a lot of reward

for that but which means that society as

a whole gets richer and better off and

there’s the inequality that comes from

crony capitalism from people using

political influence blocking innovation

and and sucking out and do rewards for

themselves so I think we need to be

absolutely very very sensitive to the

wrong source of inequality while

celebrating the right sort of inequality

and also had that Joseph Schumpeter that

great man once said that the the nature

of capitalist progress doesn’t consist

of Queens having a million or two

million pairs of silk stockings it

consists of what used to be the

prerogative of a queen being spread

throughout the whole of society silk

stockings you know that become something

that go from being very rare and only

worn by Queens to being worn by all

sorts of people all over the place so

it’s the nature of capitalism is to

create new innovations which are at

first rare but spread throughout the

whole of society and everybody uses so

if you think think of the the iPhone or

something like that some that was

something that was incredibly rare and a

few people had those sort of

communications vais now everybody

carries them around all the time and the

great capitalists the Bill Gates the

Steve Jobs don’t get rich by selling one

really really good iPhone to one purpose

and they get into selling their products

to all sorts of people so there’s a

sense in which there is no real

trade-off between very rich people

getting very rich and the rest of

society getting getting better off you

know they only get rich because they

create things which everybody most

people want to have and buy you know

it’s it’s it’s it’s the Silk Stocking

question really I you know I accept that

qualifications let me just say one thing

you going back to his mentioning here

Walter Isaacson’s book on innovation he

wrote that book and I remember reading

it and my final conclusion was and I

asked him why is it that most innovation

is in the United States

it’s American and he said you know I’ve

never thought of that I don’t think he

was aware of the fact that he here and

all these innovation

to developers and they all turned out to

be American which leads me to conclude

that there’s something fundamental in

the psyche of American history in the

American public which creates it it’s

not an accident which is why I won in it

who too often so which is what you of

course you sought to explain the book so

if you had a chance to take this book

into the Oval Office today or into the

Treasury and give it to the President

and say this is a history of America

here are the key lessons what is a top

bit of advice that you would give to the

administration today to keep capitalism

growing in America well you know we do

have we haven’t mentioned that there’s

an underlying financial problem which we

haven’t addressed in the best way to

discuss it as when I first became aware

of it

I would haven’t been looking at data and

accidentally created a chart which

showed the relationship between

entitlements spending which is social

benefits in the rest of the world and

gross domestic savings and I’m from 1965

to the current period the ratio of

entitlements to the sum of those two is

flat as a percent of gross domestic

product which means or at least implies

that one is crowding out the other and

when you look at the individuals they

are actually looking different and

enable one goes up the other goes down

and so forth and I think that’s

suggestively the fact that there is

something in the sense of when we say

that entitlements by which a rising and

the baby boom generation is essentially

crowding out gross domestic savings

which in turn coupled with

the borrowing from abroad is how we

finance our gross domestic investment

which is the key factor in productivity

right so entitlement reform well I look

forward to a tweet about entitlement

reform I look forward to this very

important book being part of the

discussion about how to keep America

America’s economy great and growing but

in the meantime thank you both very much

indeed for sharing your thoughts it is

indeed a fascinating book and quite an

achievement and best of luck in getting

this very important message out so thank

you both very much indeed

[Applause]

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