Krugman: The COVID-19 slump has arrived

File photo by William Widmer of The New York Times / The iconic Cafe Du Monde in New Orleans, famously popular with tourists, is open only for take out service on March 17, 2020, as a result of the coronavirus pandemic. Millions are losing their jobs and economies are suffering as once-bustling tourist sites give way to eerie emptiness.

Over a normal two-week period we'd expect around half a million U.S. workers to file claims for unemployment insurance. Over the past two weeks we've seen almost 10 million filings. We're facing an incredible economic catastrophe.

The question is whether we're ready to deal with this catastrophe. Alas, early indications are that we may be handling fast-moving economic disaster as badly as we handled the fast-moving pandemic that's causing it.

The key thing to realize is that we aren't facing a conventional recession, at least so far. For now, most job losses are inevitable, indeed necessary: They're a result of social distancing to limit the spread of the coronavirus. That is, we're going into the economic equivalent of a medically induced coma.

This means that the principal job of economic policy right now isn't to provide stimulus, that is, to sustain employment and GDP. It is, instead, to provide life support - to limit the hardship of Americans who have temporarily lost their incomes.

There is, to be sure, a strong risk that we'll have a conventional recession on top of the induced coma. But for now, the focus should be on helping those in need.

The good news is that the $2 trillion CARES Act (Coronavirus Aid, Relief, and Economic Security Act) Congress passed last week does, on paper, provide a lot of economic life support. The bad news is that it looks as if it could be weeks, maybe even months, before serious amounts of money flow to those who need aid right now.

Journalists keep referring to the CARES Act as a "stimulus package," but mainly it's disaster relief. The best piece of the legislation is a major enhancement of unemployment benefits. Not only will laid-off workers get much more than they normally would, but many workers who weren't previously covered by unemployment insurance, such as freelancers and independent contractors, are supposed to receive full benefits.

The legislation also provides loans to small businesses - loans that will be forgiven, that is, turned into straight subsidies, if businesses use the money to maintain their payrolls.

On unemployment benefits: State unemployment offices, already overwhelmed by the surge in applications, aren't ready to disburse these extra benefits, and may not be ready for quite a while - a disastrous delay.

Small-business loans are also facing a crippling lag in processing, with potential borrowers either unable to complete the forms or being told that they will have to wait three weeks. Furthermore, for some reason the federal government, instead of lending money directly, is channeling small-business lending through private banks - and the banks are complaining that they have yet to receive crucial guidelines and that the administration is setting unworkable requirements.

Even when workers and businesses finally get the promised aid, the CARES Act doesn't provide remotely enough money to state and local governments, which are seeing revenues plunge and expenses soar. This is likely to force big cuts in government services precisely when they're needed most.

So what do we need now? First, we need an all-hands-on-deck effort to resolve the bottlenecks that are holding up unemployment benefits and small-business loans.

Here's the thing: We're talking about the Trump administration, which disdains expertise of every kind.

Second, we need another relief bill to fill the holes in the CARES Act, especially inadequate aid to state and local governments.

But will Republicans be willing to provide that aid? Donald Trump is talking, as he has many times before, about a giant infrastructure bill. But Senate Republicans are notably unenthusiastic. And although going big on infrastructure is a good idea, right now it's less pressing than providing aid to states facing huge budget gaps.

And going back to the bill that Congress already passed: I'm fairly sure that we'll eventually get the kinks worked out. But when you're losing 6 million jobs a week, "eventually" isn't good enough.

The New York Times