The September 11th effect more serious than expected ? (Le Monde)

Will the September 11th effect be as devastating for American and European economies as the Gulf war effect ten years ago ? Robert Mundell, the Economics Nobel Prize 1999, is not very optimistic as he is interviewed by Le Monde in Paris during the “world economy under shock” colloquium. The title of the interview is very explicit: "Robert Mundell craint une récession "plus profonde" que prévu" (Robert Mundell fears a “deeper” recession than what was expected).

The economist “thinks that the classic tools used to reducing the recession consequences – monetary, fiscal or budgetary – are not as efficient as in the past any more. The profit prospects of companies will not be achieved”, he says. And according to him, “there is an important risk of a stock exchange fall. The drop of households consumption, the diminution of investments and the fall of productivity, due to increased expenses linked to security, are deeply modifying the American economy”.

In order to avoid a stock exchange crisis, Robert Mundell thinks that we should strongly reduce the company tax from 35% to 20%, which would be much more efficient than monetary and budgetary actions. As well, he is in favour of less rigidity on budgetary deficits. And he concludes with plea in favour of the company: the preoccupation of European governments should be to help companies first, because, without employers, there is no more employees.”