Wednesday, March 18, 2020

Coping with the economic downturn

Paul Krugman wrote in the New York Times ....

If we think the worst will pass in a few months, it actually makes sense for most workers in the afflicted sectors to stay where they are and not work for a little while. That also means less G.D.P., but again, so be it.

So what’s the role of economic policy here? Two things. First, reduce the pain. Universal sick leave at close to full pay should just be the start; we should also be doing what Denmark is doing, and subsidize firms that keep paying wages. We should also dramatically increase aid to the unemployed.

Second, we should be funneling money into the economy to sustain spending on things that shouldn’t be affected by the virus. Job losses brought on by inadequate overall demand serve no purpose.

None of this would or should prevent at least a few months of economic contraction. But we could do a lot to make this plague less painful economically. I wish I had any confidence that we’ll do more than a small fraction of what we should.

TKL comment - I agree with this view. I have proposed similar measures here. Maybe, I should get the Nobel Prize for Economics also (P Krugman was given this prize in 2008)

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