What Should the World’s Economic Priorities be in a Post-Pandemic Recovery?

While we aren’t quite past COVID-19 – variants continue to emerge and countries are still working feverishly to immunize their citizens – there is, finally, a light at the end of the tunnel. Questions are being asked around what our new normal may look like in regard to education, public gatherings, and both domestic and international travel, but what about the economy itself?

“There are three main issues and the first is still the environment,” says Krugman. “In the end, that’s the overarching issue. Unless we can deal with climate change, nothing else matters and that’s still very much up in the air.”

Climate change and the environment didn’t exactly take a back seat during the pandemic, but the conversation did shift. There were some positive, albeit short term, benefits that were seen during different phases of lockdown like clearer waters and smog free skylines. This was something Krugman experienced firsthand as a resident of New York.

“We got a vision of a better city,” he says. “It became a city with less traffic, less commuting, more outdoor activity.” While he does hope that some of these changes remain, for example a less automotive-driven city, as the world and the economy return to levels of normalcy, he thinks it will be crucial to refocus efforts on implementing long term policies and incentives to keep us on track with global goals.

The second issue is an overarching one, not quite on the same scale as the environment says Krugman, but close. Inequality. While he admits that he doesn’t think the US is politically ready to conduct a full-bore assault on inequality and the economic policies surrounding it, he does see a lot of opportunities for varying levels of advancement. He also credits the work that is currently being done to address inequality, particularly as it relates to children.

“It's been really gratifying to see the political process and the political winds shifting towards pretty significant aid in the United States for children which is an area where we fall vastly short of other advanced countries,” he says.

Any economy that doesn’t take into account its most vulnerable populations will be stunted in the economic gains it makes, and Krugman certainly wouldn’t be the only economist to stress its importance at this crucial time.

For many countries, COVID-19 forced people and politicians to redefine the now often used term “essential workers.” The pandemic disproportionately affected minority communities in the US, according to the Center for Disease Control, as they made up the largest percentage of those holding essential worker titles, ranging from everything to grocery store employees to delivery drivers and health care workers. Additionally, they faced barriers to proper health care access due to discrimination, and were impacted by educational and income gaps and more constrained housing situations that all led to higher transmission risks.

The third issue that Krugman believes deserves top priority status is at the macroeconomic level. “We need a program to address what looks like persistent weakness in demand,” says Krugman. “I think public investment is the natural answer, but that’s something we need to deal with.”

Krugman has been making the case for more public investment for years, but many of his pre-pandemic worries have only further intensified during this past year. Weakened demand eventually leads to weakened supply, according to Krugman, which then translates to decreased economic growth overall. Increasing public spending, particularly at a time when government borrowing costs are at record lows is, in Krugman’s view, a surefire way to boost the economy.

The pandemic has differed from previous crises in a few key ways and these differences leave Krugman hopeful that the economic recovery process will be easier because of this.

“You could say the last crisis was internally generated,” he says. “The private sector overreached and built up too much debt. You really needed extensive public support to avoid a prolonged slump and we didn’t have enough public support. This time, there were no imbalances. There was no fundamental reason why. We got hit essentially out of nowhere in economic terms with this pandemic. And when the pandemic recedes, we won't have an overhang of problems that will take years and years to resolve. When this is over, people will be ready to go out and eat in restaurants, they’ll be ready to start traveling again. This is not at all the story of what happened in 2008.”

For all these reasons, Krugman is confident that his agenda for economic post-pandemic recovery is more than plausible, it’s entirely possible.

Sources:

Paul Krugman, The Cases for Public Investment, New York Times, 02/27/2016.

CDC, Health Equity Considerations and Racial and Ethnic Minority Groups, 04/19/2021.