Obama Economic Adviser States Coronavirus Economic Effect May Be Worse Than 2008 Crisis

Jason, Furman, one of the top economic advisers of the Obama administration, says the coronavirus may impact the global economy much worse than the housing market did in 2008.

He also stated policymakers are not close yet to designing a large enough response to deal with the economic effects. The virus is much faster than the financial crisis did.

Unfortunately, in this case, the virus limits the ability to work because the same government officials who are needed to respond to it are also in danger of being infected.

According to Furman, Lehman Brothers was quite bad, but it was the culmination of several events that happened over 14 months. The coronavirus effects are more sudden.

Several people were privileged enough to not reduce spending in 2008. Apparently, everyone is reducing activities now. The effect may reduce the aggregate demand and subsequent cash flow to trigger a recession.

He reiterated that in two months, if everything goes back to normal and the disease dissipates, then things might be okay. However, if it lasts for longer such as six months, then the effects on the economy are going to compound.

Even if a cure is found later in the year, there will still be several people who are out of a job. Similarly many businesses will have stopped. The damage to the global economy will have been done.

Economists and policymakers are currently increasing calls to the government to induce a stimulus into what will become a coronavirus battered economy. The goal would be to grant relief to those workers within the service industry.

They are less likely to get paid sick leave or any other benefits considering their casual work positions.

Gary John, the previous director on the national economic council, posted on Monday that the administration should direct aid to these workers because they only get paid with the frequency of being able to find work.

When it comes to the stimulus, Furman indicated the low costs of borrowing would make it easier to finance spending. He also believes the responsibility is on legislators to prevent the virus from posing a bigger threat than it already does.

He added the risks are the country ends up with an economic emergency on top of a health crisis. The two may compound each other so that the country sinks into a bad recession.