## fd0324

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---

### Growth and long-term priorities
- Italy has not grown in per capita terms since 2007.
- Reviving long-term growth "drowns any other policy."
- Only supply-, efficiency-, productivity-, and incentive-oriented policy can revive long-term growth.

### Government debt, borrowing limits, and fiscal capacity
- The view of unlimited demand for government debt (e.g., "savings glut" or "safe asset shortage") has proved false.
- The US, UK, and Europe seem to be able to borrow about 100 percent of GDP.
- More debt leads to:
  - higher interest rates,
  - trouble borrowing,
  - inflation as people try to spend the extra debt rather than hold on to it as a good investment.
- Governments must spend money as if they have to raise taxes to pay for it, now or later.
- Projections that debt will serenely grow to 200 percent of GDP under primary deficits that are eternally 5–10 percent of GDP "will simply not happen."
- We have lost fiscal capacity to react to shocks.
- If the $5 trillion pandemic response was more debt than people will hold and caused inflation, the $10 trillion response to the next crisis will face even more trouble.

### Political economy of spending choices
- Critique of large-scale spending priorities:
  - The left is described as wanting to spend trillions of dollars on cost-ineffective climate subsidies (example given: "massively oversize electric cars built in the US, by union labor, with US parts").
  - The right is described as wanting to spend trillions of dollars on protection and industrial subsidies aiming to restore 1950s manufacturing.
- Warning: Industrial policy "will do for chips what the Jones Act (the Merchant Marine Act of 1920) did for shipping."
- Given that "money is no longer free," only spending that "actually works" can be afforded.

### Inflation’s lessons for monetary and financial policy
- Two deep lessons:
  - Central banks do not entirely control inflation; inflation control needs fiscal probity as well.
  - The fiscal blowout was in part a financial bailout: support for Treasury, municipal, and corporate debt; money market funds; airlines; and others.
- The "no more bailouts" promise of the Dodd-Frank financial reform failed.
- The proposed fix: return to "the simple classic vision of equity-financed banking" rather than piling on more regulations.

### Role of economic methodology and skepticism of novelty
- Progress in economics comes from empirically verified, simplifying cause-and-effect statements.
- Criticism of pundits urging trillions in spending or novel heterodox prescriptions without tested evidence.
- Adam Smith’s ideas are noted as still relevant.

### Innovation, social needs, and market failures (Michael Kremer)
- Innovation is a key driver of economic growth and improvements in health, inequality, and social relations.
- Economists can help design institutions to align private incentives with human and environmental needs and help develop and rigorously test social innovations.
- Key examples and facts:
  - More than 5,000 innovations have been patented related to control of the European maize borer, but only five for the maize stalk borer (affecting sub-Saharan Africa).
  - Climate mitigation innovations have large positive externalities; commercial incentives to invest are limited.
  - Methane emissions from livestock make up nearly 15 percent of all anthropogenic greenhouse gas emissions.
  - Innovative feed additives could potentially reduce these emissions by 98 percent.
  - Improved monsoon forecasts could produce benefits exceeding $3 billion for farmers over five years in India alone—perhaps 100 times as much as they would cost.
  - Information services produce spillover benefits since non-subscribing farmers can access subscribers' information.
  - Innovations in government service delivery face a monopsony buyer problem; climate-resilient crop varieties face limited barriers to entry that deter private R&D.

### Policies for innovation and institutional design
- Economic theory and empirical analysis can inform:
  - allocation between basic research and translational work,
  - safety regulations,
  - when to fund centralized efforts versus open calls,
  - ways to identify and nurture future researchers.
- Alternatives to "picking winners" include optimally designed patents, prizes, and advance market commitments.
- Example: a $1.5 billion advance market commitment for the pneumococcal vaccine led three firms to develop effective vaccines that have reached hundreds of millions of children, saving an estimated 700,000 lives.
- Government procurement can spur innovation: cement accounts for about 7 percent of carbon dioxide emissions; governments account for half of US cement use and could factor the social cost of carbon into procurement.

### Economists as active innovators
- Economists have contributed directly to innovations (e.g., kidney transplant matching systems via market design).
- Development economists use experimental methods to develop and test social innovations.
- Findings from Development Innovation Ventures (DIV):
  - 36 percent of awards went to innovations developed by teams including development economists, scaled to reach over 1 million users.
  - 6 percent of awards went to innovations without such involvement.
  - 63 percent of DIV-supported innovations previously tested in randomized controlled trials reached more than 1 million people.
  - 12 percent of those without such trials reached more than 1 million people.
- Example: economists helped develop a psychometric credit-scoring approach that scaled through commercial adoption.

### Distributional effects, politics, and the limits of compensation (Jeffry Frieden)
- Economic policies that increase aggregate welfare (e.g., free trade) create winners and losers.
- The theoretical solution: use gains to compensate those harmed to leave society better-off overall.
- Practical problems with compensation:
  - Political resistance from beneficiaries to be taxed.
  - Timing issues (intergenerational compensation risks unsustainable debt).
  - Uncertainty about who will be helped or harmed.
  - Lack of credibility of government promises across administrations.
  - Nonpecuniary costs that are hard to price (community, culture, family).
- Case studies and facts:
  - The US postwar shift saw manufacturing flee Northeast and Midwest, leaving rusting mills and scarred communities.
  - Decline of coal mining devastated entire areas; one World Bank study found that of 222 Appalachian coal counties, only four had managed to remain "economically viable."
- Political processes weight non-monetary values; intensely held views exert greater political influence than lightly held ones.
- Politics is the mechanism societies use to balance consumer gains against community losses and other intangible values.

### New lessons from behavioral economics — key findings
- Life experiences (so-called “experience effects”) persistently shape beliefs and economic choices across domains such as financial markets, labor markets, and consumption.
- Depression-generation (those who grew up during the Great Depression) stock-market participation:
  - Only 13 percent invested in the stock market at all, less than half the rate of any later generation.
- Four key features of experience effects:
  - The long-lasting effects of experience
  - Greater weight on more recent events
  - Domain-specific experience effects
  - The negligible effect of learned knowledge vis-à-vis experience-based beliefs, however distorted
- Empirical domain specificity examples:
  - Stock market experience affects stock investment but not bond-market investment.
  - East and West German differences: those who lived under communism are much less likely to trust the stock market and invest in stocks even years after reunification.
- Gender and inflation expectations:
  - Women consistently had higher inflation expectations than men; this puzzle is explained by household roles—only in households where the woman was the primary grocery shopper did women have higher inflation expectations than their male partners.
- Policymaker biases and examples:
  - Federal Reserve Board of Governors’ inflation forecasts tend to be biased toward their lifetime experienced inflation and away from expert analysts’ forecasts, reducing forecast accuracy.
  - Henry Walllich, raised during hyperinflation in 1920s Germany, dissented a record-breaking 27 times as a Federal Reserve governor because he believed the Fed should be more concerned with inflation.
- Policy-relevant implications:
  - Swift resolution of crises reduces long-term scarring from adverse experience effects; “The more traumatic the experience during crises, the longer they will haunt people—even years later.”
  - Policies should account for heterogeneous lifetime experiences across country-age-gender cohorts; the same intervention can yield vastly different responses depending on past exposures.
  - Experience-based learning can shape policy support more effectively than informational campaigns alone; pilot interventions that generate positive personal experiences can convert skeptics (example: Affordable Care Act—individuals on government health insurance who had direct, immediate benefits were more likely to support the ACA, with initially skeptical Republicans especially likely to become supporters).

### March of the models — historical and methodological observations
- Historical shift: from word-based political economy (Adam Smith, Quesnay, Ricardo) to mathematical, model-based modern economics.
- Quesnay’s Tableau économique prefigured concepts of circular flow and multiplier effects.
- Ricardo exemplified rigorous simplification: small-world models focus on essentials and trace logical implications from a few assumptions.
- The Edgeworth box and marginalist revolution introduced calculus and formal geometry to represent preferences, efficiency, and the first welfare theorem.
- Trade-offs of modeling:
  - Models enable clarity and tractability but risk excising institutional history, power, and social complexity (the “Ricardian vice” critique).
  - Calls for balance: use models both as intellectually fascinating objects and as instruments to probe the “unwieldy chaos of economic reality.”
- Recent developments broadening mainstream economics:
  - Behavioral economics has introduced psychological realism.
  - Continued appetite for long-form historical and institutional analysis (example noted: Thomas Piketty’s 700-page Capital in the Twenty-First Century).

### Paying Africa’s climate bill — diagnostic findings and financing needs
- Climate finance burden on African countries is disproportionately large relative to economy size:
  - China needs to raise its annual climate mitigation spending by 2 percent of GDP through 2030.
  - Cameroon needs to increase spending by 9 percent of GDP.
  - The five countries of the West African Sahel—Burkina Faso, Chad, Mali, Mauritania, and Niger—need to increase spending by about 8 percent of GDP on average.
- Africa’s required climate funding compounds preexisting development and COVID-recovery financing needs.
- Limits of increased public borrowing:
  - Poor countries face higher borrowing costs or burdensome conditionality.
  - Example sovereign debt levels:
    - South Africa’s debt was nearly 70 percent of GDP in 2021.
    - Nigeria’s debt was about 40 percent of GDP in 2021.
- Global and regional financing gaps:
  - The global need for investment to address the worst of climate change exceeds $1.3 trillion a year for the next decade.
  - The African Development Bank estimates that Africa needs to spend $3 trillion by [text truncated in source].

### For context: all sub-Saharan Africa and global lending capacity
- All sub-Saharan Africa combined had a GDP of $2 trillion in 2022.
- Global financial institutions lack the lending capacity to address climate change at the speed and scale needed:
  - IMF lending capacity: $1 trillion.
  - World Bank lending portfolio: $400 billion.
- Estimated annual need for climate adaptation referenced: $1.3 trillion a year.

### Financing gap and institutional capacity
- Public debt may not be the most effective financing mechanism for many promising climate interventions.
- Many principal technologies for climate mitigation or adaptation (examples given: solar- or wind-powered irrigation for farmland; retrofitting residences and industrial sites) do not fit the mold of typical debt-funded public projects.
- Much necessary climate funding aims to prevent severe human and economic losses and to boost adaptive capacity—outcomes that do not necessarily generate bankable, steady cashflow streams.

### Climate-friendly finance and Africa’s opportunity
- Africa has abundant renewable energy potential; Africa's solar potential greatly exceeds its fossil fuel resources.
- Demographic and market potential:
  - Africa poised to have 2 billion consumers of food, energy, and water by 2050.
  - Current continent population reference: 1.2 billion.
- Policy aim: set conditions for a rapid transition to sustainable energy and responsible natural resource consumption while the continent is still a continent of 1.2 billion.

### Engaging private markets — scale and incentives
- Private sector capacity is large relative to climate financing needs:
  - Top 500 global corporations earned more than $2.9 trillion in profits in the fiscal year ended March 2023, on revenues of about $41 trillion.
  - For the United States, gross private domestic investment was about $5 trillion in the third quarter of 2023.
  - If U.S. private sector uniformly converged on climate action, it could, in principle, fund a global renewable energy transition 15 times over.
- Public incentives to spur private investment are appealing, especially for low-income countries with little fiscal space.
- Current public incentive programs are typically designed for country-specific climate goals, creating a mismatch because climate action should be optimized at a global scale.
- Examples of policy approaches to nudge corporations:
  - Regulation (example: new-energy vehicle requirements in China; zero-emission vehicle mandates in California).
  - Taxes matched with direct public investments (example: global carbon pricing mechanism).
  - Cap and trade (example: global cap-and-trade mechanism defined to set limits on fossil-fuel-based economic production, matched with tradable points for renewable-energy-based production).

### Policy mismatches and global optimization
- Policy failure example: high-income countries subsidizing in-country solar installations that yield less energy per dollar compared with tropical settings (examples: Germany or the United Kingdom vs. Côte d’Ivoire or Ghana); similar inefficiency for wind farms in California versus comparable investment in Kenya.
- Argument: hooking abundant equatorial renewable energy potential into global value chains through trade could yield climate gains and profits that feed back to investors in high-income countries.

### Energy investment patterns and the win-win case
- Between 2012 and 2021, public and private energy financing from Group of Twenty countries and multilateral development banks to African countries averaged about $35 billion a year.
  - The private sector provided just over 40 percent of the funds.
  - The largest chunk of financing—$83.5 billion—went to gas and liquefied natural gas projects.
  - Spending on other energy sources, including solar, hydro, and wind, lagged sorely behind.
- Corporations currently follow short-term gains (e.g., from fossil fuels); marginal incentives could boost private sector returns on solar and wind in Africa above gains from gas projects.
- Private sector, with appropriate public policy guidance and astute global governance, can channel resources to finance a green transition faster than governments can raise debt for a purely public approach.

### Policy recommendations and strategic directions (climate finance)
- Supplement public debt with other financing arrangements tailored to climate challenges, recognizing that debt is not always suitable for scaling newer technologies or interventions without bankable cashflows.
- Design public incentives to optimize climate action at a global scale rather than only country-specific returns.
- Use regulation, tax mechanisms (including global carbon pricing with robust revenue-sharing commitments), and cap-and-trade systems as tools to redirect corporate investment toward low-income countries with high climate financing needs.
- Create global climate funds that pay marginal incentives to make renewable investments in Africa more attractive than fossil-fuel projects, enabling a potentially large-scale, profit-sustaining, and climate-beneficial flow of private capital.
- Align private-sector profit motives with global ecological sustainability so that corporations pursue global sustainability because their economic sustainability depends on it.

*michael olabisi is an assistant professor at Michigan State University.*

### Containing technology-driven bank runs
- Recent episodes: failures of Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse in the spring of 2023 accelerated by sudden withdrawals and digital technology.
- Nature and mechanics of bank runs:
  - A bank run occurs when many customers simultaneously withdraw their deposits because they are worried about the bank’s financial health.
  - Even if the bank is fundamentally healthy, suspicion of problems can potentially be self-fulfilling if the bank does not have enough liquid funds to meet customer withdrawals.
  - Fast withdrawals can bring down a bank before it can secure funding alternatives.
- Speed drivers from technology:
  - Online and mobile banking services enable customers to transfer money between banks 24/7.
  - Increasing access to cheap instant payment systems reduces the time it takes to transfer money from one bank to another.
  - AI-powered tools can analyze large data flows and potentially help customers automatically and instantly reallocate deposits across banks based on customer-set criteria.
  - Know-your-customer requirements may not prevent AI-powered tools from opening accounts on behalf of a customer once necessary documents and mandates are uploaded.
- Key observational claim: “While the future impact of AI and tech innovations in banking is uncertain, it is possible to imagine that the frequency of bank runs may increase significantly.”

### Tools to mitigate run risk and trade-offs
- Technology as part of the solution:
  - AI tools may be developed to improve liquidity management and monitor withdrawal patterns to lower run risk.
- Traditional mitigation measures and their drawbacks:
  - More equity financing or more liquid assets on banks’ balance sheets can be used quickly to raise funds to repay depositors; authorities may require banks to do so.
  - Authorities may extend deposit insurance and access to central bank funding facilities in case of a crisis.
  - Recovery and resolution regimes can help restore confidence after a bank failure to avoid contagion.
- Trade-offs and adverse side effects:
  - Requiring banks to place more deposits in highly liquid safe assets could reduce lending to the real economy and affect central bank and government balance sheets and asset prices.
  - Expanding deposit insurance could impose high costs on the public purse and create moral hazard.
  - Extending central bank emergency lending could place the central bank at risk of financial loss and lead to risk-taking or market disruptions.
- Policy guidance:
  - The benefits of each tool must be balanced against its adverse side effects; “some risk will always remain.”
  - Given unpredictable technological change, it is important to follow developments closely and consider adjustments to the toolkit: “What ensured the safety of the financial system yesterday may not prove sufficient tomorrow.”

### Central bank digital currency (CBDC) implications
- A CBDC would allow households and firms to convert their deposits at commercial banks into deposits at a CBDC account at the central bank.
- CBDCs might shift dynamics of bank runs from runs between commercial banks to runs from commercial banks to the central bank’s balance sheet.
- If there are no constraints on CBDC accounts, customers of a commercial bank perceived as risky might shift all their money to the central bank, potentially increasing or exacerbating bank runs.
- Some central banks contemplating CBDCs are considering constraints on how much money a household or firm can deposit in a CBDC account.
- If future technology substantially increases the speed of deposit withdrawals, the speed of bank runs may be unaffected by the presence of even unlimited CBDCs.

### Labor market: critique of the traditional model and monopsony
- Shortcoming of the canonical model:
  - The standard (perfect competition) labor-market model treats labor like other commodities, assuming the law of one price and that supply and demand fully determine wages.
  - Empirical evidence often contradicts the model’s implications.
- Empirical findings inconsistent with the model:
  - In hypothetical firm wage cuts, the perfect competition model predicts mass exits; empirical estimates show much smaller quit responses—“perhaps 20 to 30 percent”—and lower still in developing economies.
  - Firm-specific wages reflect employer productivity and profitability, conflicting with the law of one price.
  - It is remarkably difficult to find negative effects of a minimum wage on employment in many studies.
  - Labor market concentration is negatively correlated with wages; mergers of large employers lower wages.
  - Quasi-experimental wage changes lead to only moderate changes in quits and recruits.
- Monopsony as a central explanatory force:
  - These pieces of evidence point toward pervasive monopsony power, where firms set wages for groups of workers and lose those with better outside options while profiting from those without.
- Causes of monopsony and frictions:
  - Job search is costly; many vacancies are communicated informally through social networks.
  - Workers have limited information on outside jobs.
  - Jobs provide nonwage amenities (social experiences, status, identity, commute, scheduling), which makes matching heterogeneous and gives firms scope to reduce wages without losing all employees.
- Employer behavior and wage-setting nuances:
  - Firms do not always optimize wages precisely; evidence of round-number bunching (most common nominal hourly wage being $10.00) suggests imperfect wage-setting.
  - Uniform wage setting across locations by national employers and multinationals persists, independent of local market conditions.
  - When managers focus on profit maximization, wages are lower and turnover higher (Acemoglu, He, and le Maire 2022).
- Policy instruments and limitations:
  - Antitrust actions: recent merger guidelines and investigations consider harm to workers; restrictions on noncompete clauses and no-poaching agreements are being pursued.
  - Minimum wage: a blunt instrument that targets bottom wages but cannot address monopsony at higher-productivity firms; theoretical overall employment effect is indeterminate.
  - Collective and sectoral bargaining: workplace unions and worker representatives can offset employer power by using private information about workplace constraints and nonwage amenities; increased worker representation has, in some European evidence, few observable adverse consequences.
- Governance and democratic considerations:
  - Worker representation imposes workplace governance (childcare, parental leave, remote work, scheduling, promotions, health and safety), which may improve democratic and efficient workplace outcomes relative to laissez-faire employer-dominated alternatives.
  - How worker representation performs depends on the inclusiveness and accountability of union governance.

### Relevance and rethinking of economics teaching (CORE Econ and pedagogy)
- Economics defined as “the study of ‘the ordinary business of everyday life.’”
- CORE Econ aims to broaden undergraduate economics by including climate change, inequality, innovation, and the future of work to increase real-world relevance and attract a more diverse student body.
- Curriculum goals: be COher­ent and RElevant (CORE Econ), reflecting problems faced today and anchored in a new benchmark model that incorporates advances over the past 30 or 40 years.
- Pedagogical shifts emphasized:
  - Integrate behavioral insights and institutions (rules of the game) alongside traditional market/state frameworks; add “civil society” as a third pole to capture altruism, reciprocity, dignity, sustainability, and “in- and out-group” thinking.
  - Teach models featuring instability and multiple equilibria for problems like housing, financial crises, environmental tipping points, and adoption dynamics for technologies such as electric vehicles.
  - Use experimental methods in the lab and field to test hypotheses and deploy richer empirical tools and data.
- CORE’s e-book The Economy 2.0 introduces a labor-market model reflecting recent research on monopsony power.
- Ethics and pedagogy:
  - Identify pressing problems economists should address: “inequality” (most common response) and “climate and sustainability” (second).
  - Recommendation: equip students with analytical tools to connect positive analysis to normative criteria rather than restricting normative inquiry to Pareto improvements.
  - Use John Rawls’ veil of ignorance as a pedagogical device.
- Pandemic and climate as tests of economic models:
  - The pandemic highlighted shortcomings of models limited to market transactions.
  - On climate: neither state-only nor market-only solutions alone are likely sufficient; changing preferences toward greener initiatives can complement both approaches.

### Betsey Stevenson — policy experience and findings
- Served as chief economist of Obama’s Labor Department and on the Council of Economic Advisers.
- Policy impact noted:
  - Work on paid family and sick leave resulted in an executive order applying to federal contractors (an executive order that Trump did not reverse).
  - Claimed effects of paid sick leave: workers earn leave over time; it increases employers’ costs only 2 percent; productivity rises because people aren’t working while ill or spreading disease in the workplace.
- Research and outreach:
  - Coauthor with Justin Wolfers of the textbook Principles of Economics (first edition 2020, second edition 2023; working on a third edition).
  - Produced more than 50 podcasts, “Think Like an Economist,” in 2020–21.
- Personal details cited (verbatim):
  - Completed PhD at Harvard in 2001.
  - Family: life partner Justin Wolfers; two children, Matilda (14 years old) and Oliver (11 years old).

### Slow-burn climate effects (R. Jisung Park review)
- World Meteorological Organization projection: “temperatures are likely to increase to more than 1.5°C above preindustrial levels within the coming five years.”
- With moderate strengthening of mitigation policy, temperatures are expected to increase by “more than 3°C by 2100.”
- Documented channels and effects:
  - Heat can significantly hinder human performance (standardized exams, professional tennis, manufacturing).
  - Increasing temperatures causally raise workplace injury risk, mortality, and crime rates.
  - Climate change can worsen inequality: poorest countries and poorest groups within countries are more exposed and vulnerable.
- Policy implication: substantial adaptation can reduce slow-burning harms; focusing on slow-burning effects can foster “sober resolve, compassion for those most vulnerable, and a sense of active hope.”

*Italicized source attribution line.*

### 2000. Europe and the UK are stagnating even

### 2000. Europe and the UK are stagnating even more.

### Growth and long-term priorities
- Italy has not grown in per capita terms since 2007.
- Reviving long-term growth "drowns any other policy."
- Only supply-, efficiency-, productivity-, and incentive-oriented policy can revive long-term growth.

### Government debt, borrowing limits, and fiscal capacity
- The view of unlimited demand for government debt (e.g., "savings glut" or "safe asset shortage") has proved false.
- The US, UK, and Europe seem to be able to borrow about 100 percent of GDP.
- More debt leads to:
  - higher interest rates,
  - trouble borrowing,
  - inflation as people try to spend the extra debt rather than hold on to it as a good investment.
- Governments must spend money as if they have to raise taxes to pay for it, now or later.
- Projections that debt will serenely grow to 200 percent of GDP under primary deficits that are eternally 5–10 percent of GDP "will simply not happen."
- We have lost fiscal capacity to react to shocks.
- If the $5 trillion pandemic response was more debt than people will hold and caused inflation, the $10 trillion response to the next crisis will face even more trouble.

### Political economy of spending choices
- Critique of large-scale spending priorities:
  - The left is described as wanting to spend trillions of dollars on cost-ineffective climate subsidies (example given: "massively oversize electric cars built in the US, by union labor, with US parts").
  - The right is described as wanting to spend trillions of dollars on protection and industrial subsidies aiming to restore 1950s manufacturing.
- Warning: Industrial policy "will do for chips what the Jones Act (the Merchant Marine Act of 1920) did for shipping."
- Given that "money is no longer free," only spending that "actually works" can be afforded.

### Inflation’s lessons for monetary and financial policy
- Two deep lessons:
  - Central banks do not entirely control inflation; inflation control needs fiscal probity as well.
  - The fiscal blowout was in part a financial bailout: support for Treasury, municipal, and corporate debt; money market funds; airlines; and others.
- The "no more bailouts" promise of the Dodd-Frank financial reform failed.
- The proposed fix: return to "the simple classic vision of equity-financed banking" rather than piling on more regulations.

### Role of economic methodology and skepticism of novelty
- Progress in economics comes from empirically verified, simplifying cause-and-effect statements.
- Criticism of pundits urging trillions in spending or novel heterodox prescriptions without tested evidence.
- Adam Smith’s ideas are noted as still relevant.

### Innovation, social needs, and market failures (Michael Kremer)
- Innovation is a key driver of economic growth and improvements in health, inequality, and social relations.
- Economists can help design institutions to align private incentives with human and environmental needs and help develop and rigorously test social innovations.

Key examples and facts:
- More than 5,000 innovations have been patented related to control of the European maize borer, but only five for the maize stalk borer (affecting sub-Saharan Africa).
- Climate mitigation innovations have large positive externalities; commercial incentives to invest are limited.
- Methane emissions from livestock make up nearly 15 percent of all anthropogenic greenhouse gas emissions.
- Innovative feed additives could potentially reduce these emissions by 98 percent.
- Improved monsoon forecasts could produce benefits exceeding $3 billion for farmers over five years in India alone—perhaps 100 times as much as they would cost.
- Information services produce spillover benefits since non-subscribing farmers can access subscribers' information.
- Innovations in government service delivery face a monopsony buyer problem; climate-resilient crop varieties face limited barriers to entry that deter private R&D.

### Policies for innovation and institutional design
- Economic theory and empirical analysis can inform:
  - allocation between basic research and translational work,
  - safety regulations,
  - when to fund centralized efforts versus open calls,
  - ways to identify and nurture future researchers.
- Alternatives to "picking winners" include optimally designed patents, prizes, and advance market commitments.
- Example: a $1.5 billion advance market commitment for the pneumococcal vaccine led three firms to develop effective vaccines that have reached hundreds of millions of children, saving an estimated 700,000 lives.
- Government procurement can spur innovation: cement accounts for about 7 percent of carbon dioxide emissions; governments account for half of US cement use and could factor the social cost of carbon into procurement.

### Economists as active innovators
- Economists have contributed directly to innovations (e.g., kidney transplant matching systems via market design).
- Development economists use experimental methods to develop and test social innovations.
- Findings from Development Innovation Ventures (DIV):
  - 36 percent of awards went to innovations developed by teams including development economists, scaled to reach over 1 million users.
  - 6 percent of awards went to innovations without such involvement.
  - 63 percent of DIV-supported innovations previously tested in randomized controlled trials reached more than 1 million people.
  - 12 percent of those without such trials reached more than 1 million people.
- Example: economists helped develop a psychometric credit-scoring approach that scaled through commercial adoption.

### Distributional effects, politics, and the limits of compensation (Jeffry Frieden)
- Economic policies that increase aggregate welfare (e.g., free trade) create winners and losers.
- The theoretical solution: use gains to compensate those harmed to leave society better-off overall.
- Practical problems with compensation:
  - Political resistance from beneficiaries to be taxed.
  - Timing issues (intergenerational compensation risks unsustainable debt).
  - Uncertainty about who will be helped or harmed.
  - Lack of credibility of government promises across administrations.
  - Nonpecuniary costs that are hard to price (community, culture, family).
- Case studies and facts:
  - The US postwar shift saw manufacturing flee Northeast and Midwest, leaving rusting mills and scarred communities.
  - Decline of coal mining devastated entire areas; one World Bank study found that of 222 Appalachian coal counties, only four had managed to remain "economically viable."
- Political processes weight non-monetary values; intensely held views exert greater political influence than lightly held ones.
- Politics is the mechanism societies use to balance consumer gains against community losses and other intangible values.

*Italicized source attribution line.*

### references:

### fd0324 - references

### References cited
- Blonz, Josh, Brigitte Roth Tran, and Erin E. Troland. 2023. “The Canary in the Coal Decline: Appalachian Household Finance and the Transition from Fossil Fuels.” NBER Working Paper 31072, National Bureau of Economic Research, Cambridge, MA.
- Broz, J. Lawrence, Jeffry Frieden, and Stephen Weymouth. 2021. “Populism in Place: The Economic Geography of the Globalization Backlash.” International Organization 75 (2): 464–94.
- Case, Anne, and Angus Deaton. 2020. Deaths of Despair and the Future of Capitalism. Princeton, NJ: Princeton University Press.
- Lobao, Linda, Mark Partridge, Oudom Hean, Paige Kelly, Seung-hun Chung, and Elizabeth Ruppert Bulmer. 2021. “Socioeconomic Transition in the Appalachia Coal Region: Some Factors of Success.” World Bank report, Washington, DC.

### New lessons from behavioral economics — key findings
- Life experiences (so-called “experience effects”) persistently shape beliefs and economic choices across domains such as financial markets, labor markets, and consumption.
- Depression-generation (those who grew up during the Great Depression) stock-market participation:
  - Only 13 percent invested in the stock market at all, less than half the rate of any later generation.
- Four key features of experience effects:
  - The long-lasting effects of experience
  - Greater weight on more recent events
  - Domain-specific experience effects
  - The negligible effect of learned knowledge vis-à-vis experience-based beliefs, however distorted
- Empirical domain specificity examples:
  - Stock market experience affects stock investment but not bond-market investment.
  - East and West German differences: those who lived under communism are much less likely to trust the stock market and invest in stocks even years after reunification.
- Gender and inflation expectations:
  - Women consistently had higher inflation expectations than men; this puzzle is explained by household roles—only in households where the woman was the primary grocery shopper did women have higher inflation expectations than their male partners.
- Policymaker biases and examples:
  - Federal Reserve Board of Governors’ inflation forecasts tend to be biased toward their lifetime experienced inflation and away from expert analysts’ forecasts, reducing forecast accuracy.
  - Henry Walllich, raised during hyperinflation in 1920s Germany, dissented a record-breaking 27 times as a Federal Reserve governor because he believed the Fed should be more concerned with inflation.
- Policy-relevant implications:
  - Swift resolution of crises reduces long-term scarring from adverse experience effects; “The more traumatic the experience during crises, the longer they will haunt people—even years later.”
  - Policies should account for heterogeneous lifetime experiences across country-age-gender cohorts; the same intervention can yield vastly different responses depending on past exposures.
  - Experience-based learning can shape policy support more effectively than informational campaigns alone; pilot interventions that generate positive personal experiences can convert skeptics (example: Affordable Care Act—individuals on government health insurance who had direct, immediate benefits were more likely to support the ACA, with initially skeptical Republicans especially likely to become supporters).

### Behavioral economics — mechanisms emphasized
- Neuroplasticity and life-course rewiring: past personal experiences alter neural pathways, influencing long-term preferences and risk perceptions.
- Recency bias interacts with cumulative lifetime experience: younger agents weight recent events more heavily because recent events constitute a larger share of their lifetime experiences.
- Emotions and non-financial aspects of life (e.g., quality of life under communism) condition trust and attitudes toward market institutions.

### March of the models — historical and methodological observations
- Historical shift: from word-based political economy (Adam Smith, Quesnay, Ricardo) to mathematical, model-based modern economics.
- Quesnay’s Tableau économique prefigured concepts of circular flow and multiplier effects.
- Ricardo exemplified rigorous simplification: small-world models focus on essentials and trace logical implications from a few assumptions.
- The Edgeworth box and marginalist revolution introduced calculus and formal geometry to represent preferences, efficiency, and the first welfare theorem.
- Trade-offs of modeling:
  - Models enable clarity and tractability but risk excising institutional history, power, and social complexity (the “Ricardian vice” critique).
  - Calls for balance: use models both as intellectually fascinating objects and as instruments to probe the “unwieldy chaos of economic reality.”
- Recent developments broadening mainstream economics:
  - Behavioral economics has introduced psychological realism.
  - Continued appetite for long-form historical and institutional analysis (example noted: Thomas Piketty’s 700-page Capital in the Twenty-First Century).

### Paying Africa’s climate bill — diagnostic findings and financing needs
- Climate finance burden on African countries is disproportionately large relative to economy size:
  - Example comparisons from World Bank’s 2023 Country Climate and Development Reports:
    - China needs to raise its annual climate mitigation spending by 2 percent of GDP through 2030.
    - Cameroon needs to increase spending by 9 percent of GDP.
    - The five countries of the West African Sahel—Burkina Faso, Chad, Mali, Mauritania, and Niger—need to increase spending by about 8 percent of GDP on average.
- Africa’s required climate funding compounds preexisting development and COVID-recovery financing needs.
- Limits of increased public borrowing:
  - Poor countries face higher borrowing costs or burdensome conditionality.
  - Example sovereign debt levels:
    - South Africa’s debt was nearly 70 percent of GDP in 2021.
    - Nigeria’s debt was about 40 percent of GDP in 2021.
- Global and regional financing gaps:
  - The global need for investment to address the worst of climate change exceeds $1.3 trillion a year for the next decade.
  - The African Development Bank estimates that Africa needs to spend $3 trillion by [text truncated in source].

*Content derived from fd0324 - references (source PDF).*

### 2030. For context, all sub-Saharan Africa com-

### 2030. For context, all sub-Saharan Africa combined had a GDP of $2 trillion in 2022.

### Financing gap and institutional capacity
- All sub-Saharan Africa combined had a GDP of $2 trillion in 2022.
- Global financial institutions lack the lending capacity to address climate change at the speed and scale needed:
  - IMF lending capacity: $1 trillion.
  - World Bank lending portfolio: $400 billion.
  - Even combined, these do not meet required scale; adding regional development bank capacity would approach needed scale but would crowd out other bank activities.
- Estimated annual need for climate adaptation referenced: $1.3 trillion a year.

### Limits of public debt as a financing mechanism
- Public debt may not be the most effective financing mechanism for many promising climate interventions.
- Many principal technologies for climate mitigation or adaptation (examples given: solar- or wind-powered irrigation for farmland; retrofitting residences and industrial sites) do not fit the mold of typical debt-funded public projects.
- Much necessary climate funding aims to prevent severe human and economic losses and to boost adaptive capacity—outcomes that do not necessarily generate bankable, steady cashflow streams.

### Climate-friendly finance and Africa’s opportunity
- Africa has abundant renewable energy potential; Africa's solar potential greatly exceeds its fossil fuel resources.
- Demographic and market potential:
  - Africa poised to have 2 billion consumers of food, energy, and water by 2050.
  - Current continent population reference: 1.2 billion (context for timing of transition).
- Policy aim: set conditions for a rapid transition to sustainable energy and responsible natural resource consumption while the continent is still a continent of 1.2 billion.

### Engaging private markets — scale and incentives
- Private sector capacity is large relative to climate financing needs:
  - Top 500 global corporations earned more than $2.9 trillion in profits in the fiscal year ended March 2023, on revenues of about $41 trillion.
  - For the United States, gross private domestic investment was about $5 trillion in the third quarter of 2023.
  - If U.S. private sector uniformly converged on climate action, it could, in principle, fund a global renewable energy transition 15 times over.
- Public incentives to spur private investment are appealing, especially for low-income countries with little fiscal space.
- Current public incentive programs are typically designed for country-specific climate goals, creating a mismatch because climate action should be optimized at a global scale.
- Examples of policy approaches to nudge corporations:
  - Regulation (example: new-energy vehicle requirements in China; zero-emission vehicle mandates in California).
  - Taxes matched with direct public investments (example: global carbon pricing mechanism).
  - Cap and trade (example: global cap-and-trade mechanism defined to set limits on fossil-fuel-based economic production, matched with tradable points for renewable-energy-based production).

### Policy mismatches and global optimization
- Policy failure example: high-income countries subsidizing in-country solar installations that yield less energy per dollar compared with tropical settings (examples: Germany or the United Kingdom vs. Côte d’Ivoire or Ghana); similar inefficiency for wind farms in California versus comparable investment in Kenya.
- Argument: hooking abundant equatorial renewable energy potential into global value chains through trade could yield climate gains and profits that feed back to investors in high-income countries.

### Energy investment patterns and the win-win case
- Between 2012 and 2021, public and private energy financing from Group of Twenty countries and multilateral development banks to African countries averaged about $35 billion a year.
  - The private sector provided just over 40 percent of the funds.
  - The largest chunk of financing—$83.5 billion—went to gas and liquefied natural gas projects.
  - Spending on other energy sources, including solar, hydro, and wind, lagged sorely behind.
- Corporations currently follow short-term gains (e.g., from fossil fuels); marginal incentives could boost private sector returns on solar and wind in Africa above gains from gas projects.
- Private sector, with appropriate public policy guidance and astute global governance, can channel resources to finance a green transition faster than governments can raise debt for a purely public approach.

### Policy recommendations and strategic directions
- Supplement public debt with other financing arrangements tailored to climate challenges, recognizing that debt is not always suitable for scaling newer technologies or interventions without bankable cashflows.
- Design public incentives to optimize climate action at a global scale rather than only country-specific returns.
- Use regulation, tax mechanisms (including global carbon pricing with robust revenue-sharing commitments), and cap-and-trade systems as tools to redirect corporate investment toward low-income countries with high climate financing needs.
- Create global climate funds that pay marginal incentives to make renewable investments in Africa more attractive than fossil-fuel projects, enabling a potentially large-scale, profit-sustaining, and climate-beneficial flow of private capital.
- Align private-sector profit motives with global ecological sustainability so that corporations pursue global sustainability because their economic sustainability depends on it.

*michael olabisi is an assistant professor at Michigan State University.*

### references:

### fd0324 - references

### References listed
- Moses, Oyintarelado. 2023. “Who Finances Energy Projects in Africa?” Carnegie Endowment for International Peace paper, Washington, DC.
- Olabisi, Michael, Robert Richardson, and Adesoji Adelaja. 2022. “The Next Global Crisis: Africa’s Renewable Energy Financing Gap.” Climate and Development 15 (6): 501–08.
- Olabisi, Michael, and Howard Stein. 2015. “Sovereign Bond Issues: Do African Countries Pay More to Borrow?” Journal of African Trade 2 (1). https://jat.afreximbank.com/jour-journal/vol2/iss1/4.

### Containing technology-driven bank runs
- Context and recent episodes:
  - Sudden withdrawal of bank deposits accelerated by digital technology contributed to failures of Silicon Valley Bank, Signature Bank, and First Republic Bank in the United States and Credit Suisse in Switzerland in the spring of 2023.
  - Silicon Valley Bank in Santa Clara, California, on March 13, 2023 (image caption).
- Nature and mechanics of bank runs:
  - A bank run occurs when many customers simultaneously withdraw their deposits because they are worried about the bank’s financial health.
  - Even if the bank is fundamentally healthy, suspicion of problems can potentially be self-fulfilling if the bank does not have enough liquid funds to meet customer withdrawals.
  - Fast withdrawals can bring down a bank before it can secure funding alternatives.
- Speed drivers from technology:
  - Online and mobile banking services enable customers to transfer money between banks 24/7.
  - Increasing access to cheap instant payment systems reduces the time it takes to transfer money from one bank to another.
  - AI-powered tools can analyze large data flows (including social media and traditional media) and potentially help customers automatically and instantly reallocate deposits across banks based on customer-set criteria (interest paid, perceived bank safety, diversification).
  - Know-your-customer requirements may not prevent AI-powered tools from opening accounts on behalf of a customer once necessary documents and mandates are uploaded.
- Key observational claim:
  - “While the future impact of AI and tech innovations in banking is uncertain, it is possible to imagine that the frequency of bank runs may increase significantly.”

### Tools to mitigate run risk and trade-offs
- Technology as part of the solution:
  - AI tools may be developed to improve liquidity management and monitor withdrawal patterns to lower run risk.
- Traditional mitigation measures and their drawbacks:
  - More equity financing or more liquid assets on banks’ balance sheets can be used quickly to raise funds to repay depositors; authorities may require banks to do so.
  - Authorities may extend deposit insurance and access to central bank funding facilities in case of a crisis.
  - Recovery and resolution regimes can help restore confidence after a bank failure to avoid contagion.
- Trade-offs and adverse side effects:
  - Requiring banks to place more deposits in highly liquid safe assets (for immediate sale at no cost) could reduce lending to the real economy and affect central bank and government balance sheets and asset prices.
  - Expanding deposit insurance could impose high costs on the public purse and create moral hazard.
  - Extending central bank emergency lending could place the central bank at risk of financial loss and lead to risk-taking or market disruptions.
- Policy guidance:
  - The benefits of each tool must be balanced against its adverse side effects; “some risk will always remain.”
  - Given unpredictable technological change, it is important to follow developments closely and consider adjustments to the toolkit: “What ensured the safety of the financial system yesterday may not prove sufficient tomorrow.”

### Central bank digital currency (CBDC) implications
- Mechanism and risk:
  - A CBDC would allow households and firms to convert their deposits at commercial banks into deposits at a CBDC account at the central bank.
  - A deposit with the central bank would in most cases be considered very safe.
  - CBDCs might shift dynamics of bank runs from runs between commercial banks to runs from commercial banks to the central bank’s balance sheet.
  - If there are no constraints on CBDC accounts, customers of a commercial bank perceived as risky might shift all their money to the central bank, potentially increasing or exacerbating bank runs.
- Policy responses under consideration:
  - Some central banks contemplating CBDCs are considering constraints on how much money a household or firm can deposit in a CBDC account.
  - However, if future technology substantially increases the speed of deposit withdrawals, the speed of bank runs may be unaffected by the presence of even unlimited CBDCs.

### Labor market: critique of the traditional model and monopsony
- Shortcoming of the canonical model:
  - The standard (perfect competition) labor-market model treats labor like other commodities, assuming the law of one price and that supply and demand fully determine wages.
  - Empirical evidence often contradicts the model’s implications.
- Empirical findings inconsistent with the model:
  - In hypothetical firm wage cuts, the perfect competition model predicts mass exits; empirical estimates show much smaller quit responses—“perhaps 20 to 30 percent”—and lower still in developing economies.
  - Firm-specific wages reflect employer productivity and profitability, conflicting with the law of one price.
  - It is remarkably difficult to find negative effects of a minimum wage on employment in many studies.
  - Labor market concentration is negatively correlated with wages; mergers of large employers lower wages.
  - Quasi-experimental wage changes lead to only moderate changes in quits and recruits.
- Monopsony as a central explanatory force:
  - These pieces of evidence point toward pervasive monopsony power, where firms set wages for groups of workers and lose those with better outside options while profiting from those without.
- Causes of monopsony and frictions:
  - Job search is costly; many vacancies are communicated informally through social networks.
  - Workers have limited information on outside jobs.
  - Jobs provide nonwage amenities (social experiences, status, identity, commute, scheduling), which makes matching heterogeneous and gives firms scope to reduce wages without losing all employees.
- Employer behavior and wage-setting nuances:
  - Firms do not always optimize wages precisely; evidence of round-number bunching (most common nominal hourly wage being $10.00) suggests imperfect wage-setting.
  - Uniform wage setting across locations by national employers and multinationals persists, independent of local market conditions.
  - When managers focus on profit maximization, wages are lower and turnover higher (Acemoglu, He, and le Maire 2022).
- Policy instruments and limitations:
  - Antitrust actions: recent merger guidelines and investigations consider harm to workers; restrictions on noncompete clauses and no-poaching agreements are being pursued.
  - Minimum wage: a blunt instrument that targets bottom wages but cannot address monopsony at higher-productivity firms; theoretical overall employment effect is indeterminate.
  - Collective and sectoral bargaining: workplace unions and worker representatives can offset employer power by using private information about workplace constraints and nonwage amenities; increased worker representation has, in some European evidence, few observable adverse consequences.
- Governance and democratic considerations:
  - Worker representation imposes workplace governance (childcare, parental leave, remote work, scheduling, promotions, health and safety), which may improve democratic and efficient workplace outcomes relative to laissez-faire employer-dominated alternatives.
  - How worker representation performs depends on the inclusiveness and accountability of union governance.

*Source: fd0324 - references (IMF Finance & Development, March 2024).*

### references:

### fd0324 - references:

### Key scholarly references (labor, wages, monopsony)
- Acemoglu, Daron, Alex He, and Daniel le Maire. 2022. “Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark.” NBER Working Paper 29874, National Bureau of Economic Research, Cambridge, MA.
- Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard. 2019. “Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior.” American Economic Review 109 (2): 620–63.
- Dube, Arindrajit, Alan Manning, and Suresh Naidu. 2018. “Monopsony and Employer Mis-optimization Explain Why Wages Bunch at Round Numbers.” NBER Working Paper 24991, National Bureau of Economic Research, Cambridge, MA.
- Jäger, Simon, Christopher Roth, Nina Roussille, and Benjamin Schoefer. 2022. “Worker Beliefs about Outside Options.” NBER Working Paper 29623, National Bureau of Economic Research, Cambridge, MA.
- Naidu, Suresh, and Eric A. Posner. 2022. “Labor Monopsony and the Limits of the Law.” Journal of Human Resources 57 (S): S284–S323.

### Special Issue: Toward an Inclusive and Resilient Recovery — Contents overview
- KEYNOTE ADDRESS
  - International Macroeconomics: From the Great Financial Crisis to COVID-19, and Beyond — Pierre-Olivier Gourinchas
- RESEARCH ARTICLES (selected titles and authors)
  - The Fiscal and Welfare Effects of Policy Responses to the COVID-19 School Closures — Nicola Fuchs-Schündeln, Dirk Krueger, André Kurmann, Etienne Lalé, Alexander Ludwig, and Irina Popova
  - Macroeconomic Effects of COVID-19 Across the World Income Distribution — Titan Alon, Minki Kim, David Lagakos, and Mitchell Van Vuren
  - COVID-19 Vaccines: A Shot in the Arm for the Economy — Niels-Jakob H. Hansen and Rui C. Mano
  - Supply Shocks in Supply Chains: Evidence from the Early Lockdown in China — Raphael Lafrogne-Joussier, Julien Martin, and Isabelle Mejean
  - COVID-19 Vaccination and Financial Frictions — Cristina Arellano, Yan Bai, and Gabriel Mihalache
  - A Macroeconomic Model of Healthcare Saturation, Inequality and the Output–Pandemia Trade-off — Enrique G. Mendoza, Eugenio Rojas, Linda L. Tesar, and Jing Zhang
  - The Transmission Mechanisms of International Business Cycles: International Trade and the Foreign Effects of US Monetary Policy — Falk Bräuning and Viacheslav Sheremirov
  - The Expected, Perceived, and Realized Inflation of US Households Before and During the COVID-19 Pandemic — Michael Weber, Yuriy Gorodnichenko, and Olivier Coibion

### Profile: Betsey Stevenson — roles, contributions, and public engagement
- Professional roles and public service
  - Served on the Biden-Harris transition team; testified regularly in Congressional hearings; was an important player in the Obama administration.
  - Engaged by the Obama Foundation to lead a group of outside advisors for recommendations for a speech at the Democracy Forum in Chicago.
- Research contributions (selected)
  - Title IX research: documented that access to high school sports increased women’s enrollment in college, participation in the labor force, and advancement into managerial positions.
  - Money and happiness: with Justin Wolfers, reassessed the Easterlin paradox in a 2008 paper, finding “a clear positive link between average levels of subjective well-being [happiness] and GDP per capita across countries” and no evidence of “a point beyond which wealthier countries have no further increases in subjective well‑being.”
  - Family structure and divorce: research linking expanded access to divorce with a dramatic decline in domestic violence against women, female suicides, and murders of women; reviewed 150 years of divorce and marriage records in a 2007 paper documenting changes in divorce rates.
  - Women’s welfare and labor: pioneered study of women’s happiness and how workforce entry combined with caregiving pressures affected wellbeing.
- Teaching, communication, and outreach
  - Coauthor with Justin Wolfers of the textbook Principles of Economics (first edition 2020, second edition 2023; working on a third edition).
  - Produced a series of more than 50 podcasts, “Think Like an Economist,” in 2020–21 explaining economic concepts in everyday terms.
  - Emphasizes making economics “useful in everyday life” and accessible to a wider, more diverse swath of students.
- Personal and academic background (selected factual details)
  - Completed PhD at Harvard in 2001; doctoral committee included Claudia Goldin and Lawrence F. Katz.
  - Family: life partner Justin Wolfers; two children, Matilda (14 years old) and Oliver (11 years old).
  - Noted influences and anecdotes: grew up in half a dozen states; undergraduate degree in economics and mathematics at Wellesley College; early research habit examples (ordering multiple sets of shoes from Zappos while at the National Bureau of Economic Research).

### Themes and policy-relevant points highlighted in the profile
- Perception and fairness
  - “people feel that the economy is rigged against them,” and policy should “design an economy that feels fairer to people.”
  - Policy levers referenced by Obama’s recommendations: stronger labor laws, an expanded social safety net, fair global taxation of the wealthy and corporations, and more international cooperation around fair trade.
- Communication and accessibility
  - Importance of explaining complex economic ideas in ways that illustrate impacts on people (e.g., equal pay, paid leave, paid sick days and what they mean in people’s pockets).
- Education, gender, and long-term outcomes
  - Nonacademic opportunities (e.g., high school sports) can produce substantial long-term gains in college enrollment, labor force participation, and managerial advancement for women.

*fd0324 - references:*

### foreword, the authors write that “few

### fd0324 - foreword, the authors write that “few

### Relevance and rethinking of economics teaching
- Economics defined as “the study of ‘the ordinary business of everyday life.’”
- CORE Econ aims to broaden undergraduate economics by including climate change, inequality, innovation, and the future of work to increase real-world relevance and attract a more diverse student body.
- Curriculum goals: be COher­ent and RElevant (CORE Econ), reflecting problems faced today and anchored in a new benchmark model that incorporates advances over the past 30 or 40 years.
- Pedagogical shifts emphasized:
  - Integrate behavioral insights and institutions (rules of the game) alongside traditional market/state frameworks; add “civil society” as a third pole to capture altruism, reciprocity, dignity, sustainability, and “in- and out-group” thinking.
  - Teach models featuring instability and multiple equilibria for problems like housing, financial crises, environmental tipping points, and adoption dynamics for technologies such as electric vehicles.
  - Use experimental methods in the lab and field to test hypotheses and deploy richer empirical tools and data.

### Curriculum content and labor-market modeling
- CORE’s e-book The Economy 2.0 introduces a labor-market model reflecting recent research on monopsony power.
- The model is intended to help students understand:
  - Effects of the minimum wage.
  - How the aggregate labor market functions as part of an integrated treatment of unemployment, real wages, and inflation.

### Ethics, normative questions, and pedagogy
- Identify pressing problems economists should address: “inequality” (most common response) and “climate and sustainability” (second).
- Recommendation: equip students with analytical tools to connect positive analysis to normative criteria rather than restricting normative inquiry to Pareto improvements.
- Use John Rawls’ veil of ignorance as a pedagogical device to have students evaluate fairness by asking whether an allocation is fair when they do not know whether they would be a winner or loser.

### Pandemic and climate as tests of economic models
- The pandemic highlighted shortcomings of models limited to market transactions:
  - Face-to-face interaction externalities, firm-level power dynamics between managers and workers, and non-market spillovers became central.
- On climate: neither state-only solutions (bans, subsidies) nor market-only solutions (carbon tax, cap and trade) alone are likely sufficient; changing preferences toward greener initiatives can complement both approaches.

### Betsey Stevenson — policy experience and findings
- Stevenson served as chief economist of Obama’s Labor Department and on the Council of Economic Advisers.
- Policy impact noted:
  - Work on paid family and sick leave resulted in an executive order applying to federal contractors (an executive order that Trump did not reverse).
  - Claimed effects of paid sick leave: workers earn leave over time; it increases employers’ costs only 2 percent; productivity rises because people aren’t working while ill or spreading disease in the workplace.
- Stevenson plans research on creating a fairer economy and is exploring the topic in Bloomberg columns with possible future book plans.

### Slow-burn climate effects (R. Jisung Park review)
- World Meteorological Organization projection cited: temperatures are likely to increase to more than 1.5°C above preindustrial levels within the coming five years.
- Even with moderate strengthening of mitigation policy, temperatures are expected to increase by more than 3°C by 2100.
- Documented channels and effects:
  - Heat can significantly hinder human performance (standardized exams, professional tennis, manufacturing).
  - Increasing temperatures causally raise workplace injury risk, mortality, and crime rates.
  - Climate change can worsen inequality: poorest countries and poorest groups within countries are more exposed and vulnerable.
- Policy implication: substantial adaptation can reduce slow-burning harms; focusing on slow-burning effects can foster “sober resolve, compassion for those most vulnerable, and a sense of active hope.”

### Key statistics and specific factual points (verbatim)
- “the study of ‘the ordinary business of everyday life.’”
- CORE’s timescale of research incorporation: “the past 30 or 40 years”
- Employers’ cost increase from paid sick leave: “only 2 percent”
- World Meteorological Organization projection: “temperatures are likely to increase to more than 1.5°C above preindustrial levels within the coming five years.”
- Temperature projection with moderate mitigation: “more than 3°C by 2100”
- Harriet Tubman: born “in 1822”; credited with leading an estimated “70 people to freedom”; died “in 1913.”
- The Economy 2.0 referenced as CORE’s “latest e-book.”

*Content derived from fd0324 - foreword (F&D, March 2024).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/03/fd0324.pdf_