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Global Economic Impact Of European Security Boost

SCOTT SIMON, HOST:

Investors reacted to the terrorist attacks in Paris with a pause. Stock markets started flat this week as the financial world tried to assess the effect of this attack and others and what it might do to the economy of France, Europe, even the U.S. Five days later, it looked as though most everyone who watches markets and economies had moved on. David Kelly is chief global strategist at J.P. Morgan Funds. He joins us from the studios of WGBH in Boston. Thanks so much for being with us.

DAVID KELLY: I'm glad to be here.

SIMON: What are you seeing as you look at the economies of the world?

KELLY: Well, I think the overall global economy is doing OK, it's moving ahead slowly. But in particular, when you look at the reaction to the Paris attacks, you know, the economy in pretty cold and unemotional. It's really all about demand. And so, you know, it's a human tragedy, it's a human disaster, but for France, it probably means more government spending, more spending on security. Clearly the way the markets reacted around the world and in France itself, people don't think this is a negative for the French economy.

SIMON: I understand, in fact, that there's - do I refer to it as a principle in economic thinking that big, disruptive events might actually benefit an economy?

KELLY: Yes, I think that's right. I mean, a good example was Hurricane Andy, which hit Florida in 1992. The Florida economy was in deep recession, and this hurricane hit it and everybody thought, well, that's going to be the final blow that puts Florida under. In fact, the Florida economy began to expand very rapidly after that just because of all the rebuilding. And that's what happens - people react, they rebuild. But most of the reaction to a disaster, whether it be a military reaction or a construction reaction, actually tends to add to aggregate demand and make an economy grow faster.

SIMON: Mr. Kelly, we've seen, I think we can fairly say, a series of terrorist attacks over the past couple of weeks. Paris, of course, but other attacks in the Middle East and Africa. What if this is a sustained campaign? What are the economic effects of that?

KELLY: Well, I'm afraid it probably is. But the - I mean, the reality is that global terrorism is here to stay. It's almost impossible to use conventional techniques to stop a small cell of deranged people from attacking a major city. The problem is that the public doesn't know how they're supposed to react to it. You can't just stop living. You can't not go outside of your house. So I think it's part of life. I think we will see these attacks - we will hate them. But I don't think people will fundamentally change the way they live. You may see more surveillance over time, and you may see more domestic security. But ultimately, I think people will continue to travel, to eat out, because you can't protect yourself against every possible attack. And I think the one thing we've seen is that these attacks come in a very wide variety of forms.

SIMON: So - not to put words into your mouth - if it was the hope of terrorists that tourists would stop coming for a length of time to Sharm el-Sheikh or to Paris or to Euro Disney, you don't feel that's going to last?

KELLY: No, well, I mean, Sharm el-Sheikh may be slightly different for other reasons, but Paris? No, I think Paris is always going to be Paris. And I think also among civilized people, there's a determination not be terrorized. That was very evident in the United States after 9/11. I think it's evident in Europe right now. People refuse to stay home and not go out. I think they don't want to be terrorized, they want to get on with their normal lives. And I think civilized people will.

SIMON: David Kelly at J.P. Morgan Funds, thanks very much for being with us.

KELLY: Glad to help. Transcript provided by NPR, Copyright NPR.