Let us presuppose that government needs to do something to support the economy in these times of distress.
OK, so, we do not face a problem of demand, instead one of supply. So, traditional Keynesian demand boosting isn’t it. But, you know, something.
As the economic consequences reverberate of soon-to-be universal self-quarantines, we could lose massive parts of the economy. GDP could drop 10 or 20 percent. This is already Great Depression II, and very likely worse.
After 1929, it took more than three years for the economy to bottom out as the financial collapse slowly spread to the real economy. Unemployment did not hit bottom at 25 percent until 1933.
This collapse is occurring much faster. We could be at 25 percent unemployment by late spring; as people lose jobs they will lose homes, with cascading effects on the financial economy.
Further, we need something that will work now, right now. Not something that will happen in the following years. Therefore we don’t want that infrastructure stuff because shovel ready projects don;t exist.
OK, so, what should we suggest then?
World War II, with its massive public planning and public investment finally did. What we need today is direct federal public-works investment on a WWII scale, but without the war. That means several trillions of dollars a year.
As it happens, we have just the need for that massive public investment—a Green New Deal. This can inject trillions into the economy, modernize archaic public infrastructure, and create many millions of jobs.
Democrats need to get way out front on this—right now, as they draft the third anti-corona stimulus. Happily, Joe Biden (who otherwise leaves much to be desired) is a big fan of public-infrastructure spending.
Yes, well done there Mr. Kuttner, well done. You’ve just ignored the entirety of your own analysis of the problem in order to propose the wrong solution. Very well done in fact.