Paul Krugman, a New York Times columnist, has warned that the United States seems to be headed for a greater recession compared with the 2008 financial crisis when the COVID-19 pandemic is still ravaging.
“The suspension of federal benefits would create damage almost as terrifying as the economic effects of the coronavirus,” said Krugman in an opinion Coming Next: The Greater Recession published on Thursday.
In 2008, Krugman was the sole recipient of the Nobel Memorial Prize in Economic Sciences for his work on international trade theory.
“What didn’t happen was a major second round of job losses driven by plunging consumer demand,” said Krugman.
“Millions of workers lost their regular incomes; without federal aid, they would have been forced to slash spending, causing millions more to lose their jobs.”
Krugman said Democrats offered a plan months ago as the special aid has expired, “but Republicans can’t even agree among themselves on a counteroffer.”
Krugman said the low-income group without federal benefits cannot blunt the impact by drawing on savings or borrowing against assets, and therefore their spending will slump.
“Evidence on the initial effects of emergency aid suggests that the end of benefits will push overall consumer spending — the main driver of the economy — down by more than 4 percent,” he noted.
Noting that the coronavirus disease is a shock that came out of the blue, Krugman said “what we’re looking at now may be another shock, a sort of economic second wave, almost as severe in monetary terms as the first.”
“So at the moment we seem to be headed for a Greater Recession — a worse slump than 2007-2009, overlaid on the coronavirus slump,” the expert warned.