Tom Keene Talks to Columbia's Robert Mundell
You studied at MIT under Charles Kindleberger, the authority on financial panics. What would he make of our situation?
I think he would have seen some similarities between this crisis and the crisis of 1929.
Can we have a euro system if the nations won’t converge?
That’s still to be decided yet. I think the political glue inside Europe to keep it together and keep the euro is the best thing going for it. That adhesion is going to be the dominating factor that will make the countries in the north give the credits needed to the countries in the south. But they’re doing it in a way that they have to force adjustment on those countries. I think the endgame is deeper integration for Europe.
Can we have confidence in a near-term stimulus in the U.S. or do we need to match that with long-term fiscal responsibility?
Well, I think you could have fiscal stimulus back in the days of Keynes, when the government was a small proportion of GDP and there was no insolvency problem. But now the United States, though it’s not in as bad a situation as Europe, is getting that way, and you can’t just issue more bonds to pay for deficits and expect that to solve the employment problem. Back in the 1960s, if you look at Europe, government spending as a share of GDP was about 25 percent. Now it’s double that. That’s beyond equilibrium.