Lord George was governor of the Bank of England from 1993-2003. He worked with Alan Greenspan during testing times including the emerging market crises, the bursting of the dotcom bubble, and the aftermath of the 9/11 attacks. Lord George spoke to Sir Howard Davies for the BBC Radio 4 programme The Greenspan Years (to be broadcast at 2000 GMT on Monday, 2 January, 2006).
ON GREENSPAN'S REPUTATION
I think his performance in the US has been really pretty impressive. I mean, he's had to face some very difficult situations like the stock market change of mind in the United States, which was predictable at some point, but you never knew when it was going to happen and then he had to respond very rapidly to that. There were all sorts of difficult situations he's had to handle and I think, on the whole, has come through them pretty well.
ON GREENSPAN'S STATUS AT CENTRAL BANKER MEETINGS
He was always the kind of lead speaker, I think, on most of those occasions because the United States was such an important element in the global situation, because that's what we were focusing on. He would normally be invited to speak first and listened to with incredible attention. I mean really, he made a terrific impact and people did listen very carefully to what he said.
ON GREENSPAN AND THE STOCK MARKET BUBBLE
For central bankers to try to focus on controlling, manipulating asset prices is extremely dangerous. And I think if Alan Greenspan had said, "Well, the markets are not taking any notice of irrational exuberance, therefore I will bring the markets to heel," which he would have had to do by damping down the economy, I think that would have been far more costly in terms of the impact on wealth because it would have actually constrained the growth of the US economy which was very positive in the second half of the 1990s, unnecessarily as things turned out.
What he couldn't do was predict at what point this thing was going to get out of hand and people's confidence was going to suddenly erode, as it did in the beginning of the decade. But he knew that if and when that happened, then he could respond in a very kind of aggressive, positive way to actually prevent it creating a great disaster.
And actually if you look at what happened, certainly the rate of growth of the US economy slowed down and it did actually go technically into recession. But it was a pretty mild recession and didn't last long and the US economy recovered after a year or two.
ON GREENSPAN'S PRODUCTIVITY INSIGHT
If you remember, he talked about "irrational exuberance" ahead of time and the markets took no notice, and so Alan went away and asked himself, "Well, why do they not see the thing in the same terms as I do?" And I think that was what led him to realise that there was an extraordinary surge in productivity growth in the United States, and to do that he'd gone right down to the kind of corporate level and he monitored that, so that when he came to Basel, he would say, "Well, I think that this is spreading through the US economy and I think it's gone about 25% of the way," and then two or three months later he'd say, "Well, it's continued and it's gone this much further."