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This edition was written by Sarah Ahmad, Sam Boocker, Georgia Nabors, Comfort Oshagbemi, and Louise Sheiner.
Using data on 57 million children born between 1978 and 1992, Raj Chetty of Harvard and co-authors find that while the white-Black race gap narrowed since the 1990s, the class gap widened. The gap in average adult household income between white children growing up in low-income households and those growing up in high-income households rose from $17,720 to $20,950 between the 1978 and 1992 birth cohorts. In contrast, the income gap between Black and white children who grew up in low-income households shrank by 28%, from $20,810 to $14,910. These shifts are largely due to declining employment rates among low-income white parents compared to both low-income Black parents and high-income white parents. The strong correlation between changes in parental employment levels and children’s outcomes suggests that improving community-level conditions can quickly improve economic mobility for the next generation.
Which climate policies are cost-effective? Using results from empirical analyses of 96 climate policies, Robert W. Hahn of Oxford and co-authors find that subsidies for technologies that replace dirty production of energy, such as wind-production tax credits, generate the largest social benefits per dollar of government spending compared to other climate policies. Accounting for the declining costs of pro-climate technologies over time from firms’ learning-by-doing further increases the effectiveness of subsidies. Other climate subsidies—such as electric vehicle subsidies or appliance rebates—are less effective. Policies that encourage reduced energy consumption produce large social benefits relative to costs when enacted in areas with dirty grids, where electricity comes from high polluting sources. In clean grid areas, the benefits are not as pronounced, meaning the effectiveness of these types of policies will decline over time as more electricity comes from low-carbon sources. In addition, the authors find that fuel taxes and cap-and-trade policies impose low welfare costs relative to the tax dollars they raise, largely because of the significant negative environmental externalities they eliminate.
Quantitative tightening (QT)—the unwinding of central banks’ bond purchases—is ongoing in many large economies. Using data from the U.S. Treasury surrounding two QT episodes in 2017 and 2022, Zhengyang Jiang and Jialu Sun of Northwestern University show that financial intermediaries such as hedge funds, banks, and broker-dealers disproportionately purchased Treasuries relative to long-term investors. Slow adjustment by long-term investors required those intermediaries to absorb the imbalance, they argue, leading to higher risk premiums, excessive bond price declines, and volatility in the short run. As a result, quantitative tightening is not simply a symmetric reversal of quantitative easing, they conclude.
"Put simply, neglecting to address climate change and the loss of nature and biodiversity is not just bad environmental policy. It is bad economic policy," says Treasury Secretary Janet Yellen.
"But being so close to the magnificent Amazon is also a reminder that the transition to a lower-carbon global economy is also the single greatest economic opportunity of the 21st century. The transition will require no less than $3 trillion in new capital from many sources each year between now and 2050. This can be leveraged to support pathways to sustainable and inclusive growth, including for countries that have historically received less investment...
At home, we are implementing the Inflation Reduction Act, the most significant climate legislation in our nation’s history. It is driving hundreds of billions of dollars of investments in the clean energy technologies and industries that will propel us toward our climate goals and fuel our economic growth. We launched the Net-Zero Principles for Financing and Investment to provide guidance to U.S. financial institutions pursuing net-zero commitments. And we and other federal agencies together put forward Principles for Responsible Participation in Voluntary Carbon Markets.
Our ambitions at home are matched by our ambitions abroad. We know that we can only achieve our climate and economic goals—from reducing global emissions to adapting and building resilience, from strengthening markets to bolstering supply chains—if we also lead efforts far beyond our borders."
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
