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Former Fed Chairman Alan Greenspan Surveys the State of the World Economy

A Conversation with Alan Greenspan

Speaker: Alan Greenspan, President, Greenspan Associates LLC
Presider: Diana Farrell, Director and Global Leader, McKinsey Center for Government, McKinsey & Company
May 7, 2014

Event Description

Alan Greenspan of Greenspan Associates joins McKinsey's Diana Farrell to discuss current trends in the global economy. Greenspan says that although the economy is showing some encouraging signs, significant sources of uncertainty remain that could jeopardize the ongoing recovery. He also takes a retrospective look at the events that led to the financial crisis of 2008 and assesses the prospects for continued economic gains in China and in the developing world.

Event Highlights

Alan Greenspan on the prospects for continued growth in China:

"In an authoritarian state, the issue of innovation is very difficult—or I should say this basic indigenous innovation. Of course innovation is something nobody thought about before. If they thought about it, it's not innovation. The problem that you have however, is that if you have restraint occurring in the society about what you can think about, what you can talk about, and even though China is changing, I think in a very positive direction, it's doing so very slowly."

Alan Greenspan on the 2008 financial crisis:

"The difficulty that I have with my view, was that that was not supposed to happen. It's the first time it ever happened, and it probably will not happen again for 50 years. But it will happen, and it will happen because where my flaw in my reasoning was that animal spirits so to speak, actually have a systematic capability of acting—people get fearful, or euphoric in a very systematic, demonstrable way."

Alan Greenspan on the trend toward increasing economic inequality:

"We're getting to the point that the depth of the technologies are such that fewer and fewer people can function in it. At the end of World War II, the United States had a work force which was basically, the median was high school graduates. They had the capacity to operate steel mills, assembly plants, the automobile manufacturers. The technology of the time, so that the cutting edge technology could be handled by people back then with essentially a high school education. That has gradually and increasingly changed, and we're finding that we're getting an ever smaller group of people can run the system. And that's creating a very marked rise in the Gini coefficient."

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