Editor’s Note

It was the best of times and worst of times. Well, maybe not the best, but an era in which technology, capital, savvy government and goodwill can still be mobilized to tackle the looming problems facing the global economy. I know, I know, I know – we economists tend toward optimism. But do read on.

Jan Mischke, Chris Bradley and Olivia White at the McKinsey Global Institute take a deep dive into the performance of the global economy and discover a striking, unintuitive reality: “If you think most productivity gains come from incremental improvements in efficiency across the broad swath of firms – or even from adopting new technologies like AI – think again,” they write. “There’s strong evidence that a small cadre of standout companies making bold, strategic moves drives national productivity growth.”

China’s massive commitment to education, everybody knows, is paying off big-time as Chinese students race ahead of their counterparts in the rich, developed economies. What you probably don’t know, though, is that China’s spectacular record is partly – arguably mostly – smoke and mirrors. “It is possible that China as a whole is outperforming other economies at its income level with respect to academic achievement,” writes Nick Eberstadt of the American Enterprise Institute. “It is also possible that overall aptitude for students in China is similar to that of students in Turkey, a country at roughly China’s level of socioeconomic development.”

Gernot Wagner, the faculty director of Columbia Business School’s Climate Knowledge Initiative, takes a deep dive into the economics and technology of the largest industrial emitter of greenhouse gases you probably never knew about. “All told,” he writes, “global cement production is responsible for an astounding 5-8 percent of CO2 emissions – a lot less than fossil fuel consumption, but a significant part of what is often viewed as especially hard to abate, and for good reason.”

Now “the giants of the cement industry do have the financial resources and industrial know-how to scale new technologies fast. They even have internal venture capital shops seeking out new ideas.” But getting from here to anything close to zero emissions with cement never looked easy – and it just got a lot harder thanks to the Trump administration’s determination to withdraw support from the effort.

Magne Mogstad, Kjell Salvanes and Gaute Torsvik, professors of economics at the University of Chicago, the Norwegian School of Economics and the University of Oslo, respectively, explain why the puzzle of how Scandinavia managed to become immensely productive while sustaining enviable economic equality is really no puzzle at all.

Nordic countries, they note, all invest heavily in human capital, narrowing productivity differences at the metaphoric starting line of working life. Equally important, institutions for wage-setting bypass markets, effectively “cross-subsidizing” low-productivity wage earners with the fruits generated by higher-productivity workers. The real puzzle, then, is why the highest-productivity workers don’t rebel – and that comes down to cultural cohesion.

America badly needs better roads – and most people, it is safe to say, think the owners of vehicles who use them should underwrite the effort to improve them with taxes at the pump. Trouble is, writes Michael Gorman, professor of operations management at the University of Dayton, this approach is becoming ever less practical. “The wear and tear done by vehicles increases exponentially with weight,” he writes, “and fuel consumption is a very poor proxy for it – and getting worse all the time.”

The best approach, he says, is to start afresh with a tax on trucks based on their weight and mileage. “In a country that demands higher-quality public services and doesn’t want to pay for them, something has to give,” he argues. “Vehicle-mile fees represent a timely opportunity for raising badly needed revenues without distorting markets.”

Justin Kakeu (University of Prince Edward Island), along with Brandon Holmes and Ethan Ziegler (Resources for the Future), tackles a thorny problem in a source of pollution damage whose existence is just beginning to be recognized. “Governments regulate air quality as though each contaminant exists in isolation, when in reality people breathe in a complex cloud of pollutants,” they explain. “And mounting evidence shows that assaying the damage caused by individual pollutants understates public health risk because many chemicals interact synergistically.”

“The technical problem of getting a handle on these interactions is daunting, with literally millions of possible blends to consider.” But it is no longer intractable: the researchers propose the creation of multipollutant cap-and-trade regulation that draws on advances in both environmental science and mathematical systems analysis.

Gene Steuerle, co-founder of the Urban- Brookings Tax Policy Center, is frustrated by the terms of the debate over inequality. “Government policies supported by both Democrats and Republicans have prioritized wealth accumulation for the affluent and consumption for the masses,” he writes, “making it increasingly difficult for many Americans to build wealth and earn market income.”

The disastrous consequence: “American children born before the start of World War II had a 92 percent chance of earning more than their parents, while those born when Ronald Reagan was re-elected had only a 50 percent chance. Indeed, if income growth had continued to be distributed as evenly as it was between the 1940s and 1970s, 70 percent of that decline in mobility would be reversed.”

Want more? Check this excerpt from the new book Shared Prosperity in a Fractured World, Dani Rodrik’s ambitious effort to reenvision globalism that advances prosperity without forcing the middle class to bear the resulting insecurity.

Happy perusing. — Peter Passell