:00:00. > :00:14.Welcome to HARDtalk, with me, Stephen Sackur.
:00:15. > :00:20.Wouldn't it be reassuring if we could put all of the blame for the
:00:21. > :00:24.financial crash of 2008 on those greedy bankers? Rooting out their
:00:25. > :00:27.excesses would ensure no repeat performance. What if the crisis was
:00:28. > :00:33.much deeper and more structural? My guest today, Adair Turner,
:00:34. > :00:36.Lord Turner, is a doyen of the UK economic establishment who has
:00:37. > :00:48.concluded that Western economies His solution, printing money to
:00:49. > :00:50.stimulate growth, without adding to the debt pile is contrarian, but is
:00:51. > :01:23.it credible? You have had a lot of time to think
:01:24. > :01:30.about what happened in 2008 and what it says about our capitalist system.
:01:31. > :01:35.You seem to be saying today that we've got it wrong. I blaming the
:01:36. > :01:42.bankers, blaming their irresponsible behaviour, we are not understanding
:01:43. > :01:44.what really happened. Well, the problem of bankers who did
:01:45. > :01:53.irresponsible things is part of the story. And the problem of regulators
:01:54. > :01:57.who said far too low capital liquid standards is also part of the
:01:58. > :02:01.problem. I took over in September 2008. I wasn't one of them until
:02:02. > :02:05.after Lever Brothers collapsed. I can be a little free of guilt for
:02:06. > :02:09.that problem. I would have made the same mistakes if I had been dead --
:02:10. > :02:14.Lehman Brothers. If you want to step back and said, why did the crisis of
:02:15. > :02:19.2008 occurred and more importantly, why has recovery from it been so
:02:20. > :02:25.difficult? Concentrate on this fact, in 1950 private debt,
:02:26. > :02:32.companies and households together, as a percentage of GDP across all
:02:33. > :02:39.advanced economies was 50%. By 2007 it was 170%. It grew pretty much
:02:40. > :02:44.every year from 1950 to 2007 at an accelerating pace after about 1990.
:02:45. > :02:49.It is the debt overhang, the huge level of debt, private debt to start
:02:50. > :02:54.with in particular, subsequently shifting to public debt, which I
:02:55. > :02:58.think explains why, seven years after the crisis of 2008 we are
:02:59. > :03:02.still struggling with low growth and low inflation. Underpinning that
:03:03. > :03:10.analysis is an assumption that all debt is a bad thing. Surely one of
:03:11. > :03:14.the things we learned in 2008 is that there is bad debt, debt that is
:03:15. > :03:17.irresponsibly, money that is irresponsibly lent that cannot be
:03:18. > :03:21.repaid, the House of Cards, frankly, but surely there is good debt which
:03:22. > :03:26.drives investment and allows capitalist economies to grow. Why
:03:27. > :03:30.lump all that together? I am not lumping it together. Let me be
:03:31. > :03:35.clear, I am not taking the Islamic point of view which says we should
:03:36. > :03:39.not have debt contracts. What I am saying is you can have too much and
:03:40. > :03:43.too little debt. You are right that there is a good story and economic
:03:44. > :03:46.theory in economic history that says you need debt contracts and Equity
:03:47. > :03:52.contracts in order to fund capital investment. It allows economies to
:03:53. > :03:56.grow! But if you look at the amount of lending done by the banking
:03:57. > :04:02.systems in the advanced economies, only about 15% of it finds that
:04:03. > :04:08.capital investment that we all talk about. The rest funds either
:04:09. > :04:11.consumption or it funds essentially a competition between people for the
:04:12. > :04:17.ownership of assets that already exist, in particular for real estate
:04:18. > :04:20.assets, and that is a hugely important fact, which was largely
:04:21. > :04:25.ignored by policymakers before the crisis. Yes and to an extent it is
:04:26. > :04:33.being ignored today. Your message is controversial. You are saying that
:04:34. > :04:37.today banks are too free to lend and they have to be constrained much
:04:38. > :04:43.more by public policy makers. In the end, they need to lend less money.
:04:44. > :04:47.Isn't that what you are saying? Yes. We need a less high level of
:04:48. > :04:54.leverage. Leverage is debt related to income. Debt related to national
:04:55. > :04:58.income. (CROSSTALK). I am stunned. You are the man who not long ago
:04:59. > :05:01.represented the employers and businesses of Britain including
:05:02. > :05:05.small and medium-sized businesses. How do you think an owner of a
:05:06. > :05:09.business would feel listening to you, Lord Turner, saying that banks
:05:10. > :05:14.could lend less and that small and medium businesses who want to grow
:05:15. > :05:18.should not be able to get access to bank lending. SMEs should access
:05:19. > :05:23.bank lending but that is a small part of what the banking system is
:05:24. > :05:27.doing, not only in the UK, but in other countries of the world. The
:05:28. > :05:32.majority of what they are doing is lending money to residential
:05:33. > :05:37.mortgages or for commercial real estate investment. Such as buy to
:05:38. > :05:40.let. Let's be clear, the rapidly growing area of credit growth in the
:05:41. > :05:47.UK at the moment is buy-to-let investment. You have beef with
:05:48. > :05:53.people borrowing money with banks to buy property. And frankly, for any
:05:54. > :05:58.politician listening to you and your demand that they do more to stop the
:05:59. > :06:01.bank lending so much money to property investors, politicians
:06:02. > :06:06.would say, are you mad? This is a fundamental right in Britain for
:06:07. > :06:12.people to extend themselves and buy a house. If you do that you kiss
:06:13. > :06:16.goodbye to your political career. You are right that we have seen easy
:06:17. > :06:22.credit as being a way to get more owner occupation. Here is the
:06:23. > :06:26.paradox. Beyond a certain point, the easier the credit, the worse it is
:06:27. > :06:30.for owner occupation. UK owner occupation, what percentage of
:06:31. > :06:36.housing stock is owned by people who live in it, the sort of iconic
:06:37. > :06:40.family living in their house? It begins to fall from 1998 onwards.
:06:41. > :06:44.The average age at which a first-time buyer can buy a house
:06:45. > :06:49.begins to go up from that time, which is partly because there is so
:06:50. > :06:52.much easy credit that buy-to-let investors, who already have wealth,
:06:53. > :06:57.are in a better position to borrow the money and buy up the housing
:06:58. > :07:03.stock than owner occupation. I know it is paradoxical and difficult to
:07:04. > :07:07.grasp because it feels counterintuitive, but beyond a level
:07:08. > :07:13.it is bad for owner occupation. What is interesting about this
:07:14. > :07:16.conversation is, I have called you and doyen of the economic
:07:17. > :07:20.establishment, you are well-known in the US, you are widely respected a
:07:21. > :07:24.player in the system and yet you seem to be saying that the way the
:07:25. > :07:30.system is working today, seven years after the meltdown of 2008, is still
:07:31. > :07:34.deeply dysfunctional, and banks are still at the heart of the problem.
:07:35. > :07:40.Oh, I think it is deeply dysfunctional. I think we have a
:07:41. > :07:45.system that produces too much debt. Now, at you're suggesting that a
:07:46. > :07:50.little bit, you know, incompatible with the market economy.
:07:51. > :07:54.(CROSSTALK). If you go back to the 1930s, some of the most free-market
:07:55. > :08:00.economist either have ever been, Henry Symons, founding father of
:08:01. > :08:04.Chicago free market economy is, proposed the abolition of bank
:08:05. > :08:06.because he believes they were what blew up the economy -- economics. I
:08:07. > :08:11.am not doing anything like that but I do think we have a system which,
:08:12. > :08:16.left to itself, will create as I call it too much of the wrong sort
:08:17. > :08:21.of debt, and will eventually put us in the problem we have been stuck
:08:22. > :08:24.for the last several years. Like despite your credentials as a
:08:25. > :08:29.capitalist you want the state, government policymakers to intervene
:08:30. > :08:37.and curtail the ability of banks to operate -- despite your credentials.
:08:38. > :08:44.In the credit market place. Yes. The provision of credit is different to
:08:45. > :08:47.the provision to hotels, all cars or hotels or washing machines -- or. In
:08:48. > :08:51.those sectors of the economy we really don't know a better solution
:08:52. > :08:55.than, leave it to the free market and the consumer will choose. But
:08:56. > :08:59.actually, money and credit is different. It is not a product that
:09:00. > :09:03.we want to consume in and of itself. It is not a product where you have a
:09:04. > :09:10.point of view in the same way that you have a view about which
:09:11. > :09:14.restaurant you want to go to. It is something with a set of complicated
:09:15. > :09:18.and hard to understand macroeconomic implications and we do need to
:09:19. > :09:21.manage that far more tightly and aggressively than we did in the
:09:22. > :09:26.past. It is the fundamental reason why seven years after 2008 the
:09:27. > :09:31.growth rate across the advanced economies have been so poor. So,
:09:32. > :09:35.you're putting forward the notion that has to be much tighter control
:09:36. > :09:39.of banks, in a sense a greater conservatism about lending, and yet
:09:40. > :09:42.the other part of your argument that you've developed in the last couple
:09:43. > :09:47.of months or so it is that you believed the best way to stimulate
:09:48. > :09:50.flagging capitalist economies is to do something which many people
:09:51. > :09:54.watching and listening will regard as the height of irresponsibility,
:09:55. > :09:58.and that is simply to create new money, whether by the printing
:09:59. > :10:02.presses or Alec on it we come at you're saying government should
:10:03. > :10:07.create vast reservoirs of new cash and dump it on the populous -- or at
:10:08. > :10:14.electronic leave. I am proposing what that famous socialist Milton
:10:15. > :10:17.Friedman proposed, because of a clearer statement of the theory
:10:18. > :10:22.which says if you are in a deep deflationary trap, the only certain
:10:23. > :10:26.way to get out of it is for the government to create money and spend
:10:27. > :10:35.it, was Milton Friedman. That should be a pause for thought. That was in
:10:36. > :10:39.1969. He also said it in 1948. Here we sit in 2015. I don't know about
:10:40. > :10:43.you but I have been to Zimbabwe in the recent past and I have seen a
:10:44. > :10:48.government that has printed money ad nauseam and you know what happens? A
:10:49. > :10:54.wheelbarrow to buy a loaf of bread. That is why I argue clearly in my
:10:55. > :10:58.new book that we have to locate the decisions on how much of this money
:10:59. > :11:01.you can spend within an inflation targeting central bank. I would not
:11:02. > :11:07.leave it for the government to decide how much. I would have a
:11:08. > :11:10.central bank which is trusted to pursue an inflation target able to
:11:11. > :11:15.say the better way to stimulate demand now would not be to cut the
:11:16. > :11:18.interest rate into negative territory. Let's be clear what we've
:11:19. > :11:22.done because we don't have this tool. We've cut interest rates in
:11:23. > :11:25.some countries into negative territory in order to try to
:11:26. > :11:31.stimulate the economy. That is very dangerous. It has worked. If we take
:11:32. > :11:36.the US as the ultimate capitalist economy, it has worked. They have
:11:37. > :11:39.used trillions of quantitative easing, with interest rates at
:11:40. > :11:44.pretty much zero for an awful long time, and they have seen the economy
:11:45. > :11:48.grow fairly well over the last couple of years to a point where
:11:49. > :11:51.they can now consider raising rates. And they have got great employment
:11:52. > :11:56.figures. Their economies humming along. Not fantastic. (CROSSTALK).
:11:57. > :12:03.It does not have great employment figures. It has good unemployment
:12:04. > :12:06.figures because of people have left the labour force entirely.
:12:07. > :12:10.Employment as a percentage of the working population is well below
:12:11. > :12:15.where it was before the crisis. What I will entirely except is, if you
:12:16. > :12:18.keep interest rates low enough for long enough, you will eventually get
:12:19. > :12:22.the economy going again. But you will only do it in a way which
:12:23. > :12:25.creates very sick of it in inequality because it works through
:12:26. > :12:30.stimulating the growth of equity prices which is good for the owners
:12:31. > :12:36.of wealth. And ultimately in only really works by rescue me late in
:12:37. > :12:40.the thing that got us into this mess in the first place --
:12:41. > :12:43.re-stimulating. -- re-stimulating. If you try to read stimulate the
:12:44. > :12:49.economy by relying on low interest rates, you are curing a hangover
:12:50. > :12:54.with a stiff drink -- re-stimulating. Not long ago Ben
:12:55. > :12:56.Bernanke was here and he said the most effective way of reviving the
:12:57. > :13:02.economy would not have been quantitive easing but giving $1000
:13:03. > :13:06.$5,000 to every citizen in the US because that way you would really
:13:07. > :13:09.stimulate the real and immediately. He said it was ridiculous and that
:13:10. > :13:13.no one believes it any more. It turns out that you do. Well I
:13:14. > :13:22.believe what Ben Bernanke believed in 2003 because he specifically in
:13:23. > :13:26.relation to Japan, very specifically said that what Japan should do was a
:13:27. > :13:33.tax cut or a public expenditure increase over the financed by a
:13:34. > :13:36.permanent increase in the central bank balance sheet -- overtly.
:13:37. > :13:42.That's why he was called helicopter Ben at the time. He talks about this
:13:43. > :13:46.in his book. He was so shocked by the fact that he was then bombarded
:13:47. > :13:53.as being irresponsible that he shut up about it later. But I think he
:13:54. > :13:57.was right. And I think if we had considered using direct fiscal
:13:58. > :14:03.stimulus funded with permanent money we would have got out of this low
:14:04. > :14:06.inflation faster and with less long-term risk. I think the way that
:14:07. > :14:11.we've done it has actually been harmful for the long-term stability
:14:12. > :14:14.of the global economy. You seem to be suggesting that the generation of
:14:15. > :14:18.central bankers today, I am thinking in this country of Mark Carney, that
:14:19. > :14:23.they are wrong. Mark Carney addressed this notion of, well, that
:14:24. > :14:27.it was people's quantitative easing, because of the Labour Party
:14:28. > :14:31.is pushing that, but it is another way to put cash in the economy, he
:14:32. > :14:37.said it would imperil price stability, it would hit the poor and
:14:38. > :14:38.elderly hardest. You seem out of sync with orthodoxy. (CROSSTALK). I
:14:39. > :14:48.think he is wrong. When you decide to take a position
:14:49. > :14:52.against it, you say things like that. But I think that he would
:14:53. > :14:55.accept if you had a mechanism to make sure you do it in a moderate
:14:56. > :15:00.and appropriate amount there was no way it would produce excessive
:15:01. > :15:04.inflation. There is no theory whatsoever that says that in
:15:05. > :15:07.technical terms it is impossible. It is absolutely technically possible
:15:08. > :15:13.to do a moderate amount of the money finance, as I call it. The whole
:15:14. > :15:16.issue is whether you believe the political risks are too big. Weather
:15:17. > :15:20.once deliberately bitter brew, do you think we are bound to go to
:15:21. > :15:25.excess. Do you think that is the crux of the matter. Yes or no? Do
:15:26. > :15:31.you think you would have done it if you had, as you wanted, got the job
:15:32. > :15:35.of governor of the Bank of England? Would you have pushed this policy?
:15:36. > :15:40.If I had been governor of the Bank of England in 2009 and if it had
:15:41. > :15:44.been agreed by the government that was part of our remit, because
:15:45. > :15:48.central banks can only work within the legal framework defined in
:15:49. > :15:55.advance, I think it might be better us in 2009 to do a moderate
:15:56. > :16:01.additional stimulus finance rather than... What about in 2013, when our
:16:02. > :16:06.economy was still growing slowly? Made in 2013 but I would not do it
:16:07. > :16:09.now. You would have had a massive row with George Osborne, the
:16:10. > :16:12.Chancellor. Let me be clear. If you become the central bank governor,
:16:13. > :16:15.you have to accept the rules of the game as they are defined at the
:16:16. > :16:18.moment. If I had believed at that stage we should have changed that, I
:16:19. > :16:25.would have suggested that privately to George Osborne. Publicly... Maybe
:16:26. > :16:28.figure that out and that is why he did not give you the job. Publicly,
:16:29. > :16:33.I would have stuck to the script. That is what you have to do. I
:16:34. > :16:37.wonder if that in retrospect is why you did not get the job. Because
:16:38. > :16:41.Osborne feared you were too radical. I would have done it privately but I
:16:42. > :16:44.think it is probably the case that the fact that I am willing to take
:16:45. > :16:51.ideas to the logical conclusion makes people believe that I'm not,
:16:52. > :16:54.as it were, sound in that respect. However, I do think there is a major
:16:55. > :16:57.difference here. There is a difference between what you have to
:16:58. > :17:00.do when you have been given a job within the constraints you have at
:17:01. > :17:03.the moment and what you have to say about it. There are a few other
:17:04. > :17:08.things I need to get into. One thing that interests me a great deal, and
:17:09. > :17:11.it is extending from our conversation about how to stimulate
:17:12. > :17:16.growth in a capitalist economy, is your... You are very interested
:17:17. > :17:20.these days is talking about inequality. Alongside economists
:17:21. > :17:24.like Thomas spaghetti and others. Your message seems to be that the
:17:25. > :17:29.amount of debt in the Western economies is directly related to
:17:30. > :17:32.growing inequality. I don't understand why that is. I think
:17:33. > :17:37.there are a number of reasons why we have too much debt but one of them,
:17:38. > :17:42.and it is a reasonable hypothesis put forward by the Reserve Bank
:17:43. > :17:47.governor of India, who wrote a brilliant book five years ago, he
:17:48. > :17:51.says it works in this way: As inequality increases, you get a grip
:17:52. > :17:55.of people that the rich end of the income distribution there have,
:17:56. > :18:01.bluntly, so much money that they are not going to spend it all. In
:18:02. > :18:04.Economist technical terms, they have a high marginal propensity to save
:18:05. > :18:10.and a low marginal propensity to consume. That means you have too
:18:11. > :18:12.much savings relative to investment. Unless that savings is
:18:13. > :18:15.picked up by the financial system and led to middle income and
:18:16. > :18:20.low-income earners, who are trying to make up for the fact that they
:18:21. > :18:24.are not doing very well, that their real wages are not going up the pace
:18:25. > :18:27.they use to expect them to do, or in the US case, the bottom quarter of
:18:28. > :18:32.the population have received no real wage increase in 25 years. The
:18:33. > :18:38.system only balances with a flow of debt, which increases the leveraged
:18:39. > :18:42.ratios, which for a period of time looks fine because the people who
:18:43. > :18:46.are borrowing the money saved the wages are not going out and leave
:18:47. > :18:50.the house prices going up, but when that ceases to occur, they are left
:18:51. > :18:55.with an repayable mortgages as well. And here is the twist. When
:18:56. > :18:59.that occurs, that gives a further increased inequality because the
:19:00. > :19:04.downswing of the cycle, it is the people who have the least equity and
:19:05. > :19:06.their houses are the people who are repossessed, whereas better off
:19:07. > :19:10.people are still in the game, next time around. In a word, you are
:19:11. > :19:14.saying that the way our economies are organised today, not looking
:19:15. > :19:19.back a few years but even today in the US, the UK and other capitalist
:19:20. > :19:24.economies, they are still driven by a system which exacerbates
:19:25. > :19:27.inequality. That is, the inequalities we see are continuing
:19:28. > :19:32.to grow. I think they are continuing to grow and I think that is creating
:19:33. > :19:35.more debt. Look at the Office for Budget Responsibility report in the
:19:36. > :19:39.UK as to how we will grow over the next five years. They say we will
:19:40. > :19:43.only grow over the next five years if the small decrease in our
:19:44. > :19:48.household debt as a percentage of income is entirely reversed so that
:19:49. > :19:52.by 2020 we will have a higher level of debt than we had in 2007. The
:19:53. > :19:57.cake. Let us get away from straightforward economic management.
:19:58. > :20:02.Let us talk about things relevant to any economy going forward. One of
:20:03. > :20:05.them is Paris and the global climate change conference and the commitment
:20:06. > :20:08.to taking really dramatic measures to ensure that the global
:20:09. > :20:15.temperature rise is limited to, they hope, 1.5 degrees. That is going to
:20:16. > :20:18.require fundamental changes. Do you think that, for example, the
:20:19. > :20:23.government in the UK understands that? Are the signs that there are
:20:24. > :20:28.specific policy measures that match that ambition? In the UK, we have
:20:29. > :20:34.the Climate Change Act, which commits us to an 80% reduction below
:20:35. > :20:38.1990 levels by 2050. But that is out to 2050. I'm talking about what we
:20:39. > :20:41.are doing today. Withdrawing subsidies for renewable energy
:20:42. > :20:45.sources, the withdrawal of investment funds from carbon capture
:20:46. > :20:49.and storage. Looking at specific measures which might make one
:20:50. > :20:52.question whether this government is serious about its rhetorical
:20:53. > :20:57.commitments. I think that is a legitimate question. I think there
:20:58. > :21:01.are some things that have been done which are very unfortunate. For
:21:02. > :21:04.instance, I do not understand at all why they have removed our commitment
:21:05. > :21:08.that by next year all residential homes should be built, new homes,
:21:09. > :21:13.should be built on a zero carbon basis and that by 2019 all
:21:14. > :21:17.commercial property. I think that was a completely sensible policy and
:21:18. > :21:22.unfortunate to have been removed. Subsidies for renewables? They
:21:23. > :21:27.subsidies for renewables in relation to solar did need reducing because
:21:28. > :21:30.they were being unexpectedly and unintentionally too generous. And
:21:31. > :21:35.investment in carbon capture? And I think that was unfortunate as well.
:21:36. > :21:38.I think there is a disconnect between some of the UK specific
:21:39. > :21:43.policies. The crucial test. For climate change commission chief in
:21:44. > :21:47.2012. Here is a crucial thing coming up. The climate change committee is
:21:48. > :21:51.about to come up with what is called our fifth climate budget, our fifth
:21:52. > :21:57.carbon budget, for where we have to be in 2028 to 2032. And it is
:21:58. > :21:59.absolutely essential that the government accept the
:22:00. > :22:03.recommendations of the climate change committee on those and that
:22:04. > :22:07.there is no backpedalling. Do you think we have in the UK Chancellor
:22:08. > :22:12.of the Exchequer who, frankly, in his heart does not believe that, in
:22:13. > :22:16.his view, it is worth sacrificing short-term economic performance for
:22:17. > :22:22.these long-term climate reduction targets? I think George Osborne and
:22:23. > :22:26.the rest of the Treasury are somewhat less interested in this
:22:27. > :22:29.green agenda than either the Prime Minister, who I think this heart of
:22:30. > :22:35.hearts just wanted to occur, or the department of imaging and. I
:22:36. > :22:38.think... I would love, as somebody who believes we have to make better
:22:39. > :22:44.and more effective action on climate change, I wish the George Osborne
:22:45. > :22:48.were more of a in his heart. And fundamentally, they don't think that
:22:49. > :22:54.he is. And I come back to it that this is a big public, the problem. I
:22:55. > :22:58.think that it is. We saw an attempt when we had the fourth carbon budget
:22:59. > :23:04.by the Treasury to somewhat weaken our commitment. Overall, we are
:23:05. > :23:07.still on target. What happened in the fourth carbon budget was at the
:23:08. > :23:10.end of the day the government did decide to go ahead with it. But to
:23:11. > :23:12.be blunt, you have correctly identified that within the
:23:13. > :23:16.combination of the departments in the UK government and the ministers
:23:17. > :23:21.in the UK government, it is the Treasury which is probably the one
:23:22. > :23:25.which we have to make sure does not undermine our commitment to
:23:26. > :23:30.achieving strong reduction in our carbon emissions. In a final point,
:23:31. > :23:35.has the market yet factored in how much this is going to cost
:23:36. > :23:40.businesses? Not long ago, you argue that the markets are not yet got how
:23:41. > :23:45.dramatic this is going to be. -- you argued. I think the big issue is for
:23:46. > :23:48.the big fossil fuel companies. This is the very simple fact that if we
:23:49. > :23:54.are serious about limiting temperature increase to two degrees,
:23:55. > :23:58.let alone 1.5 degrees, two thirds of all fossil fuels that we know exist
:23:59. > :24:02.are going to have to be left in the ground. If that is the case, there
:24:03. > :24:06.are some big fossil fuel companies which simply cannot go on assuming
:24:07. > :24:11.that they are going to make money out of fossil fuels forever into the
:24:12. > :24:14.future. And I don't think that it has been recognised with the
:24:15. > :24:18.severity and seriousness that it needs to be recognised. Thank you
:24:19. > :24:21.for joining us on the programme. Thank you.