Paul Krugman says he’s done the math — and the risk Trump and McConnell pose to the economy is ‘terrifying’

Very much a student of New Deal economics, New York Times columnist Paul Krugman has often stressed that helping the unemployed during an economic downturn not only helps those who are out of work — it also benefits the economy on the whole. Krugman made that point many times during the Great Recession, and in a column published this week, the liberal economist warns that the “coronavirus recession of 2020” will become even worse if unemployed Americans don’t receive the help that they need.

“I’m not sure how many people realize just how much deeper the coronavirus recession of 2020 could have been,” Krugman explains. “Obviously it was terrible: employment plunged, and real GDP fell by around 10%. Almost all of that, however, reflected the direct effects of the pandemic, which forced much of the economy into lockdown. What didn’t happen was a major second round of job losses driven by plunging consumer demand. 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.”

But with that federal aid having expired, Krugman adds, the “coronavirus slump” could deepen and go from bad to worse.

“The suffering among cut-off families will be immense, but there will also be broad damage to the economy as a whole,” Krugman warns. “How big will this damage be? I’ve been doing the math, and it’s terrifying.”

The economist continues, “Unlike affluent Americans, the mostly low-wage workers whose benefits have just been terminated can’t blunt the impact by drawing on savings or borrowing against assets. So, their spending will fall by a lot. 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 %…. The expiration of emergency aid could produce a 4% to 5% fall in GDP.

According to Krugman, the coronavirus pandemic decreased GDP by “around 10%” in the U.S. — and without help for the unemployed, it will fall even more.

“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,” Krugman argues. “And unlike the pandemic, this shock will be entirely self-generated, brought on by the fecklessness of President Trump and — let’s give credit where it’s due — Mitch McConnell, the Senate majority leader.”

Krugman concludes his column by warning that as painful as the Great Recession was, the “coronavirus recession” might inflict more long-term damage on the U.S. economy.

“Not having learned anything from the last crisis almost seems to be a requirement for Republican economic advisers,” Krugman laments. “So, at the moment, we seem to be headed for a Greater Recession — a worse slump than 2007-2009, overlaid on the coronavirus slump.”