Description: This chapter goes back to economic theory and to the question of how to handle “uncertain events,” events whose probability of occurrence cannot be estimated statistically. Some of these are global, in the form of “global public bads.” There are two basic issues: first, the world is fragmented into countries with national governments; second, humans must be protected to the extent possible against “risks,” as well as against “uncertain bad events” (pandemics, global warming, etc.). “Global public bads” need global coordination to better deal with them, but that is difficult in today’s world because of conflicting interests and “free riding.” <break>The traditional government role has ignored the impact of “uncertain events” and has focused on promoting higher living standards, with little attention paid to long-run sustainability and short-run equity. Market prices have not been adjusted to reflect social costs, and monetary and tax policies have not been adjusted to deal with the pandemic, while continuing to ignore global warming. There are great difficulties for governments to act in isolation. The existing global political architecture has created obvious difficulties in dealing with global public goods and bads.

Trump’s America First Energy Plan, which focuses on oil and gas expansion and rolling back regulations, promised to insulate the US economy from the volatile global oil market. In reality, the US shale oil industry, operating within the global oil markets, suffered contractions when oil supplier nations’ price wars caused global oil prices to crash. While the plan promised to bring Americans jobs and prosperity, predicating economic development on oil and gas extraction is a dubious strategy for several reasons. The shale industry, which contributed to the recent boom and expected future production, suffers from a shaky financial foundation. Even prior to COVID-19, traditional investors had begun cutting lending to shale companies and bankruptcies were accelerating. In March 2020, under Congress’s COVID-19 financial rescue package, the Trump administration executed a bailout for the oil and gas industry that shifted financial losses to American taxpayers without securing companies’ agreements to keep workers employed. The bailout replicates the decades-long economic model of the industry, which privatizes profits to the companies, while socializing the costs from the industry, through tax preferences and subsidies for the industry and through various laws that favor extraction over those that suffer from the industry’s adverse impacts.