Global Economic Challenges Network

Today’s world economies face a growing array of challenges that present both opportunities and threats to their societies’ prosperity. These difficulties stem from a range of technological, social, political, demographic, and environmental factors. While some issues are unique to a specific region or country, as the interconnectedness among economies continues to increase, the well-being of one economy has increasingly important implications for others.

To confront these challenges, we will require multiple avenues to facilitate open exchanges and promote potential policy solutions. In this context, Georgetown University has joined with prominent research and policy institutions around the world to convene the Global Economic Challenges (GEC) Network. This network will sponsor a series of international workshops that bring together leading scholars with policymakers to discuss the most important and pressing economic problems of the twenty-first century.

Dr. Francis Vella, the Edmond V. Villani Professor of Economics, coordinates Georgetown’s participation in the network.

GEC Network Members

Georgetown University, Washington, DC

Solvay Brussels School Economics and Management, Brussels

Institute of Fiscal Studies, London

Department of Economics, Sciences Po, Paris

Melbourne Institute: Applied Economic & Social Research, University of Melbourne, Melbourne

Banco de España, DG Economics, Statistics and Research, Madrid

Center for Monetary and Financial Studies (CEMFI), Madrid

Einaudi Institute for Economics and Finance (EIEF), Rome

Foundation for Economic and Industrial Research, Athens

Insper Institute of Education and Research, São Paulo

The major future economic challenges, by Olivier Blanchard and Jean Tirole

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Read the full document - Major Future Economic Challenges

Read Synthesis & introductive chapter - Major Future Economic Challenges

The committee focused on three long-term structural challenges: climate change, economic inequality and demographic change. Their work led to the production of a detailed report on these three challenges.

Climate change: time to act

The work of the IPCC has highlighted the role of human activities in climate change and the importance of acting now to limit the rise in temperatures to less than 2°C compared to the pre-industrial era. With this objective in mind, and following the signing of the Paris Agreement in 2015, France has set itself the objective of being carbon neutral by 2050. By committing today to ambitious policies and setting clear and credible milestones, France and Europe can play a leading role in international climate action. The commission, led by Mar Reguant, Associate Professor of Economics at Northwestern University, Illinois, and Christian Gollier, Professor and Director General of the Toulouse School of Economics (TSE), presented an analytical framework and proposals to accelerate the achievement of these goals.

Economic inequality and insecurity: measures for an inclusive economy

Equal opportunities, social protection, fair and efficient tax and social redistribution... Even if France is in a better position than most other countries, in order to ensure that economic opportunities benefit as many people as possible and are fairly distributed, France must act on several fronts and at different stages of people's economic lives. The commission, led by Stefanie Stantcheva, Professor of Economics at Harvard University, and Dani Rodrik, Professor of Political Economy at the John F. Kennedy School of Government, Harvard University, makes the case and sets out a framework for good policy.

Facing demographic change: ageing, health and immigration

Ageing implies finding a fair and efficient balance between periods of employment and retirement. To achieve this, it is necessary to modernise the pension system, but also to support older people in their activities. This includes strengthening vocational training and the prevention and treatment of chronic diseases. Axel Börsch-Supan, Director of the Max Planck Institute for Social Law and Social Policy, Munich, Claudia Diehl, Professor at the Munk School of the University of Konstanz, and Carol Propper, Professor of Economics at the Imperial College Business School in London, have examined the facts and their perception before drawing up a series of recommendations.

Composition of the Commission on Major Economic Challenges

Rapporteurs :

Olivier Blanchard, Professor Emeritus at the Massachusetts Institute of Technology, Fred Bergsten Senior Fellow, Peterson Institute for International Economics

Jean Tirole, Honorary President of the Jean-Jacques Laffont Foundation/School of Economics of Toulouse and the Institute for Advanced Study in Toulouse

Main authors :

Christian Gollier, Professor and Director General of the Toulouse School of Economics

Mar Reguant, Professor of Economics at Northwestern University, Illinois

Dani Rodrik, Professor of Political Economy at the John F. Kennedy School of Government, Harvard University

Stefanie Stantcheva, Professor of Economics at Harvard University

Axel Börsch-Supan, Director of the Max Planck Institute for Social Law and Policy social, Munich

Claudia Diehl, Professor at the Munk School of the University of Constance

Carol Propper, Professor of Economics at Imperial College Business School, London

Members

Philippe Aghion, Professor at Collège de France, INSEAD and London School of Economics

Richard Blundell, Professor of Political Economy at University College London

Laurence Boone, OECD Chief Economist, Head of the Economics Department

Valentina Bosetti, Professor of Economics at Bocconi University, Milan

Daniel Cohen, Professor of Economics at the École normale supérieure, Vice-President of the Paris School of Economics

Peter Diamond, Professor at the Massachusetts Institute of Technology

Emmanuel Farhi, Professor of Economics at Harvard University

Nicola Fuchs-Schündeln, Professor of Macroeconomics and Development at the Goethe University in Frankfurt

Michael Greenstone, Professor of Economics, Director of the Becker Friedman Institute and the Energy Policy Institute in Chicago

Hilary Hoynes, Professor of Public Policy and Economics at the University of California, Berkeley

Paul Krugman, Professor Emeritus of Economics, Graduate Center, New York University

Thomas Philippon, Professor of Finance at the Stern School of Business, New York University

Jean Pisani-Ferry, Professor at the European University Institute in Florence

Adam Posen, President of the Peterson Institute for International Economics

Nick Stern, Professor of Economics and Government, Chair of the Gantham Research Institute on Climate Change and the Environment and Director of the India Observatory at the London School of Economics

Lawrence Summers, Professor and President Emeritus, Harvard University

Laura Tyson, Professor at the Haas School for Business and Social Impact, University of California, Berkeley

Secretariat and research support :

Economic problem

Economic systems as a type of social system[1] must confront and solve the three fundamental economic problems:[2]

What kinds and quantities of goods shall be produced, "how much and which of alternative goods and services shall be produced?" [2]

How shall goods be produced? ..by whom and with what resources (using what technology)...?" [2]

For whom are the goods or services produced? Who benefits? Samuelson rephrased this question as "how is the total of the national product to be distributed among different individuals and families?"[2]

Economic systems solve these problems in several ways:"... by custom and instinct; by command and centralized control (in planned economies) and in mixed economies[2] that "...uses both market signals and government directives to allocate goods and resources."[3] The latter is variously defined as an economic system blending elements of a market economy with elements of a planned economy, free markets with state interventionism, or private enterprise with public enterprise..."[4]

Samuelson wrote in Economics, a "canonical textbook" of mainstream economic thought[5] that "the price mechanism, working through supply and demand in competitive markets, operates to (simultaneously) answer the three fundamental problems in a mixed private enterprise system..."[2] At competitive equilibrium, the value society places on a good is equivalent to the value of the resources given up to produce it (marginal benefit equals marginal cost). This ensures allocative efficiency-the additional value society places on another unit of the good is equal to what society must give up in resources to produce it.[6]

The solution to these problems is important because of the "fundamental fact of economic institution life" that ...[2]

"The economic problem, "the struggle for subsistence", always has been hitherto primary, most pressing problem of the human race- not only of the human race, but of the whole of the biological kingdom from the beginnings of life in its most primitive forms." -Samuelson, Economics, 11th ed., 1980

Parts of the problem [ edit ]

The economic problem can be divided into three different parts, which are given below.

Problem of allocation of resources [ edit ]

The problem of allocation of resources arises due to the scarcity of resources, and refers to the question of which wants should be satisfied and which should be left unsatisfied. In other words, what to produce and how much to produce. More production of a good implies more resources required for the production of that good, and resources are scarce. These two facts together mean that, if a society decides to increase the production of some good, it has to withdraw some resources from the production of other goods. In other words, more production of a desired commodity can be made possible only by reducing the quantity of resources used in the production of other goods.

The problem of allocation deals with the question of whether to produce capital goods or consumer goods. If the community decides to produce capital goods, resources must be withdrawn from the production of consumer goods. In the long run, however, [investment] in capital goods augments the production of consumer goods. Thus, both capital and consumer goods are important. The problem is determining the optimal production ratio between the two.

Resources are scarce and it is important to use them as efficiently as possible. Thus, it is essential to know if the production and distribution of national product made by an economy is maximally efficient. The production becomes efficient only if the productive resources are utilized in such a way that any reallocation does not produce more of one good without reducing the output of any other good. In other words, efficient distribution means that redistributing goods cannot make anyone better off without making someone else worse off. (See Pareto efficiency.)

The inefficiencies of production and distribution exist in all types of economies. The welfare of the people can be increased if these inefficiencies are ruled out. Some cost must be incurred to remove these inefficiencies. If the cost of removing these inefficiencies of production and distribution is more than the gain, then it is not worthwhile to remove them.َ

The problem of full employment of resources [ edit ]

In view of the scarce resources, the question of whether all available resources are fully utilized is an important one. A community should achieve maximum satisfaction by using the scarce resources in the best possible manner—not wasting resources or using them inefficiently. There are two types of employment of resources:

In capitalist economies, however, available resources are not fully used. In times of depression, many people want to work but can't find employment. It supposes that the scarce resources are not fully utilized in a capitalistic economy

The problem of economic growth [ edit ]

If productive capacity grows, an economy can produce progressively more goods, which raises the standard of living. The increase in productive capacity of an economy is called economic growth. There are various factors affecting economic growth. The problems of economic growth have been discussed by numerous growth models, including the Harrod-Domar model, the neoclassical growth models of Solow and Swan, and the Cambridge growth models of Kaldor and Joan Robinson. This part of the economic problem is studied in the economies of development.

See also [ edit ]

References [ edit ]

^ Gregory, and Stuart, Paul and Robert (February 28, 2013). The Global Economy and its Economic Systems. South-Western College Pub. p. 30. ISBN 978-1285055350 . Economic system – A set of institutions for decision making and for the implementation of decisions concerning production, income, and consumption within a given geographic area. a b c d e f g Samuelson, P. Anthony., Samuelson, W. (1980). Economics. 11th ed. / New York: McGraw-Hill. p. 34 ^ Schiller, Bradley. The Micro Economy Today, McGraw-Hill/Irwin, 2010, p. 15. ^ Schiller, Bradley. The Micro Economy Today, McGraw-Hill/Irwin, 2010, p. 15. "Mixed economy - An economy that uses both market signals and government directives to allocate goods and resources." This follows immediately from a discussion on command economies and market mechanism. ^ Pearce, Kerry A.; Hoover, Kevin D. (1995), "After the Revolution: Paul Samuelson and the Textbook Keynesian Model", History of Political Economy, 27 (Supplement): 183–216, CiteSeerX 10.1.1.320.9098 doi:10.1215/00182702-27-supplement-183 ^ Callan, S.J & Thomas, J.M. (2007). 'Modelling the Market Process: A Review of the Basics', Chapter 2 in Environmental Economics and Management: Theory, Politics and Applications, 4th ed., Thompson Southwestern, Mason, OH, USA