Editor’s Note

We’re back with another dandy edition of the Review – yes, I do say so myself. To whet your appetite…

Harold James, a historian at Princeton, offers an optimistic prediction for the postwar Ukrainian economy. “The debate about the cost and who should pay the bill for reconstruction puts the cart before the horse,” he writes. “The overriding issue: how does Ukraine fit into the world economy?”

James argues that the war will open the door to a greenfield renaissance, much as it did in West Germany after World War II. “The war has, in effect, created a nation that has put in place the conditions for a high-tech future.”

Penny Liao, an economist at Resources for the Future, takes the measure of the (not so) slow-building crisis in home insurance created by weather-related catastrophes. The only bright spot, she suggests, is that we’re managing the problem so badly now that modest policy changes could make a big difference.

“Reinforcing private incentives to reduce the risk of damage and rearranging risk to minimize the total societal cost could go a long way toward offsetting the cold fact that enormous amounts of property are already in harm’s way and that climate change is making the places where people want to live ever more vulnerable,” she concludes.

Larry Kotlikoff, an economist at Boston University, offers the startling idea that no amount of tinkering with the banking system will prevent the next banking crisis – and the next. What’s needed, he says, is radical change that does away with traditional banking as we know it. “Limited purpose banking,” he explains, “limits all financial corporations to one purpose: financial intermediation.”

Puzzled? Let Kotlikoff enlighten you – but be prepared to have your mind bent.

Richard Schmalensee, former dean of MIT’s Sloan School of Management, explains why the seemingly straightforward task of building out the nation’s electricity grid to accommodate the expansion of “clean” generation faces daunting obstacles.

“Because of the growing importance of [wind and solar], the sorts of investments in transmission needed to decarbonize the system at reasonable cost are systematically different from most of those made in the recent past,” he writes. “And they face more serious obstacles. Indeed, without fundamental reforms … investments in cost-effective transmission can’t possibly keep up.”

Staci Warden, CEO of the Algorand Foundation, explains how the United States, which pioneered electronic payments systems, has fallen far behind. “Though it may come as a surprise to the average red-blooded, creditcard loving American, the U.S. now lags behind a large number of countries in digital payments. … All have leapfrogged the U.S. in terms of payment systems that can get money into the hands of people, in large quantities or small, as soon as they have earned it. …

“Why the lag? The U.S. payment system works well for most people most of the time, making it more difficult to summon the political will to invest in wholesale improvements. But the U.S. faces a myriad of missed opportunities from its fragmented and entrenched legacy payment environments. Among them: the persistent exclusion of some seven million households from the financial system.”

Peter Kinzler, a former congressional staffer, reopens the debate over no-fault auto insurance reform, an idea with broad public appeal that never quite became the law of the land. “Attempts to mandate no-fault auto insurance nationwide were the victim of unrealistic expectations by its proponents and, more importantly, well-organized opposition by those who stood to lose from its adoption: trial lawyers, some insurance companies and, surprisingly, consumer advocate Ralph Nader.”

He continues, “But one must also wonder whether both political parties don’t feel some pressure for bipartisan action – especially action that costs the government nothing and may save money for Medicaid and Medicare, which are often left as payers of last resort [for auto injuries]. … The original warriors like me are old and gray, but the fight continues.”

Sutirtha Bagchi, an economist at Villanova, tackles a question on everybody’s mind: Is the yawning divide in wealth distribution worldwide affecting the prospects for democracy? Put more bluntly, are the super-rich the enemies of democratic values?

Bagchi’s answer, based on statistical analysis, is more nuanced than you might expect. “How inequality manifests has considerable impact on its potential to damage democratic institutions. Getting rich building a better mousetrap is relatively benign; getting rich by, say, holding the exclusive license to certify meat fit to eat by Muslims in Egypt is not.”

The failure to track the spread of Covid-19 in a timely fashion cost millions of lives and trillions of dollars in lost output. Why, then, do we seem to lack the will to put in place surveillance that could spare us next time around? Ramanan Laxminarayan, a senior research scholar at Princeton, focuses on parochial incentives that favor spending on tangible health care benefits like hospital beds over the uncertain benefits of a surveillance system that may never be needed. “In this sense,” he writes, “a disease surveillance system is really no different than a weather forecasting system. And it seems clear that such a system should be funded at least at the scale of the National Weather Service.” What are you waiting for? Dig in!

— Peter Passell