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Paul Krugman: US economy in coronavirus ‘coma,’ needs fiscal aid

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  • Major parts of the US economy have been suspended to combat the spread of the novel coronavirus, and a surge in government spending is essential to offset the slowdown, Paul Krugman said on Thursday.
  • “We want massive, debt-financed disaster relief while the economy is in its medically induced coma,” the Nobel Memorial Prize-winning economist and New York Times columnist said in a Twitter thread.
  • Krugman suggested the government could source funding from essential industries that are still active, as workers and companies are saving instead of spending.
  • Visit Business Insider’s homepage for more stories.

Large swaths of the US economy have stalled as the novel coronavirus rages across the nation, and a government-spending boom is needed to prevent further pain, Paul Krugman said on Tuesday.

“This isn’t a conventional recession; it’s more like a medically induced coma, where you temporarily shut down much of the brain’s activity to give it a chance to heal,” the Nobel Memorial Prize-winning economist and New York Times columnist said in a Twitter thread.

“But doing this requires that we provide life support,” he added.

Read more: UBS outlines 3 major investing themes the coronavirus crisis is shaping today — and breaks down how they’ll play out in the years to come

Krugman suggested viewing the US economy in two parts, essential and non-essential. Officials across the country have suspended non-essential industries such as cinemas, gyms, restaurants, and retailers to reduce contact between people and slow the pandemic’s spread.

The closures have resulted in mass layoffs, potentially leaving millions of Americans short of cash to buy essentials such as groceries and medicine while covering their household bills.

“They need aid — and when you consider how much of the economy is being shut down that aid has to be on a massive scale,” Krugman said.

“$2 trillion isn’t nearly enough,” he added, referring to a bill passed last week that approved grants and loans to distressed industries, small businesses, healthcare providers, households, and state and local governments.

That flood of public cash is closer to “disaster relief” than a stimulus, Krugman said, although it could shore up demand for essential products and prevent a second wave of layoffs.

Read more: Macro hedge funds are soaring while quants and stock-pickers tank. Here are the biggest winners and losers.

The government should seek funding for an even bigger spending spree from the essential sector, the economist continued, as its workers are saving more and spending less on non-essential goods and services.

“Add in slumping investment — who’s going to build office parks and houses in a plague? — and you have vast savings looking for someplace to go,” Krugman said.

“We want massive, debt-financed disaster relief while the economy is in its medically induced coma.”

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