I prefer to think in terms of unemployment

Specialist of growth and co-author of the theory of the natural rate of unemployment (Nairu) with Milton Friedman in 1968, the American economist Edmund Phelps, delivers his diagnosis on the crisis in an interview to "echoes". Nobel Prize in economics 2006 and Professor at the University of Columbia in New York, it is still reserved about the virtues of "Paulson" recovery by the Treasury of the "toxic assets".

You have been far more critical on Paulson's plan by estimating that the recapitalisation of banks should be a priority. Do you have heard

The $ 250 billion recapitalisation plan announced October 13 is a necessary and positive step. It is certainly more promising than the idea of isolating "toxic assets". This would have taken too much time. But I'm not sure that the recapitalisation to go far enough. If this new plan is inadequate or not enough challenging in terms of credit, I think that the Government will be forced to engage in a form of temporary nationalization. It could draw on the Swedish experience in the 1990s, which has been strengthening the most solid institutions. Through its agreement with Mitsubishi, can be considered that Morgan Stanley is now out of danger. But there are still concerns about Goldman Sachs, Citigroup and GE Capital. If Morgan Stanley at the time, I think that the psychological climate will improve and can move forward without excessive anxiety or major failure risk. On the other hand, if Morgan Stanley was threatened, would put considerable pressure on Goldman Sachs and Citigroup.

Do you think, as the Economist Nouriel Roubini, that the United States will experience a deep recession in eighteen months

Six quarters of decline in GDP, this seems unlikely. I prefer to think in terms of unemployment. It is almost certain that he will achieve 7 to 7.5 in 2009, against 4.3 a year and a half. When we will have overcome the two major problems of toxic assets in real estate and insolvency of banks, may be to expect a return to normal in mid-2010, with an unemployment rate of 5.5 as in the 1990s. But it is still uncertain.

If you compare the current situation with the 1929 crisis, cannot therefore speak of depression

It cannot be excluded that the unemployment rate is 10 and a long period of high unemployment of three or four years. There is so much industrial activity and investment related to the climate of confidence and optimism. There is nothing mechanical. The return to normal is not insured. It is possible that the US economy through a prolonged malaise. There are certainly elements common with 1929. But the authorities were more reactive this time above that at the time. There is a pragmatic desire to do everything which is necessary to prevent a free depression.

Is it reasonable to consider significant tax cuts as do both candidates to the White House

It would be pure folly to important tax cuts today. We will reach 1,000 billion public deficit this year. For eight years, we have invested considerable sums in new programs, including the free care for seniors under the Medicare system, including the cost exploded. And yet no one wants to increase the lower tax rate. Should well be resolved to deal a day. Same Barack Obama has already recognized that it will have to postpone part of its program.

Is it even desirable to drastically reduce interest rates to avert a recession

The situation is not the same that in 1929 - 1931, where there had been an implosion of the supply of liquidity. Today, this is not the case. The stock of liquidity is sufficient and has even increased significantly in recent weeks. We do not really need a radical decrease of interest rates to restore monetary supply. The first virtue of monetary policy is to follow the market rates. For me, the bulk of the rise in unemployment is not bound to a dysfunction of the monetary policy or the risk of deflation. It is a structural change.

Can we consider that the pattern of the Fed, Ben Bernanke, therefore rather well led monetary policy

It cannot be said that it was in advance or the trailer of the market. He rather well led monetary policy. But he has not really anticipated the credit crisis. And he did not understand that the banks were virtually on the brink of insolvency. He should have more to worry about the negative impact of the bankruptcy of Lehman Brothers.