ECON 100: The Corona Coma

Even though there are numerous terms in this article that we have not introduced yet, I think it is still accessible.  In the comments section, please, ask me questions about parts you do not understand, things that are not crystal clear, and anything you would like me to expand upon.

 

https://www.gc.cuny.edu/CUNY_GC/media/LISCenter/pkrugman/Notes-on-Coronacoma-Economics.pdf

 

JGG

Comments

[Ryan Messick]

I was wondering if you could expand on the idea mentioned in the section:
"We live in a world in which interest rates are consistently below the growth rate, so that government debt melts instead of snowballing." I don't think I fully understand how this works, and it'd be great if you could explain how it causes a melting effect/why this occurs in today's society. Thanks!

[Harper Darden]

I understand that the government has to borrow money for the stimulus bill, but is there really two trillion dollars of wealth in private savings? I would think that other countries do not have the money to lend us right now to reach that goal either. Why are the markets so ready for the government to take their money when the government already has such a massive debt. I understand that the negative interest rates encourage lending money to the government but why do the markets trust they will get it all back? I think that Krugman makes a good point that the goal should be bottom up approach by supporting people who are loosing income instead of focussing on GDP. The GDP will recover with time. However, it will recover faster with more people contributing to the economy with spendable incomes (which the bill seeks to alleviate). I definitely appreciate his optimism that with a few more good policy choices after the stimulus bill we will be able to pull ourselves out of the economic recession, but I think that his oversimplification of the problem leads to an oversimplification of the solution. I think the"unknown length" of the crisis plays a much bigger role than he mentions. What if we are going to need another stimulus bill? Where would the money come from then if not from private savings?

[Cate]

I have always known there were a lot of people working in the N sector, but seeing the number 47 million made my stomach drop. That is 47 million people whose worlds have been completely turned upside down from this virus. 47 million people who don't know how much longer they can withstand these hardships. While yes the economy is super important, it will never recover if we don't start taking care of the people in the workforce. People should not be forced to scramble to find a means of income, but should have a relief program to fall back on. This article specifically made me think about the effect on mental health. When people are jobless, forced to isolate, and living in fear; their mental health is at huge risk. I wonder how detrimental this could be.

[Matt Gallagher]

It is mind bottling to realize that we have lost as many jobs in the past two weeks as we did during the Great Recession. Could you talk a little more about this on Zoom tomorrow? Could you draw graphs showing how jobs are decreasing and the effect it has on our economy and the world in general?

[Christina Cavallo]

In this troubling time it makes sense that we need "disaster relief, not economic stimulus". I thought that his analogy of how we were entering a "medically induced coma which some brain functions are deliberately shut down to give the patient time to heal" was an interesting outlook. I get why investors would want to "pile into government bonds", but I'm not totally sure how government bonds work in their entirety. Could you elaborate on this some? I also understand why the government wants/needs to borrow money, but could you further elaborate on federal borrowing and how the real interest rates are essentially negative?

[Savannah Corey]

First and foremost, I think it is unbelievable how many people this is affecting and that we have not even reached the impending climax of the epidemic. I understand how Krugman classifies the economy in the N sector and the E sector, but I was wondering if there is an in between and how relief will be measured. For example, my dad is in the energy business, which has been classified as an essential service, however he explained that because the transportation sector is among the largest petroleum consumers, specifically airline companies, and their demand for oil has extremely declined, that the price of oil has dropped nearly threefold per barrel. Consequently, companies like his have been forced to either sell their oil at a very low price to refineries or stop extracting it all together. In a sense, I am wondering how the government will address corporations in the E-sector that are not incurring their usual profits. In addition, I was wondering if you could clarify why Krugman asserts that "the government won't have to pay back the money it's borrowing, just return to a sustainable level of deficits (not zero) and let the debt/GDP ratio decline over time. I understand the GDP will recover with the "stimulus" and also the increase in spending when the recession ends, but why won't the government have to pay back the private sector? Thank you!

[Judy Saejung Park]

The Wall Street Journal just came out with an article that reported a record of 6.6 million people who sought unemployment benefits last week. These are people who unexpectedly lost their jobs due to the pandemic. I feel like after this all settles down, there should be some kind of policy to protect those types of people to make sure that they do not lose their jobs during the next crisis. I realize that this is easier said than done, however, the current situation has proven that not only have we been unprepared for this kind of crisis in the workplace, but also in other sectors like the healthcare system in the United States. Rather than working to fix things, I think that once this is all over, we need to start making preemptive plans for the future.

[Joey Dunn]

Are there any potential repercussions we may face in the future for aggressively borrowing now?

[Kit Lombard]

The article says the government does not have to pay back the money it borrows, but I am confused why? The article says the private sector would benefit, but how would they if the government does not pay back what they borrowed? The article makes the solution seem clear with little opportunity cost, but is this actually the case? If the government just needs to borrow money, then why are they not? Is it just political or are there more barriers?

[Patrick Rooney]

I am confused on the relationship between the private sector and the government. I was wondering if you could possibly further explain why the private sector is running a surplus and how the government can use that to help the economy.

[Sam Herndon]

I am confused on the nature of the 2 trillion dollar stimulus package. I saw that adults that qualify get $1200 to stimulate the economy. We made the decision to invest in ourselves and spend money on our education instead of going right out into the workforce. The people that chose to go into the work force out of high school and don't work for essential businesses qualify for the $1200, which makes sense because they are out of work. Many students have gone into debt but won't get the $1200. Is working for a non essential business a must to get the stimulus check?

[Matthew Todd]

I am confused on how interest rates become negative. I understand that this is a positive that will give our federal gov a much-needed source of money, but I don't understand the conditions that lead to this and its full impact on the economy.

[Jack Rawlins]

This may be a bit of a summary or combination of other comments that were made, but I am skeptical/concerned about how overly simple the current problem and its solution seemed to be in the article. The act of donating two trillion dollars from the private sector does not sound simple at all, and certainly must have more repercussion than the author makes it sound. Additionally, Krugman mentions in the beginning that there might be a slight debt hangover, but later on contradicts that and says that "from the point of view of government solvency, [there would be]none at all." I was also confused about the point Krugman made that the government would not have to pay back the money it has borrowed, but instead merely return to a "sustainable level of deficits."