‘We are not in a conventional recession — a decline in output due to insufficient aggregate demand. What we’re suffering from, instead, is a partial lockdown, the result of both public policy and private choices, that has sharply curtailed high-infection-risk activities, like indoor dining.
‘Pumping up overall spending with fiscal and monetary policy wouldn’t send diners back into restaurants, nor should it. So we aren’t experiencing a normal output gap, something that should be closed by stimulus. It’s actually not clear whether we even want employment and GDP to be higher before vaccination gives us herd immunity.
‘What, then, is the role of policy? As some of us have been arguing all along, it’s not stimulus, it’s disaster relief: an attempt to shore up the living standards of those hurt by the temporary lockdown, as well as providing resources to deal with the pandemic itself. Or as I recently argued, you can think of what we’re doing as being something like fighting a war — special expenditure in the face of an emergency.’
Read here (paulkrugman.substack, Feb 10, 2021)
