Transcripts For CSPAN2 After Words 20140705 : vimarsana.com

May or may not be possible. And it is certainly possible to base our attempt to have peace with the iranian people on the basis of war against its regime, but that thought process has not been entered into. That is the kind of thing im talking about. This is an extraordinarily thoughtful exploration of some very difficult some 0 the basic questions of our time of war and peace by a very thoughtful expert and analyst. This is his book, to make and keep peace. Available outside. I believe for 20. And so we encourage you all of you to buy at least one copy, if not two. And then i know that angelo would be happy to sign it for you. I think well be doing the signing outside. So, ladies and gentlemen, please join me in thanking angelo codevilla. [applause] [inaudible conversations] up next, afterwards with guest host of the Washington Bureau chief of the sunday indianapolis. This week, kwasi kwarteng, war is gold the relationship of money to war and the interconnection between presentday free markets worldwide. The program is about an hour. Welcome to after words. Im tony heinz, and with me today issaquah si kwarteng, a conservative mp, born in londonk and try to understand something about the Global Financial system something about the current cease that we have the dollar sterling and the nature of gold as well. One of the features of this book is to remind people that for 400 years for 450 years we had a gold backed currency and it was in 1971 when Richard Nixon famously went off gold. Host one of the things i love about this is you have a knife or the dramatic moment and its about you know the dry subjects such as money. Tell me about the moment. Guest the key moments in any historical narrative of the key moments when people step back and say oh my. This is whats happening. It was august the 15th i think on a sunday. Richard nixon essentially appeared on National Television halfway through bonanza which was a great cowboy show, not really my time but maybe viewers will remember the show and he interrupted the show to say we are not going to allow the dollar to be converted into gold anymore. This in many ways was one of the most significant events, the most significant things have happened in the history of money. It was a very decisive moment where essentially he shot the gold. That is what the term was, where people could not simply come into fort knox metaphorically and say here is 100 or want to get the gold value and that was as a seqhe bad they were trying to fight the vietnam war and pay for the Great Society and it just didnt work out. There was def a deficit, trade deficit, and people like the french and bad people like the brits were coming to change dollars into gold, and so Richard Nixon decided to stop that. Interestingly enough the federal chairman at the time, the head of the Federal Reserve, arthur byrnes, was very skeptical about that. An oldschool balanced budget conservative guy and was wear wary of decoupling the gold from the dollar. Host another moment, lord george i . c6 1914. Guest the great thing about British Public finance for the 100 years before the First World War, before 1914, they ran balanced budgets. Its difficult to imagine that now. The whole Victorian Era and the 19th centuzy and top hates host stable Interest Rates. Guest very stable, and stable fiscal policy, and what happened in the First World War is that all of that went to pieces in order to defeat the kaiser, to defeat germany, the British Parliament was having massive spending and he said this is massive, and but they borrow huge amounts. The National Debt went up ten times, more than ten times. Say for 700 million sterling to over 11 billion. And the house of commons put it through because they would do whatever it took defeat germany. That was the attitude. Host and the title is this pushpull effect of war guest absolutely right. Host and money, and you contemplated calling the book order and chaos. Guest thats right. Order is the Gold Standard or the commodity standard where you can see this is how much my dollar or my pounding worth and its linked to some sort of external value or commodity. Chaos, and one over the argument is put forward in the book, near a period of chaos where you dont have any kind of mooring to commodities. You happen fiat money, paper money, and you can just keep printing money and there was a strand of opinions in this country, probably more than any other, saying that was mistake and we should get back to the Gold Standard. Its associated with people like ron paul. This isnt a im not trying to write a really good narrative to explain how we got where we are but i think there is some false in the argument we need something more structured than just the ability of governments to print money. Host the quotes from ron paul, in 1981, thekev tenyear experimentc with guest thats right. Host that is an argument very, very resonant here. Big calling for ron paul in 2012. In some sense is probably going to run for president in 2016. Do you think we should . Could we . Guest a different factor in terms of how we could. Ill talk about that initially. The only way to get back to the Gold Standard is for the chinese essentially to decide, unilaterally they could reinstitute the Gold Standard tomorrow, and say one is going to equal x amount of gold and they have enough reserves to back that. The only problem for them is they run an export model. If they did that the one would become a very strong currency which would be complete reverse of their exportled, keeping the value of the one low so their exports are cheap, and when we combine them. That would be a complete reversal, but in terms of actually introducing a Gold Standard, they can do it because they have the reserves. One point about the Gold Standard is if you look at the 19th century, it was britain who largely sort of guaranteed it. Britain was running great exports the manufacturer of the world, British Goods were flooding essentially global markets, not the least in america, south america, and the reserves that britain acquired through the expert trade meant they could keep a Gold Standard. The british themselves, we never really had that much gold, but everyone sort of relied on the stability and the export strength of britain. Similarly in the 20th century, the United States ran current account sub days. Unbelievable to think another that but until 1970, from 1900 to 1970, the u. S. Was exporting more than it was importing, so it was building up reserves, building up gold and other foreign currency, and they really the United States guaranteed the Gold Standard after the First World War and the whole settlement was based on this value of the dollar at 35 an ounce. Relationship. And that lasted from 1944 to 1971. Host sounds like you dont anticipate the chinese doing this. Guest given where theyve come from in the last 25 years, theyve deliberately forced their currency to be much lower, and i outline that in the book in 1980, the one was one and a half, one, two a dollar, and then over 20 years, it went down as low as eight and a half. And now its sort of six and a half, that sort of thing. They deliberately had a very cheap money or, rather, low they were low value for their currency so they could drive exports. So, youre right to suggest if they went to gold, that would be a complete reversal of what theyve been doing, how theyve been building their economy, through this export growth. Guest you argue return to Gold Standard is impractical. Guest it is impractical but the Current System is very vulnerable. And in a way explains what happened in 2008. And i talk about that quite fully. I mention the fact that many economists predicted that this would happen when you have a system where you just have a fiat currency, banks just pushing enter and printing money, youre going to get a very vulnerable and unstable system, and i think thats something that we have to consider. Host what about the effect of war on 2008, obviously 9 11, stenyears earlier. Your argument is it wasnt just about 9 11 and nor more spending. Guest it was wasnt that complicated but if you remember i was on the Trading Floor in 2001 host j. P. Morgan. Guest thats right thats a swear word in this country. Bus,ey, is was a banker, and the first thing that happened is obviously the 100r index went down 10 . The dow jones went down i think an appreciable amount, and what the response of the central bank was to lower Interest Rates. Interest rates have been coming down all through that year, from 61 2. They went down to one percent and this is really cheap money. My argument is if you followed consequence of lowering the Interest Rate to such a low degree, what happened was that people wanted yield, a search for yield. They feel getting treasury at 2 , tenyear money at 2 , and some banker in the midwest, youre thinking, i need to get more than 2 . Host not pushing the margin guest thats right. I can only get 2 of ten, year money buying treasuries. I have to get some Interest Rates, a search for yield and that was a phrase used commonly at the time, and the search for yield drove a lot of the subprime lending, a lot of the very poor credit decisions in terms of expanding credit in terms of giving people huge loans which they could never afford to pay. And that was what caused this kind of instability. And actually this is where the long view is very interesting because i found exactly the same thing happened in england in the 1820s. Host the bubble. Guest no, it was south american so what happened was that the after 1815, and the defeat of napoleon, sharpes rifle is a popular tv show in britain but after that they went back to gold, and as a consequence of that the Government Spending went down, it was very low Interest Rate environment, and there was again this search for yield. They were saying, if we buy uk government debt, were only going to get small Interest Rate from that. So lets look for something which is going to give us more Interest Rate, and there was this search for yield, which ended up crazy bolivian government, crazy stocks, all that kind of thing, and they blew up. Host if we cant go book to gold now, how do we moor the currency, stabilize it and stop another bubble . I. Guest the main thing that is missing from this is this is what people in the markets feel and i think people generally feel, is that there should be more leadership, more international coordination; if you look at brendanwoods, lasted two weeks. Two years of preparation before thatout you had delegates from 50 countries, came to a9it resot in New Hampshire and decided what the International Architecture would be and that was a very responsible and very effective lasted from 44 to 71. In this Current Crisis we have not been able to reach the level of international cooperation. Theres been a sort of lack of leadership, perhaps, people are slightly feeling less confident, and theres less of an idea of what can be done. And i think that was that has come about in the last four or five years. People see that. And one of the thinged about that is that in way i think its come at a time in the 2008 crisis came at a time when global readership the u. S. Is feeling perhaps less sure of itself, the u. S. Itself is running huge deficits host we should talk about that. Guest we can talk about later, and the u. S. Has been slightly burnt by perhaps overextension in Foreign Affairs, foreign commitments. So, the capacity of the u. S. To provide that kind of Global Leadership is much lower now than perhaps was the case in 44, where all the post war period. Host you are not a bash the banker guest not at all. Im always very robust defender of the Free Enterprise system, a very robust defender of finance. If you look at my home town, london, its the center of International Finance for 300 years. Arguably today. And apologies to new york. It is still the leading International Center in terms of the number of international banks, the time zone, and the idea that british politicians should bash bankers and try and close down the city of london is insane. Thats been a great strength of the british economy. Thats what always argue, and i thick its bourne out by the historical record. Host in terms of that, fascinating chapter on thatcher and reagan. Guest sure. Host that what went out the window was balanced budgets. Guest thats right. Host and it was became almost not your word but mind a fettish, an end in themselves, and i think toml as lesser extent, thatcher, and certainly reagan, talked about fiscal responsibility but in the end guest reagan was a great fifth. Unparalleled gift of communication. He could boil things down simply so people could relate to them. His idea can, he was very much his great metaphor about Government Spending was alcoholism. And his father had been al alcoholic. If you look at his speeches from the early 80s, he talks this massive binge, a terrible hangover, we need to sort ourselves out, that was the metaphors he used. If you look at his record, because of defense spending and the cold war there was this deficit, and that was a time i think when people on the conservative side of the argument here, in america, were very focused on tax cuts, regardless of expenditure. My argument is that right through, really to the 60s, the u. S. Conservatives were balanced budget people. So what they did if you look at the korean war and that was truman and a democratic president and eisenhower continued it they werent reluctant to raise expenditures to raise raise taxes to race income to cover expenditure. So, i think in in the korean war, the president went to congress, they raised taxes and paid for that because they wanted to balance the budget. That was a oldschool conservative approach and both eisenhower and truman stuck to that. It was only really in the 60s you started bending endless deficits and my argument is the conservative movement in america started by wanted tax cuts ball they said it would increase revenue but didnt really focus on the expenditure side, and i thick if youre going to reduce taxes you have to try to reduce expenditure. Its no good reducing taxes hoping to get more money from that while keeping intend expenditures rise examination this, supply supplyside argue; jack kemp, and arthur laugh her, focused on tax cuts, but in order to balance the budget you have to address expenditures. You cant just balance a budget on tax cuts alone. Anduyn even though im in an ideal world i would reduce taxes and reduce expenditures. The two go to together. Host george w. Bush, described as fiscally incompetent. Guest that wasnt my word. Bush is an extraordinary president in a way. Attacked from the left and the right, because of his fiscal incompetence, so if you look at that period from 2001, the u. S. Started running deficits aggressively, and those deficits were compounded by the Foreign Affairs can the foreign wars the bush government went into, and i think people on the left and the right, certainly on the right, were saying, you know, whats happened to this . Were supposed to be the balanced budget guy. Were posed to he hawks on Public Expenditure, to reduce the federal government, and its impact in terms of spending. But the spending went out of control, and it wasnt me. It was a lot of the guys from the think tanks, the heritage foundation, the kate cato institute, before criticizing bush for spending too much money. Host that led to the tea party movement. Guest thats right. The tea party was a legitimate protest. At this endless cycle of deficit expenditure, and federal debt was going through the roof, the deficit was going through the roof, and you forget people forget that in america, the budget was bowed in my country in britain as well, the budget would was balanced. In the 1980s they said the 30year bond would be abolished because the government wasnt borrowing anymore more so in 50 years we have gone through a completely reversal of that position, and i think, in my book, i argue the Bush Administration had a part to play in that. Host how do you view the clinton era. Guest who knows about nat 2016 but the clinton was just look at the numbers. If you just look at where the budget was. It was quite a responsible time in the sense that public exp q8v uu e didnt rose a little bit but not as fast as subsequently. Actually refer knews were because of the booming economy were increasing, and the budget was largely balanced. A lot of his opponents say a lot of the problems were deepseated, that he didnt address in terms of entitlements and Social Security and that sort of thing, but year on year, the budget was very balanced, and i quote greenspan when he came to congress in 2001, and if you read what he was saying, its extraordinary. He was saying were going to abolish the National Debt. That was the environment in 2001. Very much the view, this is pre9 11 that somehow wed discovered perpetual motion, the u. S. Economy was growing at three to four percent every year, and Washington Bureau<\/a> chief of the sunday indianapolis. This week, kwasi kwarteng, war is gold the relationship of money to war and the interconnection between presentday free markets worldwide. The program is about an hour. Welcome to after words. Im tony heinz, and with me today issaquah si kwarteng, a conservative mp, born in londonk and try to understand something about the Global Financial<\/a> system something about the current cease that we have the dollar sterling and the nature of gold as well. One of the features of this book is to remind people that for 400 years for 450 years we had a gold backed currency and it was in 1971 when Richard Nixon<\/a> famously went off gold. Host one of the things i love about this is you have a knife or the dramatic moment and its about you know the dry subjects such as money. Tell me about the moment. Guest the key moments in any historical narrative of the key moments when people step back and say oh my. This is whats happening. It was august the 15th i think on a sunday. Richard nixon essentially appeared on National Television<\/a> halfway through bonanza which was a great cowboy show, not really my time but maybe viewers will remember the show and he interrupted the show to say we are not going to allow the dollar to be converted into gold anymore. This in many ways was one of the most significant events, the most significant things have happened in the history of money. It was a very decisive moment where essentially he shot the gold. That is what the term was, where people could not simply come into fort knox metaphorically and say here is 100 or want to get the gold value and that was as a seqhe bad they were trying to fight the vietnam war and pay for the Great Society<\/a> and it just didnt work out. There was def a deficit, trade deficit, and people like the french and bad people like the brits were coming to change dollars into gold, and so Richard Nixon<\/a> decided to stop that. Interestingly enough the federal chairman at the time, the head of the Federal Reserve<\/a>, arthur byrnes, was very skeptical about that. An oldschool balanced budget conservative guy and was wear wary of decoupling the gold from the dollar. Host another moment, lord george i . c6 1914. Guest the great thing about British Public<\/a> finance for the 100 years before the First World War<\/a>, before 1914, they ran balanced budgets. Its difficult to imagine that now. The whole Victorian Era<\/a> and the 19th centuzy and top hates host stable Interest Rate<\/a>s. Guest very stable, and stable fiscal policy, and what happened in the First World War<\/a> is that all of that went to pieces in order to defeat the kaiser, to defeat germany, the British Parliament<\/a> was having massive spending and he said this is massive, and but they borrow huge amounts. The National Debt<\/a> went up ten times, more than ten times. Say for 700 million sterling to over 11 billion. And the house of commons put it through because they would do whatever it took defeat germany. That was the attitude. Host and the title is this pushpull effect of war guest absolutely right. Host and money, and you contemplated calling the book order and chaos. Guest thats right. Order is the Gold Standard<\/a> or the commodity standard where you can see this is how much my dollar or my pounding worth and its linked to some sort of external value or commodity. Chaos, and one over the argument is put forward in the book, near a period of chaos where you dont have any kind of mooring to commodities. You happen fiat money, paper money, and you can just keep printing money and there was a strand of opinions in this country, probably more than any other, saying that was mistake and we should get back to the Gold Standard<\/a>. Its associated with people like ron paul. This isnt a im not trying to write a really good narrative to explain how we got where we are but i think there is some false in the argument we need something more structured than just the ability of governments to print money. Host the quotes from ron paul, in 1981, thekev tenyear experimentc with guest thats right. Host that is an argument very, very resonant here. Big calling for ron paul in 2012. In some sense is probably going to run for president in 2016. Do you think we should . Could we . Guest a different factor in terms of how we could. Ill talk about that initially. The only way to get back to the Gold Standard<\/a> is for the chinese essentially to decide, unilaterally they could reinstitute the Gold Standard<\/a> tomorrow, and say one is going to equal x amount of gold and they have enough reserves to back that. The only problem for them is they run an export model. If they did that the one would become a very strong currency which would be complete reverse of their exportled, keeping the value of the one low so their exports are cheap, and when we combine them. That would be a complete reversal, but in terms of actually introducing a Gold Standard<\/a>, they can do it because they have the reserves. One point about the Gold Standard<\/a> is if you look at the 19th century, it was britain who largely sort of guaranteed it. Britain was running great exports the manufacturer of the world, British Goods<\/a> were flooding essentially global markets, not the least in america, south america, and the reserves that britain acquired through the expert trade meant they could keep a Gold Standard<\/a>. The british themselves, we never really had that much gold, but everyone sort of relied on the stability and the export strength of britain. Similarly in the 20th century, the United States<\/a> ran current account sub days. Unbelievable to think another that but until 1970, from 1900 to 1970, the u. S. Was exporting more than it was importing, so it was building up reserves, building up gold and other foreign currency, and they really the United States<\/a> guaranteed the Gold Standard<\/a> after the First World War<\/a> and the whole settlement was based on this value of the dollar at 35 an ounce. Relationship. And that lasted from 1944 to 1971. Host sounds like you dont anticipate the chinese doing this. Guest given where theyve come from in the last 25 years, theyve deliberately forced their currency to be much lower, and i outline that in the book in 1980, the one was one and a half, one, two a dollar, and then over 20 years, it went down as low as eight and a half. And now its sort of six and a half, that sort of thing. They deliberately had a very cheap money or, rather, low they were low value for their currency so they could drive exports. So, youre right to suggest if they went to gold, that would be a complete reversal of what theyve been doing, how theyve been building their economy, through this export growth. Guest you argue return to Gold Standard<\/a> is impractical. Guest it is impractical but the Current System<\/a> is very vulnerable. And in a way explains what happened in 2008. And i talk about that quite fully. I mention the fact that many economists predicted that this would happen when you have a system where you just have a fiat currency, banks just pushing enter and printing money, youre going to get a very vulnerable and unstable system, and i think thats something that we have to consider. Host what about the effect of war on 2008, obviously 9 11, stenyears earlier. Your argument is it wasnt just about 9 11 and nor more spending. Guest it was wasnt that complicated but if you remember i was on the Trading Floor<\/a> in 2001 host j. P. Morgan. Guest thats right thats a swear word in this country. Bus,ey, is was a banker, and the first thing that happened is obviously the 100r index went down 10 . The dow jones went down i think an appreciable amount, and what the response of the central bank was to lower Interest Rate<\/a>s. Interest rates have been coming down all through that year, from 61 2. They went down to one percent and this is really cheap money. My argument is if you followed consequence of lowering the Interest Rate<\/a> to such a low degree, what happened was that people wanted yield, a search for yield. They feel getting treasury at 2 , tenyear money at 2 , and some banker in the midwest, youre thinking, i need to get more than 2 . Host not pushing the margin guest thats right. I can only get 2 of ten, year money buying treasuries. I have to get some Interest Rate<\/a>s, a search for yield and that was a phrase used commonly at the time, and the search for yield drove a lot of the subprime lending, a lot of the very poor credit decisions in terms of expanding credit in terms of giving people huge loans which they could never afford to pay. And that was what caused this kind of instability. And actually this is where the long view is very interesting because i found exactly the same thing happened in england in the 1820s. Host the bubble. Guest no, it was south american so what happened was that the after 1815, and the defeat of napoleon, sharpes rifle is a popular tv show in britain but after that they went back to gold, and as a consequence of that the Government Spending<\/a> went down, it was very low Interest Rate<\/a> environment, and there was again this search for yield. They were saying, if we buy uk government debt, were only going to get small Interest Rate<\/a> from that. So lets look for something which is going to give us more Interest Rate<\/a>, and there was this search for yield, which ended up crazy bolivian government, crazy stocks, all that kind of thing, and they blew up. Host if we cant go book to gold now, how do we moor the currency, stabilize it and stop another bubble . I. Guest the main thing that is missing from this is this is what people in the markets feel and i think people generally feel, is that there should be more leadership, more international coordination; if you look at brendanwoods, lasted two weeks. Two years of preparation before thatout you had delegates from 50 countries, came to a9it resot in New Hampshire<\/a> and decided what the International Architecture<\/a> would be and that was a very responsible and very effective lasted from 44 to 71. In this Current Crisis<\/a> we have not been able to reach the level of international cooperation. Theres been a sort of lack of leadership, perhaps, people are slightly feeling less confident, and theres less of an idea of what can be done. And i think that was that has come about in the last four or five years. People see that. And one of the thinged about that is that in way i think its come at a time in the 2008 crisis came at a time when global readership the u. S. Is feeling perhaps less sure of itself, the u. S. Itself is running huge deficits host we should talk about that. Guest we can talk about later, and the u. S. Has been slightly burnt by perhaps overextension in Foreign Affairs<\/a>, foreign commitments. So, the capacity of the u. S. To provide that kind of Global Leadership<\/a> is much lower now than perhaps was the case in 44, where all the post war period. Host you are not a bash the banker guest not at all. Im always very robust defender of the Free Enterprise<\/a> system, a very robust defender of finance. If you look at my home town, london, its the center of International Finance<\/a> for 300 years. Arguably today. And apologies to new york. It is still the leading International Center<\/a> in terms of the number of international banks, the time zone, and the idea that british politicians should bash bankers and try and close down the city of london is insane. Thats been a great strength of the british economy. Thats what always argue, and i thick its bourne out by the historical record. Host in terms of that, fascinating chapter on thatcher and reagan. Guest sure. Host that what went out the window was balanced budgets. Guest thats right. Host and it was became almost not your word but mind a fettish, an end in themselves, and i think toml as lesser extent, thatcher, and certainly reagan, talked about fiscal responsibility but in the end guest reagan was a great fifth. Unparalleled gift of communication. He could boil things down simply so people could relate to them. His idea can, he was very much his great metaphor about Government Spending<\/a> was alcoholism. And his father had been al alcoholic. If you look at his speeches from the early 80s, he talks this massive binge, a terrible hangover, we need to sort ourselves out, that was the metaphors he used. If you look at his record, because of defense spending and the cold war there was this deficit, and that was a time i think when people on the conservative side of the argument here, in america, were very focused on tax cuts, regardless of expenditure. My argument is that right through, really to the 60s, the u. S. Conservatives were balanced budget people. So what they did if you look at the korean war and that was truman and a democratic president and eisenhower continued it they werent reluctant to raise expenditures to raise raise taxes to race income to cover expenditure. So, i think in in the korean war, the president went to congress, they raised taxes and paid for that because they wanted to balance the budget. That was a oldschool conservative approach and both eisenhower and truman stuck to that. It was only really in the 60s you started bending endless deficits and my argument is the conservative movement in america started by wanted tax cuts ball they said it would increase revenue but didnt really focus on the expenditure side, and i thick if youre going to reduce taxes you have to try to reduce expenditure. Its no good reducing taxes hoping to get more money from that while keeping intend expenditures rise examination this, supply supplyside argue; jack kemp, and arthur laugh her, focused on tax cuts, but in order to balance the budget you have to address expenditures. You cant just balance a budget on tax cuts alone. Anduyn even though im in an ideal world i would reduce taxes and reduce expenditures. The two go to together. Host george w. Bush, described as fiscally incompetent. Guest that wasnt my word. Bush is an extraordinary president in a way. Attacked from the left and the right, because of his fiscal incompetence, so if you look at that period from 2001, the u. S. Started running deficits aggressively, and those deficits were compounded by the Foreign Affairs<\/a> can the foreign wars the bush government went into, and i think people on the left and the right, certainly on the right, were saying, you know, whats happened to this . Were supposed to be the balanced budget guy. Were posed to he hawks on Public Expenditure<\/a>, to reduce the federal government, and its impact in terms of spending. But the spending went out of control, and it wasnt me. It was a lot of the guys from the think tanks, the heritage foundation, the kate cato institute, before criticizing bush for spending too much money. Host that led to the tea party movement. Guest thats right. The tea party was a legitimate protest. At this endless cycle of deficit expenditure, and federal debt was going through the roof, the deficit was going through the roof, and you forget people forget that in america, the budget was bowed in my country in britain as well, the budget would was balanced. In the 1980s they said the 30year bond would be abolished because the government wasnt borrowing anymore more so in 50 years we have gone through a completely reversal of that position, and i think, in my book, i argue the Bush Administration<\/a> had a part to play in that. Host how do you view the clinton era. Guest who knows about nat 2016 but the clinton was just look at the numbers. If you just look at where the budget was. It was quite a responsible time in the sense that public exp q8v uu e didnt rose a little bit but not as fast as subsequently. Actually refer knews were because of the booming economy were increasing, and the budget was largely balanced. A lot of his opponents say a lot of the problems were deepseated, that he didnt address in terms of entitlements and Social Security<\/a> and that sort of thing, but year on year, the budget was very balanced, and i quote greenspan when he came to congress in 2001, and if you read what he was saying, its extraordinary. He was saying were going to abolish the National Debt<\/a>. That was the environment in 2001. Very much the view, this is pre9 11 that somehow wed discovered perpetual motion, the u. S. Economy was growing at three to four percent every year, and Public Expenditure<\/a> wasnt going up very fast host very, very optimistic estimates . Which were not shared by everybody. The fact that the chairman of the Federal Reserve<\/a> could come to congress and speak as you mentioned of the glide path to zero debt in 2001, before 9 11, is extraordinary. Given where we are now. It is extraordinary that 15 years ago people actually thought, credibly thought, that they would have a bowlished the federal debt by 2014. Host what is your view of alan greenspan. Guest i think he was a great i think the most important thing about him im a historian so i look at what people do, their personalities, because i think thats very important. And one of the most interesting things about him was he loved jazz music. A jazz player, coronet player or saxophone in the 40s, and would suggest he took very much a jazz players approach for managing the economy. A very improvised. I quote people who worked with him, he said the plan was there was no plan. He was very, very savvy about what he felt himself being very savvy about markets, responded very quickly who what the markets were doing, and the mores important thing about him in terms of his career, in his tenure as the chairman of thebwx Federal Reserve<\/a>, he essentially in his own mind saved the western world because of the crash of 87. A big wall street crash host which prompted selfconfidence. Guest thats right. Very, very cheap money. Lowered Interest Rate<\/a>s, pump of pumped huge amounts of liquidity in the system and averted disaster. And once you could that early on in your career and you play those again. If youre successful doing one policy very early on, the temptation is to keep repeating it, which is what he did. And now i would argue by 2002, 2003, very, very cheap money policy stored up its own stirred up problems, low Interest Rate<\/a>s the search for yield, and then people investing in very highrisk, highrisk product to get the yield and that created the instability. Host you describe an obsessive interventionist. Guest yes, very much the style. I think greenspan set the ball rolling in 87, and oning there you have to remember about these people running the Federal Reserve<\/a>, theyre obsessed with 1929. And the one lesson they learned from 1929 is that host bernanke guest yes, and theyre obsessed with the idea that in 29 the Federal Reserve<\/a> can the authorities didnt do enough, and they contracted the money supply at the wrong time and all the rest. So this endless luke witnessity, pumping liquidity into the system was their response from what they learned. Host you think it was the right response . Guest i think to do it willynilly as they did was perhaps slight slightly risky. I think they perhaps overlearned, perhaps learned some of the wrong lessons from 29, and what people in 29, they made it worse by shrinking the money supply. They didnt need too do that. Bus the bailouts and huge amounts of money that people cant comprehend created a potentially own instability, and alsorct alienated a vast sectiof middle america. The Tea Party Revolt<\/a> was very much initiated or given fuel by this these endless bailouts and endless printing of money and endless spending and thats what people got cross about, and were still seeing the ramifications of that now. Host you talked about rhetorically in the reaganthatcher era about the Household Budget<\/a> and putting things in a very simple kind of talked from the balanced budget. Now we have this sort of system where you have a currency that is untethered, and these huge as you say, like, you have trillions, have to google to begin to comprehend. Guest thats right. Host how the average american i think how do we get back to what people can understand. Guest what people are looking at, you have to balance a budget at some point. In the uk in my country, the argument isnt about whether we balance the budget, how quickly we get to balanced, because endless deficits simply isnt sustainable, and i think theres a more of a consensus about that than people might realize. How you balance the budget and over what time frame, these are political discussions host entitlement reform. Guest all of that is very important but i think that certainly if were going to get back to stability over the next 10, 20 years, think a balanced budget approach is something that people are beginning to focus on. Even though the rhetoric might suggest otherwise because of the endless debates in congress which i followed about the budget and the rest of it. I dont think even most extreme democrat is suggesting we run deficits from now until kingdom come. I dont think anyone is suggesting this. Host have you talked to american politicians about this . Someone like paul ryan or anybody guest they should. J4qi ra. I think its an important book, trying to bring back this idea of the balanced budget straight into the political mainstream. Im trying to show that balanced budgets are what made britain and america very, very powerful countries over the time in which they held Global Affairs<\/a> so its very timely and important. So i think is very timely and aerva polci i tend to be more hawkish but this is being talked about. Host so, broadly speaking, using simplistic terms in the public debate. Growth versus austerity. Is that a useful way guest slightly crazy way of looking at it. The argument about growth, which was first its a very new argument in the context of 500 years. In the 60s, the people started saying it was lyndon johnson, jfk, towards the end of this brief, tragic tenure of the presidency, they started saying, we shouldnt worry about balancing the budget because if we run the deficit, well get more growth and therefore well be able to balance the budget. The kind of what do i do . I have a deficit. Let me run the deficit more so i can get more growth and more money in and then pay off the debt. And its a circular argument and you didnt really larry it until the early of 60s and i i talk about in the book. But when there was a slump you can spend more money, but he didnt envisage, never dreamt of people running deficits year in and year out. And that name the 60s and they adopted the circular argue. We wont deal with is because we need to have growing to deal with this. Its a slightly crazy argument and you hear it now a lot, people on the left are very enamored of this argument but keynes was 31 whet the First World War<\/a> broke out so his whole childhood and youth was conditioned by a balanced budget framework, and he said in exceptional times you can borrow money. But he went envisaging that all the time, and the analogy i use is, if you have kids, the victorian approach is they if they had tv you cant watch television ever. Ceynes viewpoint was you can patch two hours and now we have got on the point where the tv is always on. So invoke keynes to keep growing the deficit to get growth is wrong. You have to understand him in his Historical Context<\/a> and that Historical Context<\/a>, is a outlinedded in the book, is that the uk government balanced the budget and thats what the government a key function of government and that was agreed by both side, both the liberals and the conservatives. Host we talk about china. Where is china in all this . Described as sort of americas banker, and i interested in you talked about the rhetoric from republican politics, mitt romney talking about naming shaming china as the currency manipulator on day one guest never happened. Host talked about the economic nationalism guest thats right. Economic nationalism has always been a theme in america. People like pat buchanan who talk about this, been on the fringes of the debate it if you look at the 19th century, america was the great protectionist country. Thats historical. The fact is, as someone described to me, the American Industrial<\/a> base was built behind a high tariff wall. That is just what happened. The argument on the right is very much has been about or shaded into the, as you say, x actually its not just about economic nationalism. Its also about having a level Playing Field<\/a>. So if im exporting cars into china, i have 15 tariff to get my goods into china, whereas if im a chinese exporter, you get a 15 subsidy, and so the lower the trade argument is about equalizing the Playing Field<\/a> do. Harley davidson. Guest yes. These things are always more complicated. The reagan is portrayed as this great free trader but saved Harley Davidson<\/a> with the tariff. People remember the japanese motor bikes flooding america and Harley Davidson<\/a> was going bust, and he slapped a tariff on these japanese motor bikes and saved the domestic industry. Host so, if china had been named and shamed in that way, would would have been the sneak would that be domestic populism. Guest the problem is theres still massive demand for chinese goods and you you cant legislate against is. You can slap tariffs the naming and shaming, this is the greenspan argue. If we impose tariffs or we on china, malaysia and the Southeast Asia<\/a> Industrial Base<\/a> if you like, would provide goods anyway, wouldnt help the u. S. Manufacturers. That was his argue. I if you look at where china started from, and we mentioned this earlier in 1980 it was one and a half to a dollar. Over 20 years, that rate went up to about eight and a half. This wasnt an accident. This wasnt something that just happened because it happened. It was an act of deliberate policy, and the chinese the strength of the chinese compared to ourselves in the west and britain and america, if you like, is they have a very longterm view. American politicians were accusing the chinese of currency manipulation in the early 90s. Bush one was saying, you guys are manipulating your currency. Youre driving your currency down to flood our markets. But of course as a new president , always a new cycle, the chinese kept doing thearn se thing and they have a steady plan and thats what i tried to outline in the book in regard to their own currency. Its very easy to forget this but as late as the late 80s, 85, 86, a bit later than that, china was running a trade deficit if you can imagine that. They were importing more than they were experting, and i refer to various articles in the New York Times<\/a> from that period which were saying they have 0 a trade deficit and you could argue that because of the currency, the trade deficit because a trade surplus which has remained. Host unusual british politician, you have a sophisticated only and experience of the United States<\/a>, historically, but you also spent a year at harvard guest spent an excellent year in boston, cambridge, massachusetts, at harvard university. 19961997, so i lived through that crazy period. An interesting time because a lot of my classmates, people who were my age, were going to be traders in wall street, very big salaries, just before the. Com dotcom years, the gogo years, cigar crazes and all that thing, consumption, high living. It was a quite a kind of wild west period in finance, and of course that all came to a grinding halt certainly after 9 11 and a very long bear market, short and sharp bear market when the tech bubble burst, burst in 2000, and people forget that. That was a difficult time for the marks. Host given your historical knowledge of america and your permanent experience, what strikes you as the big differences in the economic and political debates on either side . Guest i think in america, people are much more conscious of this whole public spending idea. I used to cover debates, look for newspapers in britain host briefly for what amazed me about the congressional debates was i think one anytime 96 they were arguing about 300 million which sound like a lot of money but the budget was 1. 3 trillion and this is a very, very, very focused and very passionate debate, and i think that level of budget scrutiny doesnt quite exist certainly in britain, and perhaps in western europe. I think and the whole language and culture about pork, earmarks, all of that, those sort of terms, these are terms used in europe. Host you think new york could learn something. Guest i think we could have a more hawkish you could argue that the debate was irrelevant because people talk about this stuff but continued spending the money so you could argue that all of that intense scrutiny on that didnt really amount to much. But i think having a conscious approach, very critical approach to tax dollars, that phrase, tax dollars, ive never heard the phrase tax euros. I think people here have a more fundamental sense of the idea that taxation comes from the peoples work and is spent by the government in europe its more of a casual acceptance of Government Spending<\/a>, the government is spending its money. They didnt really make the connection between host a real sense here this is our money. Guest thats right. Thats right. Host and this anger guest youre spending it. Absolutely right. The we, the people on one skies the government, which is extracting money from the people through taxation, and then frittering it away. Thats the tea party view of life. Whereas in europe i think i think europeans and british people have a slightly more benign view of government, and so that benign view means the government is spending money for us, and there isnt that sense of, this is my money. Like, the pressure host the joke, im from the government, im here to help you. Guest right. That. If you look at the birth of the origins of the United States<\/a>, it was a revolt against the government, and taxation without representation. Thats very much more deepseated in the american consciousness than it is in europe. Host now, to mention tea party, the big political story in britain at the moment is the rise of uk independence party. What is your view on this . Are we now in a three or four party system in britain . Guest its interesting you raise that. We just had european elections last week in which the fourth party topped the poll, and that is the first time i think since set 86 when neither conservative nor labor have won a nationwide election. Very significant, and we dont actually know where this will end up. Ostensibly their men reason is to get britain away from europe. They want us to leave the eu, but its a much wider cultural revolt against a Political Class<\/a> they feel is out of touch, that is elitist, doesnt connect to ordinary people, lives in its own bubble, drawn from the same type of person, even though theyre different parties, all pretty much at the same. Host Political Class<\/a>. Guest thats right. And its very much an antiestablishment peasant revolt type of situation, which in america people are very familiar with. Host you into parallels do. Guest there are clearly pair parallels. Were in washington now but and westminster is much smaller than washington but the same resonance. These are people who go to fancy restaurants, they wear fancy suits, they speak a language that we dont understand. Theyre completely cut off. Their con constituents and the spending goes up, democratic or republican, and theres no responsibility no accountability, and a bunch of guys in what you call main street are saying, we have had enough. And theres a sort of popular nye nelly the uk smoking, drinking,. Host in the pub. Guest absolutely. He can get out with a pint of near a way that no politician would dream or dare to do, and so theres very much the view that these people are out of touch, and its time for direct action. And he calls it his army, the peoples army, his troops, his party, he calls it the peoples army, and thats very much the kind of peasant with the pitchforks and saying theyve had enough other. Host do you think your party can learn . Will it be about trying to brick them into the tent or guest this is a 64,000 question. I think i expect that the center right this is my own private view center right in britain needs to have some sort of accommodation at some point with uk. Because its very difficult given our parliamentary system to see how a conservative party can get an overall majority without a lot of uk voters coming back and voting conservatively. They generally are of a conservative disposition. I know that people argue but you look at their activists, a lot of them have come from the conservative party. Host what were seeing at the moment in the u. S. , 2014 primaries, is a lot of Tea Party Challengers<\/a> losing but tea partieds being sort of really about establishment, the tea party, but in a way a lot of the primary victors are fusion candidates. Guest thats right. The difficulty that we have with uk is that theyre not part of the conservative party. The tea party generally in the u. S. , as far as i can see, are within the Republican Party<\/a>. So theyre fighting host too a degree, yes. Also in guest theyre fighting within the Republican Party<\/a>. Whereas a fielding of a candidate is a separate party. That may well be a develop of the tea party. The tea party could end up being, i suppose, Party Challenging<\/a> the republican ;t party, and if that were the case the Republican Party<\/a> would have a serious problem because essentially instead of contesting primaries and then deciding on one candidate, you would have the democrats, the republicans, and the kind of tea party representative. Host you have that with the ross perot that was very much a similar situation where the third party, i think he killed bush in 1992. And that is very much the danger. Host we talked about the Political Class<\/a>. Do you see yourself as a guest no. Ive done other things. Host been in parliament guest four years, and im a writer, historian, working in a bank. And i think its quite unhealthy of the professional politicians. I can see why they evolved but i think you need to have politicians with a wider perspective, and that was the great strength of the house of commons. The house of commons drew on people from all sort of backgrounds in many ways. Manual workers 20th 20th century people like Winston Churchill<\/a>, journalist, writer, quite eccentric characters, people from different walks of life, different professions, and that added to a diversity and a variety. You didnt just hear the same voices. The nature of modern life, people are more specialized, huge culture of being a special adviser or in american case, working on the hill, and i think that has sort of bred its own kind of got its own momentum. Host you said the threeparty leaders in britain are all essentially professional politicians. Guest if you look at them, i mean, this is a fact. They were all, i think, born within three years of each other, between 1966 and 1969. Exactly the same age. They all went to either oxford or cambridge, and they all, as their first job out off of university, worked in politics and that is a fact. And niger, the head of uk comes along, went to private school but didnt go to university, doesnt have a degree so he can say, look, im not like these guys. Ive actually worked as a commodity trader. Ive done this. Sbtrz an ordinary bloke, an ordinary guy, and that may be false. He has been a politician as long as i can remember, actually, but it has a sort of grain of truth. And people who are angry, theyre not looking for a forensic truth. Theyre not looking for to analyze all the circumstances. They just want a story, and his story is quite convincing. Host your own personal sort of obsession in a way in britain or maybe just the british press, with class and schooling. You yourself went to eaton,. Guest thats right. A very famous school. Host as did david cameron. Guest my parents were immigrants from ghana, part of the british empire, and my first book whats the empire and i have an unusual relationship with the british establishment as far as my parents, immigrants came in the 1960s and was brought up in london, went to cambridge university, and so i kind of got both sides if you see what i mean. My parents are very much from the old colonial empire, kwarteng is a common name in ghana, maybe not in britain. Maybe nor now. And so i could see both sides if you like. But i think and with that double hat i would say that there was a problem there is a problem, potentially a problem, in that people from more marginal backgrounds, do struggle to get a voice. And i think its very important as a Political Class<\/a> we open ourselves up and people who are active in politics or just in britain, but america, should be more open and a much easier way for people to come through and get representation. And maybe be representatives themselves. But the nature of the media, thr nature of modern communications, modern life, if you like, means you have be to specialized and decide to do that at a relatively young age and that creates this class, i suppose. Host now, is it three books you have written in the last four years . Klesko is the three books you have written the last four years . Guest two big ones and a couple of others. Host i notice you have not tweeted since 2010. [laughter] i know you have kids. Even so how do you manage to write something as thoughtful and wideranging . Guest thats very kind. I think two things about writing a book, the smallest thing that anyone said about writing a book was Winston Churchill<\/a>. He said its like building a house. You have to work out how many floors the house have sent external structure of the house and you have to work out how the rooms and bedrooms will be before you worry about klesko and churchill actually built houses. Guest you have to have a structure how your sofa is going to appear. You have to look at the actual structure. Once you have a structure than the second thing about writing a book and its an african proverb if you want to e an elephant you have to chop it up into little pieces. Once you have the house and with a book like that they think you were slid out of thin air. It took six years. I was thinking about it before. Lets go your ph. D. Was in economic history. Guest thats right. When i spent my year abroad in boston these thoughts have been evolving for quite a while. I never was interested in gold and being from the african continent my home country was the gold coast so there were signs that interest in looking at politics in terms of finance and i worked for a bank for eight or nine years. All of that came together and i gradually took a gradual approach in writing the book. When the book appeared they said how did you do that . It must have taken me three months must have taken a three month but ask it takes a much longer time. Host did you have a routine with a certain number of hours . Guest there were routines in the week. Saturday afternoon was a good and in the recess i try to allocate a bit of time every day. The eating elephant thing if you just do steady as you go and then if you have a clear idea of what the book you want to write you can actually get there. The danger is you need to keep to the structure and you need a plan. If you dont have a plan its practically impossible to do Something Like<\/a> that given the pressures on the constraints you have and the amount of time you spend in the constituency. My constituency is quite close. I have been to the National Archives<\/a> and my constituents are interested in their Family History<\/a> and as a hobby. People have hobbies even if they worked very hard so its not something that i see is work really. Host although extremely relevant. Guest if they work very hard. Its not something that i see is work really. Host although extremely relevant. That Historical Perspective<\/a> is something that politicians sometimes lack. Guest i think its key to trying to understand modern politics. I think it was Winston Churchill<\/a> or someone like that who said if you dont learn from the past you are condoned to me the same mistakes. Host i said from the beginning its not a politicians book. Its not polemic and you are not judgmental. Does this help you political career . Guest i think in the long run you have to clearly set out what your beliefs are, where you are coming from if you are coming from intellectual hinterland if you like and that has to help the political career in the end. I think certainly in britain and im not sure about the United States<\/a> the United States<\/a> theres always been a big connection between understanding history and politics. We have a long tradition of historians in politics and politicians who write history. Churchill as i mentioned many times was the greatest example of that. He wrote reams and reams of history throughout his career. He read the history of the First World War<\/a> and six volumes. I have no idea how you manage to do that but people like lloyd jenkins. Lloyd jenkins our current foreign secretary hague has written volumes and famous politicians. Something that is quite connected in britain this link between history and politics. I think thats quite healthy actually. Posted is a great quote from Norman Lamont<\/a> who said politicians dont have the luxury of expressing doubt. I sense from here you use the word nuance quite a lot but you do have a new once approach. Are there that are there other things that surprise you and things that actually changed your view . Guest they did. If you look at this whole idea of Government Spending<\/a> i mean what i was amazed at was the extent to which we are living in completely uncharted territory. As i say hundreds of years before the Gold Standard<\/a> and really in the 60s the people challenged britain and america challenge this idea that we have to balance the budget every year. This idea where we are running continual deficits and we have paperback currency for money is quite new. Its not something that happened and certainly after 1971 you know the extent to which we were spending more money wasnt as pronounced as it is today but these bailouts. Host so theyre theres sort of this new normal. Guest doesnt have to be that way. More than 10 years ago who had ever heard of that . I think i first first heard that in 2007 and that it became one of these received phrases. You would think it would have existed but it didnt. It was news to the extent to which todays situation and todays circumstances are relatively new for was something that struck me. Host what of your political career . I think you have been floated as a british guest every politician of color black ethnic whatever in britain is touted as the british obama which given obamas poll ratings isnt something one would necessarily respond to. We have to get through the 2015th election. I want to hold my see what i have to do. Majorities can come and go and its something youve got to keep an eye out. Thats scary where we are for 2015. The whole political sort of career thing, debate in terms of where people are going is dependent on your partys success. Obviously im hoping the conservative party wins out and mike grier will go on a different direction. If we are out you know who knows what will happen . You wrote another book. Guest well, im toying with it. I am interested in market bacher. She said key person in the book. I know charles well. He had been working on that for a long time. Thatcher was one of those figures in british life who immediately became an iconic figure. Once you died in new as someone that people argue about for decades to come and i am nearly 40 but theyre few people people in my lifetime in britain who have that iconic status. I mention churchill. He died 50 years ago. This was before my time than thatcher for my generation with my generation what do you love her loads to her was a im very interested in her leadership style. Not just that she was a woman and she had a nonconformist methodist background, she had a lot of imagery which she used, she was almost like a sort of preacher in terms of her style. Host she was a big inspiration to you. Guest she was. She was an inspiration. She became Prime Minister<\/a> when i i was four years old so i dont remember that. The day she left i was probably 15 and a half so that was a very long time for she was the dominant figure in british politics. A whole decade where she was Prime Minister<\/a> and i liked her style of politics. I like conventional politics. I like the fact that she stuck to her guns. I was doing a bit of research about her. Three days before the election she said im not a consensus politician. Can you imagine someone saying that three months before a in a lecture in . If you want to compromise and all that stuff vote for someone else. I stand on principle and i think theres something very attractive about that. I can see it creeping into american politics certainly with the republicans trying to trim their sails to whatever wind is passing it is difficult for many people to see what the Republican Party<\/a> is about. Many principle and we need some kind of clear convictions. The danger of that is that people might not like your convictions. Klitzka thats a risk you take. Guest thats the risk you take but there are certain ways in which she had incredible medication skills. 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