2021年2月16日 星期二

Pandemic economics: Stay weird

When conventional wisdom really, really doesn't work.
People wait in line at the St. Clements Food Pantry in Manhattan in December of last year.Carlo Allegri/Reuters
Author Headshot

By Paul Krugman

Opinion Columnist

Back when the 2008 financial crisis struck, some of us tried to explain — with, I'm sorry to say, only limited success — that conventional notions of sound policy needed to be set aside. "When depression economics prevails," I wrote, "the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly." It was time to set aside the usual concerns about rolling the printing presses and running big budget deficits.

But it proved very hard to sustain the mind-set needed to deal with the crisis. For a few months after the fall of Lehman Brothers, policymakers seemed open to Keynesian policies to limit the depth of the slump, although even then they were too cautious; but all too quickly they reverted to inappropriate notions of soundness, obsessing about debt despite very low interest rates and mass unemployment.

Many influential people now seem to concede that the obsession with debts and the premature turn to austerity after 2009 were big mistakes. But now we're in a new crisis. And the economics of this crisis are, if anything, even weirder than those of 2009, in ways that even knowledgeable people often don't seem to grasp.

What happened last time was the emergence of a huge "output gap" — an economic shortfall from what we could and should have been producing, caused by inadequate spending. What we needed to close that gap was "stimulus" — measures to boost expenditure, by both the government and the private sector. And policy should have aimed at providing enough stimulus to close the gap.

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Many economists are still working with that framework. And when they compare the proposed spending in President Biden's American Rescue Plan with conventional estimates of the output gap, what they see is overkill: much more spending than the economic situation seems to require.

But that's the wrong diagnosis. True, G.D.P. is lower than we would have expected given trend economic growth, but we aren't experiencing a conventional output gap. Instead, we're facing something more like a natural disaster: The economy is depressed because the coronavirus is temporarily keeping us from doing many of the things we would normally be doing.

In this situation, the purpose of government spending isn't to provide stimulus, it is to provide disaster relief, money that helps those hurt hard by the pandemic make it through until widespread vaccination makes it possible to resume our usual lives.

And this has one perverse implication that even very good economists are, I can report from personal interactions, having a hard time grasping. Namely, it's OK if a lot of pandemic spending is pretty poor stimulus. In fact, it might even be a good thing.

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Here's the story: I've argued that relief spending can be usefully grouped into three categories. There's direct spending to fight the pandemic — shots in arms and related. There's income support for hard-hit groups, notably enhanced unemployment benefits. And finally there's more diffuse support, mainly those $1400 checks and aid to state and local governments.

The problem with the more diffuse support is that it isn't well targeted. Some people badly need those checks, because for whatever reason they aren't getting enough support from other measures, but many don't. Some state and local governments are in desperate straits because of the pandemic, but others have seen revenue hold up pretty well. So a lot of the outlays will go to players who don't especially need the money.

This could be a problem if we were worried about debt, but with interest rates so low, we aren't. It could also, however, be a problem if people and governments getting money they don't badly need spent a lot of it, creating inflationary pressure.

The good news, then, is that a lot of those diffuse outlays won't be spent! Financially secure households will probably save their $1400, or if they spend it much of it will probably go to imported goods, which doesn't create inflation here at home. State and local governments that are in decent financial shape will probably add much of their aid to their rainy day funds rather than boost spending, which again reduces inflation pressure.

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In the jargon of economics, a large part of the relief package is likely to have low multiplier effects. This is normally a bad thing, but right now it's actually a good thing: it means that we can aid those in need without worrying too much about the side effects.

The point is that weird times call for weird economic thinking. This is no time to be conventional.

Quick Hits

Larry Summers and yours truly debate pandemic relief.

The last round of pandemic checks were mostly saved.

State and local budgets in the pandemic.

Why we aren't worried about debt.

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Facing the Music

Remember live music?YouTube

As vaccinations gather pace, I'm looking forward to CONCERTS! This was the last one I attended before life closed in.

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