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Nobel laureate Paul Krugman predicts a swift, sustained economic recovery once vaccines are rolled out

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Nobel laureate Paul Krugman predicts a swift, sustained economic recovery once vaccines are rolled out

  • Paul Krugman expects the US economic recovery from the pandemic to be "much faster and continue much longer than many people expect," he said in a recent New York Times column.
  • The Nobel Prize-winning economist predicts mass vaccination, pent-up demand, greater household savings, technological progress, and the Biden administration's backing to fuel a jobs boom.
  • Americans grew their personal savings by 173% year-on-year between March and November last year, as disposable incomes ballooned by $1 trillion and household spending tumbled by $535 billion, a New York Times analysis shows.
  • "I'm in the camp that expects rapid growth once people feel safe going out and spending money," Krugman said.
  • Visit Business Insider's homepage for more stories.

Nobel laureate Paul Krugman predicts the US economy will enjoy a strong, sustained recovery once the pandemic threat recedes.

Krugman, who won the Nobel Prize for economics in 2008, warned in a recent New York Times column that the next few months "will be hell in terms of politics, epidemiology, and economics." However, he expects the economic rebound to be "much faster and continue much longer than many people expect."

The economics professor and writer anticipates that once vaccines are rolled out nationwide, a combination of pent-up demand, increased household savings, technological advances, and the Biden administration's support will underpin a jobs boom.

Read more: GOLDMAN SACHS: Buy these 37 stocks that could earn you the strongest returns without taking on big risks in 2021 as the recovery and vaccine distribution get underway

Krugman laid out a "clear case for optimism" in his column, arguing the US economy will bounce back much faster than it did from the financial crisis.

There was a "Wile E. Coyote moment" in 2007 when consumers and businesses woke up to sky-high house prices and vast sums of household debt that promptly tanked the economy, he said. However, the private sector doesn't appear significantly overextended this time around, he added.

Indeed, a New York Times analysis found that Americans' personal savings grew by $1.6 trillion or 173% year-on-year between March and November last year, as disposable incomes rose by $1 trillion and household spending fell by $535 billion.

Unemployment insurance benefits, stimulus checks boosted savings, and the Payment Protection Program shoring up incomes, while lockdowns and virus fears hammered spending on flights, cruises, and other services.

Read more: Jeremy Grantham's GMO called the dot-com bubble. His firm now sees 'very odd and speculative things' going on again - and warns large US stocks could see negative returns over the next 7 years.

"I'm in the camp that expects rapid growth once people feel safe going out and spending money," Krugman said. While the pandemic has devastated the livelihoods of millions, the average American has been "saving like crazy," he added.

Krugman doesn't expect the economy to require as much support as it did under President Obama. Moreover, he predicts technological advances in sectors such as biotech and renewable energy, coupled with a president who is "actually interested in doing his job" and not anti-science or obsessed with fossil fuels, to drive growth.

The economist also took a parting shot at Republicans for undermining the legitimacy of the recent presidential election.

The party's members "keep demonstrating that they're worse than you could possibly have imagined, even when you tried to take into account the fact that they're worse than you could possibly have imagined," he said.

Read more: The space industry will grow by over $1 trillion in the next decade, says Bank of America. Here are the 14 stocks best-positioned to benefit from the boom.

Read the original article on Business Insider

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