Effects of Education on Income Inequality: A Cross-National Study

Without further ado, please enjoy our final volume.

Poll:

Last Month’s Poll Results:

Question: If you could pay to guarantee your dream class schedule next semester, how much would you be willing to pay?

$0 (Should remain free) - 43%

$1-$75 - 43%

$75-$200 - 0%

$200+ - 14%

Quiz

Which of the following is a result of expansionary fiscal policy and contractionary monetary policy?

A. Higher Taxes and Lower Interest Rates

B. Lower Taxes and Higher Interest Rates

C. Higher Taxes and Higher Interest Rates

D. Lower Taxes and Lower Interest Rates

Last Month’s Quiz

Answer: C. Interest on Reserve Balances (IORB)

Causation ≠ Correlation

Economics of Coffee Shops: Pillar of an Urbanized Economy

By Andrew Suwongso

Introduction

Whether it’s Dulce at the Village or Starbucks on Fig, coffee shops are a common sight throughout any large city. Not only do these coffee shops provide much needed caffeine during midterm season, they play a surprisingly important role in our modern economy. From independent operators like Dulce to multinational chains like Starbucks, coffee shops are a great example of how businesses perpetuate economic activity in ways that are not obvious. As an important pillar of the urbanized economy, coffee shops illustrate a complex market interaction between consumers, firms and the broader economy.

Industry Overview

Coffee shops have been around for a really long time. Back in 1675, there was a decree in England ordering the “close of coffee-houses altogether” because there was a concern about coffee shops spreading negative behavior (El-Beih, 2020). Fortunately, the ban was short-lived and quickly rescinded. Imagine the economic consequences if coffee shops were forced to close down in today’s world. The global coffee shop industry was estimated to be worth USD 220.41 billion in 2024 (Raskar, 2025). The underlying business model of a coffee shop is simple: to sell thoughtfully prepared coffee while offering consumers convenience in exchange for a premium. There is a whole spectrum of coffee shops ranging from the basic no-frills operations to fancy houses with trained baristas. Currently, Starbucks is the largest coffee chain in the world in terms of locations and revenue (Ita, 2025).

Coffee Shops and Employment

The availability of instant coffee did not eliminate demand for coffee shops, indicating that other aspects of the in-store experience are valued by consumers. Some connoisseurs demand coffee made from freshly ground beans. Other consumers appreciate the ambiance of a coffee shop. All of these experiences combine to create a service that is about more than simply getting a caffeine boost. As a result, coffee consumption becomes a labor intensive industry once it reaches the final stage of production. For reference, Starbucks employs around 381,000 people worldwide (IBISWorld).

Beyond Caffeine

The fundamental purpose of coffee as a beverage is to provide consumers with caffeine that can improve their productivity. In essence, both instant and artisan coffee provide the same utility. Subjectively speaking however, consumers can derive further satisfaction from buying their coffee at a coffee shop. Sociologist Ray Oldenburg came up with the phrase “third place” as a location that can serve as a venue outside of personal spaces (Project for Public Spaces). The role of coffee shops as third places has two main implications with broader economic effects. Firstly, the “coffee-office” phenomenon studies how coffee shops have unique properties that support productivity (Droumeva, 2017). One of these properties is the background noise level of coffee shops that balances music and low volumes. Busy public spaces are distracting, though complete silence can feel awkward. An environment that is conducive towards concentration can help improve productivity and explains why many individuals prefer to work at coffee shops. Improving concentration will inevitably lead to increased productivity and greater economic output.

The second implication of coffee shops is how they provide space for collaboration. According to a paper by Choi, Guzman and Small, Starbucks had a positive impact on local entrepreneurship through “network building” and that the establishment of a Starbucks in an area without coffee shops led to “an increase of 3.5 additional startups per year” (2024). However, not all coffee shops are created equal. Choi, Guzman and Small pointed out that “non-Starbucks coffee shops” had less pronounced “effects on entrepreneurship” (2024). It’s not necessarily the “Starbucks” brand name that promotes collaboration, rather it’s the customer experience designed by Starbucks.

To further understand the indirect economic impact of coffee shops within an urban landscape, Prof. Matthew E. Kahn provided an economist’s perspective on this topic. He highlighted the concept of “selection effects versus treatment effects”. Did the coffee shop itself spur more entrepreneurship or did coffee shop operators “pick areas they think are on the rise”? On the other hand, “in cities where real estate is expensive”, coffee shops can be a workspace for creative people who might not have been able to afford a standalone office. There is a chance of “serendipity” taking place at a coffee shop where business connections can be forged through random encounters.

Going back to the perspective of a coffee shop operator, they have an incentive to maximize profits. There are two Starbucks on Figueroa street and another one in the Village. Why would the management of Starbucks locate multiple outlets in relative proximity to each other? By comparing these three locations, each has its own niche that allows Starbucks to cater more consumers. The Starbucks at the Figueroa intersection is underneath an apartment building and right next to the parking structure. Hence, this location is able to attract foot traffic from residents and commuters who want to conveniently get a cup of coffee. Meanwhile, the Starbucks that is further away has a drive through and located next to the lane heading towards the financial district. Lastly, the Starbucks at USC Village with open spaces and outdoor seating is a great place to hang-out or study. This location strategy relates to “hedonics and differentiated products”. While “Starbucks is Starbucks”, each location differentiates itself without changing the products it sells. In terms of hedonics, consumers are not only buying coffee, they are also paying for the convenience or atmosphere.

During the interview, Prof. Kahn mentioned that ”one of the themes in the economics department is how for-profit businesses cater to our diversity”. The ability of free markets to tailor goods and services means that individual consumers are able to further maximize their consumer surplus. The busy accountant trying to get to work doesn’t have to find parking to buy a latte and strawberry pastry, rather he can pick up his advance order at the drive-through. Besides convenience, there exists a market for unique coffee shops. Independent operators play a key role in launching products that are different from the ordinary. Specialty coffee shops thrive in larger cities because there must be someone somewhere who is willing to try out a sweet potato matcha latte. This ties up nicely with two key attributes of an urban economy: accessibility and business ecosystem. By having a coffee shop near a workplace or university, it saves on commute time and ultimately improves the well-being of the consumer.

Coffee shops have a ripple effect throughout the modern economy. They represent how businesses can serve consumers through unexpected means. Their role as “third places” explains the hedonic pricing of a simple (or complicated) cup of coffee. Coffee shops support productivity and encourage local economic activities. Ultimately, coffee shops are a great example of how ordinary businesses contribute to the broader urban economy.

Special thanks to Prof. Matthew E. Kahn for his insight and perspective.

References:

Choi, J., Guzman, J., Small, M. (2024) “Third Places” Boost Local Economic Activity. National Bureau of Economic Research.

https://www.nber.org/be/20242/third-places-boost-local-economic-activity?page=1&perPage=50

Droumeva, M. (2017). The Coffee-Office: Urban Soundscapes for Creative Productivity. BC Studies, 195, 119–200. https://uosc.primo.exlibrisgroup.com/permalink/01USC_INST/pupspc/cdi_proquest_journals_2046737614

El-Beih, Y. (2020, November 19). How coffee forever changed Britain. BBC. https://www.bbc.com/travel/article/20201119-how-coffee-forever-changed-britain

IBISWorld. (n.d.). Starbucks Corporation - Company Profile. IBISWorld. https://www.ibisworld.com/united-states/company/starbucks-corporation/347821/

Ita, D. (2025, October 30). Starbucks Competitors: Dunkin’, McDonald’s, and More. Investopedia. https://www.investopedia.com/articles/markets/101315/who-are-starbucks-main-competitors.asp

Raskar, A. (2025). Coffee Shop Market Growth Trends and Forecast 2023-2029. Maximize Market Research. https://www.researchgate.net/publication/389601724_Coffee_Shop_Market_Growth_Trends_and_Forecast_2023-2029

Ray Oldenburg. Project for Public Spaces. https://www.pps.org/article/roldenburg

The Problem with a Basket

By: Arjun Sen

Every month, a number quietly announces itself to the world: inflation is up 3.1 percent, or down 0.4 percent. Behind that single number lies one of the most persistent puzzles in economics, the index number problem. But what is an index number?

The index number problem is about compressing complex information about the world, things like stock prices and the cost of goods and services, into a single figure that can be used to compare different entities. You might use such a figure to assess the economic health of one country relative to another, or to track whether a market is growing or contracting. Some of the most recognizable examples are the Dow Jones Industrial Average and the S&P 500, both of which encode enormous amounts of information about the U.S. stock market into something digestible. But one of the trickiest versions of this problem is also one of the most consequential: how do you reduce the shifting, messy reality of what people actually consume into one clean statistic, the Consumer Price Index?

The CPI approaches this by constructing a “basket” of goods and services, covering categories like food, housing, transportation, and healthcare, and then tracking how the total cost of that basket changes over time. In principle, it sounds manageable. In practice, it rests on a significant assumption: that the basket is stable enough over time to serve as a meaningful point of comparison.

The problem is that consumption does not stand still. When beef prices rise, households switch to chicken. When streaming services replace cable television, entire spending categories effectively disappear. Smartphones have quietly absorbed the functions once served by cameras, maps, and music players. The CPI tracks the price of a fixed basket, but the basket itself keeps changing. What we are really trying to measure is not the cost of some frozen bundle of goods, but the evolving pattern of how people actually live and what they actually value.

The Cost of Living Index tries to get closer to that goal by asking a more careful question: what level of income would keep a person’s overall wellbeing, their utility, constant as prices change? This framing recognizes that inflation is not only about prices going up, but also about how people respond and adapt. The deeper challenge is almost philosophical. We are trying to compare economic states that are not straightforwardly comparable. A single summary number may be necessary for policy, but it will always obscure more than it reveals about how consumption actually evolves.

One of the most ambitious attempts to address this problem came from economist Pia Malaney and mathematician Eric Weinstein. Their framework draws on differential geometry, treating the economy as a kind of curved space in which price paths can be evaluated using tools borrowed from gauge theory in physics. Rather than fixing a basket, the Malaney-Weinstein approach tries to construct an inflation measure that is path-independent, one whose value does not depend on the particular route taken between two economic states. It is a serious attempt to give index theory proper mathematical foundations.

The framework has attracted genuine interest, but it remains controversial. Critics note that however elegant the mathematics, putting it into practice would require data and computational capacity that most statistical agencies do not have access to. Others question whether the geometric assumptions actually reflect the way consumers behave, which tends to be irregular and discontinuous in ways that smooth mathematical surfaces are not well suited to capture. The theory remains largely confined to academic discussion, and no major government institution has adopted it for official measurement purposes.

For practical purposes, the most widely respected answer to the index number problem is still the Fisher Ideal Index, developed by economist Irving Fisher in the early twentieth century. The Fisher Index is designed to correct for substitution bias, the tendency of fixed-basket indices like the Laspeyres index to overstate inflation. Because the Laspeyres index holds quantities fixed at their base-period levels, it does not account for the fact that consumers substitute away from goods that have become relatively more expensive. As a result, it overstates what it actually costs to maintain a given standard of living.

The Fisher Index addresses this by taking the geometric mean of two indices that pull in opposite directions: the Laspeyres, which weights by base-period quantities and overstates inflation, and the Paasche, which weights by current-period quantities and tends to understate it. Averaging the two geometrically cancels out much of the bias on both sides. Fisher referred to it as the ideal index because it simultaneously satisfies two important consistency conditions, the time reversal test and the factor reversal test, something no simpler formula is able to do.

That said, the Fisher Index is not a complete solution. It still struggles to account for entirely new goods entering the market, improvements in product quality, or the deeper structural shifts in consumption that Malaney and Weinstein were trying to formalize. But it remains the most practically viable method available. In a field where perfect measurement is out of reach, the Fisher Index represents the most defensible balance between theoretical soundness and real-world applicability.

References (MLA 9th Edition)

1. Weatherall, James Owen. The Physics of Wall Street: A Brief History of Predicting the Unpredictable. Houghton Mifflin Harcourt, 2013.

2. Diewert, W. E. “Fisher Ideal Output, Input, and Productivity Indexes Revisited.” Journal of Productivity Analysis, vol. 3, no. 3, Sept. 1992, pp. 211–48. https://doi.org/10.1007/bf00158354.

3. Frisch, Ragnar. “Annual Survey of General Economic Theory: The Problem of Index Numbers.” Econometrica, vol. 4, no. 1, 1936, pp. 1–38. JSTOR, https://doi.org/10.2307/1907119. Accessed 1 Apr. 2026.

Hospital Consolidation and the Price of Market Power

By: Faiz Ahmed

Over the past decade, the structure of the U.S. health system has been rapidly consolidating. As stated by the Government Accountability Office, “at least 47% of physicians were employed by or affiliated with hospital systems in 2024, up from less than 30 percent in 2012.” The increase can’t be attributed to the growth of hospital locations, as the number of hospitals has actually grown to above 6,000 hospitals in the past decade. This outlines a broader trend for increasing consolidation in health systems across the country, with nearly 1,300 hospital mergers over the past two decades.

Source: KFF analysis of AHA hospital data and AMA physician data

Delving deeper, this consolidation is most prevalently visible in metropolitan areas. According to a KFF study, “in nearly half of U.S. metropolitan areas, one or two health systems control the majority of patient care.” Another study using current merger guidelines from the Federal Trade Commission and Department of Justice found that “97% of health systems in metropolitan areas were considered highly concentrated by antitrust standards.”

Consolidation has been driven by a number of factors that have ultimately caused financial distress throughout health systems across the country. This financial distress is felt by none more than smaller, rural hospitals. While rising labor costs, supply inflation, and declining real reimbursement rates affect all providers, these pressures do not impact hospitals equally. Smaller hospitals are structurally unable to spread the high fixed cost such as emergency services and infrastructure among their lower patient volume. Additionally, they often serve a higher share of Medicare and Medicaid patients, where reimbursement falls below the cost of care. The Government Accountability Office finds that hospitals experiencing financial distress frequently face “low inpatient volume” and sustained losses prior to closure, while the American Hospital Association reports that “Medicare reimburses hospitals at roughly 83 percent of cost.” Together, these factors create a structurally weaker financial position for smaller providers.

In contrast, larger health systems are better equipped to absorb these pressures. They benefit from economies of scale, stronger negotiating leverage with private insurers, and greater access to capital, allowing them to offset public payer losses and invest in more efficient care delivery models. As a result, the same economic forces that create margin compression for large systems often push smaller hospitals into continuous financial distress, leaving acquisition as one of the few viable paths forward. Over time, this dynamic has been a key driver of consolidation across the U.S. healthcare system.

So what are the impacts of consolidation for health systems? From an economic perspective, healthcare demand is highly inelastic. Patients typically cannot shop around to find the lowest cost similar to other industries, especially in urgent situations. As a result, consolidated healthcare systems have continued to gain pricing power, intensified by their capture of local markets as detailed above. Extensive research, as stated by UnitedHealth Group, shows that hospital consolidation “increases hospital prices and contributes to higher overall healthcare spending without improvements in quality.”

Hospital consolidation, therefore, reflects a growing mechanism to increase pricing power in the healthcare industry. While mergers are necessary for financially distressed providers and help prevent closures, they also concentrate market power in ways that raise costs over time. The healthcare industry is already characterized by high spending; this tradeoff highlights the challenge of balancing financial sustainability with competitive market dynamics.

Less for the Same Price: Shrinkflation in Grocery Markets

By: Paolo Velasco

Have you noticed that the chocolate you buy each week seems to run out faster than it used to, even though the price has not changed? Or that your favorite box of cereal looks the same on the shelf, but feels lighter once you pick it up? If not, you may be falling victim to an increasingly common pricing strategy known as shrinkflation. This phenomenon is what marketers sometimes refer to as the “grocery shrink ray,” where firms reduce product size instead of raising prices directly. In effect, consumers unknowingly pay more per unit as a result of not observing a visible price increase. The Bureau of Labor Statistics notes that such reductions in quantity are treated as implicit price increases when measured on a per-unit basis. Facing continued cost pressures in recent years, many firms have recurrently relied on shrinkflation as an adjustment strategy in grocery markets.

A 2004 study by Harvard economist John Gourville and Northwestern’s Jonathan Koehler revealed that consumers are more sensitive to price increases than to equivalent reductions in quantity, even when both result in the same increase in unit cost. For instance, if the cost of a product rises by 10 percent, consumers are more likely to reduce purchases when the price increases from $5.00 to $5.50 than when the price remains $5.00 but the quantity is reduced by 10 percent. This difference in response thus incentivizes firms to make these more indirect price changes.

For consumers, this introduces information asymmetry, where firms fully observe changes in product quantity while consumers face higher costs in acquiring that information; that is to say, consumers must expend additional effort to identify changes in quantity. Two products with identical prices may no longer offer equivalent quantities. Differences over time become harder to track without explicit unit calculations. As a result, consumers are less likely to switch to better-value alternatives, reducing the competitive pressure that would normally limit firms’ ability to raise prices.

Source: U.S. GAO Analysis of NIQ Data

While ultimately only a small share of products are downsized, these items account for a disproportionately large share of total sales, indicating that firms target high-demand goods when implementing shrinkflation. A recent Guardian article reports that several branded Easter eggs–a frequently purchased good in March–both increased in price and decreased in size, leading to sharp increases in unit cost. For example, a Galaxy Easter egg in the UK fell from 252g in 2025 to 210g in 2026 while its price rose from £4.98 to £5.97, a 44 percent increase in price per 100g. In America, NPR reports that a bottle of Tide laundry detergent shrank from 100 ounces pre-pandemic to 92 ounces, then to 84 ounces, and eventually now to 80 ounces as of January 2026, while prices either increased or remained stable over that period. In this case, however, Tide has attributed their smaller sizes to a more concentrated formula that delivers the same number of loads. Therefore, it is important to note that not all instances of reduced quantity are representative of a decline in consumer surplus.

One response to the growing use of shrinkflation is to improve transparency in how products are priced and presented. Some steps have already been taken: several US states require unit pricing on certain goods, while France, for instance, mandates labels that highlight product downsizing. Such approaches would naturally involve tradeoffs between regulatory burden and consumer benefit, but they point toward a positive effort to minimize information asymmetry and consumer welfare loss.

Caged Tigers: Energy Insecurity in the Philippines & East Asia

By: Alfonso Delgado

Introduction

Global energy markets have long been defined by their susceptibility to volatility. From geopolitical conflicts, to supply chain disruptions, it is a common trend to see sudden spikes in oil prices and contractions in its supply. For heavily energy-dependent countries such as China, South Korea, and Japan, dealing with these fluctuations is a major economic and political necessity. Rising energy prices generate cost-push inflation, driving up transportation, utility, and food prices while worsening trade deficits, thus contributing to both lower domestic demand and a weakening currency. Yet for reasons ranging from their economic endowments, to their political frameworks and geographic constraints, the innate ability of Asian countries to deal with their energy dependency is far from uniform.

The Philippines

Nowhere is this disparity more apparent than in the Philippines. As a developing nation with limited natural resources and large transportation requirements, the country has long relied on importing a vast majority of its energy from abroad, leaving it critically exposed to external price shocks. With the ongoing situation in the Middle East, the Philippines finds itself more strained than ever to meet its energy demands.

Underscoring their current vulnerability, on March 24 2026, President Ferdinand “Bongbong” Marcos declared a state of national energy emergency, making it the first country to do so since the start of the confrontation. With 98% of its oil imports coming from the Middle East, the Philippines finds itself rationing its limited 45 day supply, which sits at half of that recommended by the International Energy Agency, and significantly below the projected 55-57 days previously reported by the Philippine’s Department of Energy a month ago.

In response, current attempts to extend this supply include plans to temporarily heavily increase their dependency on coal-fired power plants, which currently account for only 5.4% of domestic consumption, as well as to look for alternative oil suppliers in less traditional trading partners such as China, Russia, and India to help stabilize their supply. Already, the Petron Corporation, which is one of the country’s largest oil companies, recently ordered 700,000 barrels of oil from Russia, leveraging the United States’ 30-day waiver on purchasing petroleum products from Russia. In a recent statement made by President Marcos, “nothing is off the table” as the country strives to meet its energy demands.

Yet despite these efforts, social unrest appears to be intensifying, with the No to Oil Price Hike Coalition protesting on Thursday and Friday, the 26th and 27th respectively, to demand for even more price controls. In response, the Philippine government has promised to hand out an additional 2.5 billion (US $414 million) in fuel subsidies to an estimated 300,000 transport workers, with some cities even going as far as to offer students and workers free access to bus rides, but reports of long queues and missed payments have raised concerns about the effectiveness of their interventions.

Nevertheless, with these combined measures in place the Philippine government hopes to mitigate the economic and social repercussions that might be incurred should the supply of oil from the Middle East continue to be obstructed. Yet the situation in the Philippines may just be the first of many in the region. Other countries such as China, South Korea, Taiwan, and Japan also import a vast amount of crude oil, with each having 36%, 62%, 63% and 78% of their total demands passing through the Strait of Hormuz.

Out of all these countries, China stands as the least impacted, with the government there already having taken prior steps to slowly decouple its energy dependency long ago, with investments in domestic oil production since 2019 being valued at USD $468 billion. In addition to this, in 2024 alone, China added 360 gigawatts of renewable wind and solar energy while investing another USD $83 billion into power grid infrastructure in an attempt to bring down its total crude oil imports down from 73% percent.

On the other hand, South Korea, Taiwan and Japan import all of their crude oil, with no domestic production to speak of, making them exceptionally vulnerable.

Similar to China, Japan also has also taken significant steps to mitigate the impact of energy disruptions by holding large amounts of oil in reserves. Although not 1.2 billion barrels like China, Japan does have 350 million barrels in reserves, with them expected to last 150 days at their current rate of consumption. Korea and Taiwan however, can only cover 33 and 39 days respectively, with ranges for other oil products varying, demonstrating that economic wealth and political capital do not solely result in energy access. Instead, the continued depletion of these reserves demonstrates how prior energy security foresight, whether it be in the shape of early energy diversification or the building of large reserves, is not something that all countries, even those with knowledge of their own achilles heel can overcome. As such, in an increasingly interconnected global economy, it is crucial that all countries work together to mitigate shared energy risks, as the consequences, though not as direct, do have universally shared negative economic impacts.

Quiz:

Which of the following does the US Central Bank directly set?

A. Federal Funds Rate (FFR)

B. Money Supply

C. Interest on Reserve Balances (IORB)

D. Overnight interbank rate

Causation ≠ Correlation:

Bonus:

Source: http://www.econ.yale.edu/smith/econ116a/japan.pdf

Tourism-Led Growth and Inequality in Hawaii and New Zealand

By: Akshay Mediwala

INTRODUCTION

New Zealand and the Hawaiian Islands are renowned tourist destinations in the modern world. Yet beyond their fame exists ancient civilizations and proud indigenous people whose culture and economic influence are waning. Lingering impacts from colonization, in conjunction with modern economic crises, have created volatile economies in these geographically isolated nations. This paper explores New Zealand and Hawaii’s colonial and modern history to understand how these nations and their indigenous communities have become so economically vulnerable. To this end, this paper comparatively analyzes economic metrics that reveal how each territory has transformed into a tourist economy. In pursuit of clarity, this paper will alternate between analyses of New Zealand’s and Hawaii’s respective economic situations. Crucially, tourism growth in each territory is multifaceted: it highlights how indigenous populations have grown reliant on it for income, and it demonstrates how tourism has spearheaded post-COVID-19 pandemic economic recovery. The story told by the statistics on tourism and other industries also explains the degree of integration that indigenous Māori and Hawaiians experience in their respective economies.

Economic Synopsis of New Zealand

The first European contact with New Zealand’s Māori people occurred in the 18th century, and shortly thereafter, Great Britain established New Zealand as a hub of commerce. At this time, New Zealand was an egalitarian tribal society with no specific dominant tribe, and commodities exchanged between the Māori people included seafood, berries, and obsidian. Following additional contact with Europeans throughout the 18th century, the Māori economy developed to include sealing and whaling to sell oil, blubber, and skins. By the mid-19th century, shipping and wool became the dominant points of Māori trade. While profitable, the sheep industry suffered because sheep farmers and their livestock were susceptible to volatile climate conditions, disease, and pests. By the 1930s, the supply of New Zealand’s wool greatly exceeded the demand of Great Britain, its biggest export partner, which had gradually moved to subsidize its own farmers. This protectionist approach forced New Zealand to diversify its trading partners and industries while simultaneously stymying its wool industry. This saga of trade growth and relapse demonstrates that since the 17th century, the Māori’s economy has been intricately woven with the economies of other nations. Today, New Zealand’s tourism industry dominates its economy and provides jobs to the Māori, and the island nation’s current trading partners include more than just the UK: Australia, China, Germany, Indonesia, Japan, Malaysia, Singapore, South Korea, Qatar, and the United States all trade with New Zealand.

Tourism in New Zealand

New Zealand’s renowned natural landscapes and scenery make it an ideal tourist destination for travelers from all corners of the world, evidenced by the 17 billion in New Zealand Dollars (~$9.7 billion USD), or 4.4% of New Zealand’s GDP, that tourism amassed in 2024. The nation’s tourism industry also plays a role in the job market, as it employs a great number of New Zealanders: ~300,000 people, or approximately 11% of the population, were employed in tourism businesses in March of the same year.

Tourism also impacts foreign perception of the island nation. Of 9,288 visitors surveyed in the Ministry of Business, Innovation, and Employment International Visitor Survey from July 2024 to June 2025, 74.8% of tourists reported traveling to New Zealand because of its landscapes and scenery, 24.6% because they wanted to visit family and friends, 13.2% because of the Lord of the Rings and Hobbit films (how the films incentivized this travel is unclear), and, interestingly, only 9.2% because they wanted to experience Indigenous Māori culture. Within the diverse tourist base, Australians contributed 5.44% of tourist spending, Americans 4.5%, and then British visitors 2.74%. All of the investment in both New Zealand’s touristic appeal and its meticulous recordkeeping on tourist data helps showcase the large role that tourism plays in New Zealand’s economy—and how this market affects its indigenous people. To this end, it is useful to examine Hawaii as a point of comparison with New Zealand’s shift from an export economy to a tourist one, given that the U.S’s 50th state has followed a similar historical and economic trajectory as New Zealand.

Economic Synopsis of Hawaii

Like New Zealand, Hawaii made contact with the Western world in the late 18th century. Throughout this period, Hawaii’s economy centered on the cultivation of tropical root, timber, and tree crops, all industries susceptible to droughts and poor harvests. This susceptibility, partnered with the unification of the islands under King Kamehameha I’s coalition in 1795, motivated Hawaii to open its markets to foreign trade. In the coming decades, Hawaii’s economy flourished under sandalwood and whaling exports. By 1835, the island nation’s first sugar plantation opened, paving the way for an agrarian economy; however, Native Hawaiians could not satisfy the growing demand for workers, leading to a vast number of Japanese, Chinese, and Portuguese immigrants fulfilling Hawaii’s labor needs. Hawaii’s economy experienced yet another shift when the US, then Hawaii’s major export partner, signed the Reciprocity Treaty of 1875, which lifted US-Hawaii tariffs and skyrocketed Hawaiian sugar production. Hawaii’s economic fortune did not last indefinitely. American interest in protecting mainland industries manifested in the McKinley Tariff of 1890, summarily decimating Hawaii’s sugar industry. Notably, the tariff lowered the value of Hawaiian merchandise exports from $13 million to $8 million between 1890 and 1892 alone. Following Hawaii’s annexation just a few years later, Hawaii’s burgeoning export economy came to an end, and the stage was set for the development of the island state’s tourist economy.

Tourism in Hawaii

At the center of the modern Hawaiian economy lies the tourism industry, which welcomes visitors from across the United States and the world. In just 2019, visitor spending yielded nearly $17.8 billion USD, supporting $2 billion in tax revenue to state coffers (i.e., the financial accounts of the state of Hawaii), and fostered more than 216,000 jobs statewide. The COVID-19 pandemic exposed that despite Hawaii’s efforts to adapt its top industries, its economy remains delicate; this frailty, paradoxically, stems from the state’s dependence on tourism. During the worst of the pandemic, Honolulu airport, which generally welcomes 30,000 tourists per day, saw a meager 500 visitors pass through. The pandemic’s economic repercussions plagued even the smallest sources of tourist-related revenue, including the 11,000 rental cars that were temporarily retired, leading to a net loss of $1.65m in 2020. Another casualty of the pandemic includes the American middle-income travelers whose visitation levels dropped from 64% in 2018 to 51% in 2023, revealing an increased price sensitivity among middle income travelers and their cautious response to the growing costs of visiting the Aloha State. To address this trend, Hawaii has since adapted to serve high-income tourists, echoing its 19th-century adaptations to trade relations with the mainland United States.

By May 2023, the World Health Organization declared an end to the COVID-19 pandemic. Estimates suggest that Hawaii is still in recovery and will not enjoy the full benefits of tourism until 2028. Most immediately, an estimated 4% decline in total visitor arrivals is expected over the next two years, triggering a $1.6 billion reduction in real visitor spending this year. This will also decrease tourist-related employment across all five Hawaiian counties. The widespread majority of tourists travel to Hawaii for vacation purposes as opposed to visiting for business, convention, or government-related activities. A 2024 visitor survey of Oahu—Hawaii’s most popular island—found that for at least 40% of the surveyed tourists, seeing famous landmarks and natural beauty was the primary motivator behind travelling to Oahu (those surveyed included tourists from the US, Japan, Canada, Korea, and more). The second most popular motivation varied across tourist groups, with Americans being motivated by Hawaiian cultural events, Japanese by television programs and shows filmed in Hawaii, and Koreans by social media posts and videos. Tourists from the US mainland and foreign countries have an iron grip on the Hawaiian economy, reflecting the vulnerability of Hawaii’s economy not only to the whims of tourist preference but also to interest in tourism broadly.

Comparison of Hawaii & New Zealand

Both Hawaii and New Zealand experienced colonization followed by drastic shifts in their industries and export ability. Hawaii’s cane sugar industry played a major role in the island’s economy in the 19th century, but buckled under Chinese competition and suffocating tariffs. Comparatively, New Zealand’s wool export economy gradually subsided over a century after trade preferences for importer nations changed. As the tourist industry took off in the 20th century for both Hawaii and New Zealand, the respective share of tourism for each territory’s GDP increased, demonstrating how both territories—nearly in parallel—pivoted from export economies to tourist economies that relied on other nations to thrive. These shifts towards a visitor-based economy led to influxes of wealth for both island economies and brought with them a new sensitivity to changes in tourism behaviors and the global economy. Beneath all this analysis lies two indigenous communities whose economic independence and social status have ebbed and flowed with economic changes largely out of their control.

The major communities affected by these consequences are the indigenous people of Hawaii and New Zealand, whose roles are changing after the effects of the pandemic and its ensuing global recession. Because both Native Hawaiians and the Māori work primarily in blue-collar roles, especially in tourist businesses, they are more susceptible to economic crises such as the COVID-19 pandemic. Understanding the Māori and Native Hawaiians’ current status is crucial to understanding why these populations’ economic stability strongly correlates with their nations’ tourist economies and indigenous representation in job markets.

Native Hawaiians and the Māori experience disproportionate challenges when entering the job market as compared to non-Native people in their markets. Education heavily influences viability in the job market, evinced by standardized testing measures like the U.S. National Assessment of Education Progress (NAEP), which measures the educational achievement of U.S. students. In 2024, the NAEP scores for Hawaiian 8th graders equaled the national average. However, the discrepancies between non-Native Hawaiian and Native Hawaiian populations were staggering: the percentage of students who were at or above the NAEP level for basic proficiency was 86% for White, 77% for Asian, 61% for Hispanic, and 47% for Native Hawaiians, and performance on the NAEP correlated with wealth disparity, as 53% of students from economically disadvantaged backgrounds met proficiency standards compared to the 77% of those who were not economically disadvantaged. This trend was no different in New Zealand, where both European and Asian students passed the National Certificate of Educational Achievement (NCEA) at a rate of 71% compared to the 48% passing rate among Māori students. Many of the blue-collar jobs that Native Hawaiian and Māori people occupy do not always require higher levels of education. Both the Hawaiian state government and the government of New Zealand have amassed data on this matter.

In September 2021, the Māori were over-represented in blue-collar sectors, many of which involve tourist business—Utilities & Construction, Agriculture, Forestry, Fishing & Mining, Transport, Warehousing, Information & Communications, and Manufacturing—and were under-represented in high-income white-collar sectors, namely Financial & Insurance Services and Public Administration & Safety. Similarly, 9.1% of the Hawaiian workforce concentrates in Production, Transportation & Material Moving Operations, and 9.0% work within Natural Resources, Construction, and Maintenance Occupation. Crucially, these labor-intensive sectors are overrepresented by Native Hawaiian workers. Furthermore, only 28.7% of Native Hawaiians operated in the white collar Management, Business, Science, and Arts Occupations, which was below the statewide 36.1% average. These occupational disparities reinforce the unequal economic outcomes suffered by indigenous populations.

Conclusion

Since their respective colonizations, the nation of New Zealand and the islands of Hawaii have exemplified the long-term and damaging outcomes for indigenous people who have been forced to transition from goods-based economies to service-based economies. The impact of the COVID-19 pandemic on New Zealand and Hawaii rattled the job market and led to a downturn in the tourist economy. COVID, one of many potential exogenous risks that can disrupt tourist economies, happened to be the most recent crisis. Because Native Hawaiians and Māori people disproportionately occupy blue-collar work that includes touristic businesses, these external risks threaten their economic well-being in dramatic ways.

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Allen J. Schaben / Los Angeles Times

The conclusion of the Milan 2026 Winter Olympics has drawn attention to the LA 2028 Summer Olympics, where thousands of athletes will attract millions of spectators. At the helm of the latest controversy is the Chairman of the Games, Casey Wasserman. Wasserman, a UCLA alumni, founded the sports marketing and talent agency Wasserman Group in 2002. Since the release of the Epstein files in January 2026, his flirtatious emails to Ghislaine Maxwell in 2003 came to light and have been a point of controversy. On February 11th, the LA28 affirmed its confidence in the chairman, despite calls from Mayor Bass to resign. On the other hand, this has influenced Wasserman to step back from his company and prepare to sell his 40% share (valued at $800M) in the agency. As pressures continue to mount on Wasser, his ties to the Epstein files have many wondering if he will last the coming two years before the Games.

National News: Paramount Emerges Victorious in Warner Bros. Bidding War

The bidding war over Warner Bros. Discovery concluded Thursday when Netflix officially withdrew, allowing Paramount to finalize an $111 billion acquisition deal. Though Netflix had originally reached an agreement to acquire WBD for $27.75 per share back in December, a deal that would have been transformative for Netflix’s growth, Paramount superseded Netflix with a $31 per share offer. The potential deal has drawn criticism from Democrats, with Senator Elizabeth Warren calling it “an antitrust disaster.” California Attorney General Rob Bonta is warning that the merger is “not a done deal” and the California DOJ will be “vigorous in [its] review.” While the company may face some obstacles in gaining regulatory approval, it will likely be easier than it would have been for Netflix, in part due to the close relationship between President Trump, Paramount CEO David Ellison, and his father, Larry Ellison.

Global News: World Reacts to U.S. Iran War

America’s strikes on Iran have sent shockwaves through markets, with mixed support from world leaders. Traditional U.S. allies such as Canada and Australia have expressed support for the operation, citing the necessity of preventing Iran from obtaining nuclear weapons. In contrast, Russia and the energy importing China have labeled the attacks a violation of international law. Meanwhile, European leaders from the UK, France, and Germany have taken a more cautious middle ground, refraining from endorsing the strikes and calling for an immediate ceasefire. In addition to the massive human toll, the conflict has ignited stagflation fears. A closure of the Strait of Hormuz (a pass-through for 20% of the world’s oil) could drive crude prices towards $100 a barrel. This energy crisis could fuel global inflation, delaying central banks planned interest rate cuts. Ultimately, the uncertainty will likely strengthen the dollar and gold, as investors retreat to safe-haven assets.

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This week in History: The Legal Tender Act is passed

On February 25th, 1862, President Lincoln passed the Legal Tender Act, which authorized $150 million to be printed in paper money or “greenbacks” to help finance the Civil War. This was the first time since the Revolutionary War that the US Government had issued a legal tender not backed by gold or silver, a controversial move that many financial experts and legislators feared would lead to a complete collapse of the nation’s financial infrastructure. The greenbacks, however, worked better than expected, and by the end of the war, over half a billion dollars worth had been printed. This marked a permanent shift in US monetary policy, laying the foundation for the currency system we have today.

Economics Question of the week:

In March 2021, the container ship Ever Given blocked the Suez Canal for nearly a week, disrupting global trade flows. Approximately what percentage of global trade (by value) passes through the Suez Canal?

A) 8%

B) 12%

C) 18%

D) 22%

Last week’s answer: entrepreneurship

Viewer Poll

Last Week’s Poll Results:

Opinion: The U.S. deficit is an existential threat to the dominance of the USD

Agree (Confident) 13%

Agree (Somewhat Confident) 63%

Disagree (Somewhat Confident) 25%

Disagree (Confident) 0%

Correlation ≠ Causation:

Source: https://tylervigen.com/spurious/correlation/3268_popularity-of-the-first-name-stevie_correlates-with_netflixs-stock-price

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Local: Lion in the Colosseum

Son Heung-Min #7 of Los Angeles FC & Lionel Messi #10 of Inter Miami

Photo by Shaun Clark/Getty Image

Yesterday, the Los Angeles Memorial Colosseum held 75,673 fans, a Major League Soccer (MLS) opening weekend record, during a match between LAFC and reigning MLS Cup Champions Inter Miami CF. Fans, including USC students who received discounted tickets, witnessed the legendary Argentinian striker Lionel Messi and South Korea’s national team captain Son Heung-min square off in an action-packed match, with LAFC emerging victorious 3-0. This duel between the two highest valued MLS teams (Inter Miami: $1.45B & LAFC: $1.4B) is a testament to the substantial growth soccer has had in the United States. With the World Cup beginning in June, LA will host 8 matches which are estimated to generate $600M. The key question is whether the two local MLS teams (LAFC & LA Galaxy) can convert World Cup hype into sustainable growth for soccer fanatics and price-sensitive USC students alike.

National: Supreme Court Strikes Down Trump Tariffs

The Supreme Court ruled Friday to strike down a large number of President Trump’s tariffs imposed under the International Emergency Economic Powers Act. Shortly after the ruling, Trump announced that he would replace them with a new tariff of up to 15% using Section 122 of the Trade Act of 1974. Unlike the country-specific rates imposed under IEEPA, tariffs imposed under the Trade Act will be a flat rate and can only last up to 150 days unless extended by Congress. Consumers will now face an effective tariff rate of 13.7%, down from 16% when IEEPA tariffs were in place. Now, the U.S. Treasury is sitting on around $175 billion of unconstitutionally collected tax revenue from the IEEPA tariffs, meaning companies could be eligible for refunds– though this money will likely be tied up in legal battles and possibly denied, depending on how courts rule.

Global News: A German Recovery

German Chancellor Friedrich Merz, courtesy of CBS

Last week, Germany’s manufacturing sector finally returned to expansion territory for the first time in over three years, with the preliminary PMI climbing to 50.7. This industrial revival is being fueled by a massive €500 billion federal infrastructure fund and increased defense spending. Despite this momentum, the government recently trimmed its 2026 GDP forecast to 1.0% as structural hurdles and high energy costs continue to weigh on the economy. Inflation has also proved sticky, ticking back up to 2.1% in January.

EA Events:

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This week in History: Shanghai Composite Index drops 8.8%

On February 28th, 2007, the Shanghai Composite Index dropped 8.8% in a single day. A drop of this degree had not happened since 1997, when rumors that the leader of China, Deng Xiaoping, had died, causing a 8.9% drop. In light of the major implications of the 1997 drop, this one came amidst little concern in China, but in the US, there were growing concerns about subprime mortgage rates. The effect of the Chinese market plunge was felt worldwide as the American recession odds were at a concerning 42%. In hindsight, this drop in China evidenced the interconnectedness of global markets, meaning that the impending financial crisis would manifest on a global scale.

Economics Question of the week:

The four factors of production are the resources of land, labor, capital, and

1. services

2. entrepreneurship

3. technology

4. goods

Last week’s answer: Stagflation

Viewer Poll:

Last Week’s Poll Results:

Opinion: A tax on unrealized gains is necessary to stabilize government revenue without raising income taxes

Yes (Confident) 0%

Yes (Somewhat Confident) 67%

No (Somewhat Confident) 33%

No (Confident) 0%

Correlation ≠ Causation

Source: https://www.tylervigen.com/spurious/correlation/2700_season-rating-of-two-and-a-half-men_correlates-with_jet-fuel-used-in-serbia

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Local News: The Plot Thickens in LA’s Mayoral Race

Bass and Raman in 2024. Source: Politico

What was once expected to be a fairly routine win for incumbent Karen Bass in LA’s June mayoral election was upended last week when progressive council member Nithya Raman announced her decision to run. Raman, a reported ally of Bass and the first candidate backed by the Democratic Socialist party to successfully win an LA Council Seat, has unsurprisingly begun to draw comparisons to NYC’s Zohran Mamdani.

An ally of the YIMBY movement to increase housing, Raman’s recent record includes voting to cap rent increases and attempting to exempt high-occupancy housing from LA’s new “mansion tax”. She has also faced criticism for saying that LA should maintain the size of its police force.

She is joined in the race by Spencer Pratt, a reality TV star campaigning on criticizing the city’s disaster response, and Rae Huang, a progressive community organizer, though neither has nearly the backing of Bass or Raman.

National News: Resilient Labor Market Meets Cooling Inflation

The labor market once again displayed resilience in January, adding 130,000 jobs, far surpassing the 55,000 estimated. Despite this surge, the BLS released major revisions to 2025 reports, revealing that last year was the weakest for job growth since the pandemic, with only 181,000 total jobs gained. The unemployment rate remained stable, decreasing slightly to 4.3%, as the economy embraces its low-hire, low-fire equilibrium. Meanwhile, the January CPI report brought welcome news as headline inflation regressed to 2.4%. This combination of steady unemployment and decelerating inflation renewed soft landing optimism, even as expectations for a 1H rate cut have soured.

Global News: Dutch Lawmakers Propose Tax on Unrealized Gains

Image: https://cryptobriefing.com/dutch-tax-unrealized-gains-crypto/

On February 12th, Dutch lawmakers in the House of Representatives advanced legislation to impose a 36% capital gains tax on unrealized gains. Investopedia defines unrealized gains and losses as changes in the value of an investment in your portfolio before it is sold. If you own a $50 share in a stock and its value increases to $55, then that would constitute an unrealized gain that could only be realized upon the sale of the stock. Unrealized gains from cryptocurrencies, savings accounts, and equity investments are all taxable under this new proposal. If a Dutch resident’s portfolio rises by €10,000 in a year, then the gain will be subject to this new rule. Despite the heavy flak received by this bill across social media, the House of Representatives had 93 voted in favor, clearing the 75 vote threshold. This bill moves to the Dutch Senate, which, if passed, will implement the capital gains tax as soon as 2028. As critics voice concerns of wealth leaving the country, others believe that it modernizes taxation across financial assets. If passed, this will become one of the most significant and controversial capital gain tax reforms in the EU.

Economic Association Events:

This Week in History: President Nixon Arrives in Beijing (1972)

Image From PBS

On February 21st, 1972, President Nixon arrived for diplomatic talks in Beijing. While the visit was primarily a Cold War strategic move, it served as the catalyst for China’s reintegration into the global marketplace, eventually unlocking a massive labor supply and transforming the agrarian nation into the world’s leader manufacturer. The visit culminated in the “Shanghai Communique,” a document that initiated the decoupling of trade from Cold War hostilities and signaled a commitment for normalizing bilateral commerce. By establishing the framework for “Most Favored Nation” status, Nixon’s trip to China fundamentally restructured global supply chains for the next five decades.

The Green Ledger

By Kylie Monterosso

Ozempic Economics: GLP-1’s and the Carbon Cost of Appetite

Turn to the first page of almost any econ 101 textbook and you’ll find some version of the same line: society has unlimited wants and limited resources. I’m pretty sure they sing baby economists to sleep with that; we know it by heart before we even hear the words “supply and demand.” It certainly captures the central tension between people and our environment– and that’s why GLP-1’s are so interesting when viewed through an environmental economics lens. Historically, many of our biggest technological breakthroughs have been ways to increase our production: assembly lines, GMO’s, automation. But with the invention and skyrocketing popularity of weight loss drugs, we’re actually doing the opposite. We are literally altering our brain chemistry to reduce– at least in one area– our consumption. And we’re doing it with almost no attention to the environmental outcome.

Now, I’ll be honest here: when I hear the word GLP-1’s, what I first picture is not all that positive. Before-and-after photos of celebrities with “ozempic face,” wealthy middle-aged women trying to fit back into their clothes from 20 years ago, social media posts about how “skinny is in” or “heroin chic is back.” But whatever the cultural stigma around these drugs may be, with around 12% of American adults and climbing being currently on the drugs, their implications are certainly wider than a beauty trend. From consumer behavior to health equity to mental wellbeing, the effects of weight loss medications are wide-ranging and still uncertain. But this being The Green Ledger, I’m going to zero in on an area that’s probably not at the forefront of people’s minds: the environmental externalities. And I’ll spoil it for you here: in a departure from my typical doom-and-gloom, to the best of my powers of prediction, they’re largely positive.

To state the obvious: obesity is a problem in America. Close to 40% of us meet the criteria for the condition, and consequently nearly 500,000 obesity-related deaths occur in the US every year (for reference, only 350,000 died of COVID-19 in 2020). Clearly, this is a systemic issue. We did not evolve to live in a world where calories are so readily available, let alone one where foods are specifically engineered to be hyper-palatable and addictive. What’s more, these highly-processed, high-calorie foods are often the most accessible. It’s not surprising that this combination creates a problem. Recently, though, the problem has actually started to get better. After steadily climbing for decades, the rate of obesity in America has been declining since 2023, a trend that is almost certainly due to the increasing popularity of GLP-1 agonists. Now, these aren’t miracle drugs. They don’t work for everyone, and they certainly have some implications that aren’t positive. But what I can say for certain: overall, Americans who take GLP-1’s consume less. And in an economy where we don’t pay the full social cost of our groceries, reducing consumption means reducing negative externalities.

As usual, that externality is difficult to quantify, since there’s a lot of unpredictability in exactly how much consumption will be reduced. But just indulge me for a moment while I make some rough back-of-the-napkin estimates. People on GLP-1’s generally reduce their caloric intake by between 16 and 39%. Now, if 13% of Americans are actively taking the drugs by 2030– a figure on par with current estimates– and those Americans reduce their consumption by an average of 25%, that’s a 3.25% decrease in per-capita consumption. And with the diet of the average American adult emitting 4.72 kg of CO2 equivalent per day, that’s a daily reduction of almost 40 million kg of CO2.

Obviously, there are some really important simplifications happening with those calculations. For one, we’re assuming that the average person prescribed a GLP-1 is consuming the same amount as the average American overall, which is likely not the case since the drugs are generally only prescribed to those recommended to reduce their caloric intake. Second and possibly more importantly, we’re assuming that the decrease is proportional across all foods– and whether this is true makes a big difference, because not all foods are created equal. For example, for the amount of CO2-eq emissions it takes to produce just 100 calories worth of beef, you could produce over 5000 calories worth of peanuts. When it comes to food production, then, it is not just about how much but also what. This means it’s important to ask which foods people are cutting out when they go on GLP-1’s, and so far it looks optimistic. A study conducted last year found that those on GLP-1’s, “most likely reduce consumption of processed foods, sugar-sweetened beverages, refined grains, and beef.” With processed foods and beef generally having a much larger negative impact than whole and plant-based ones, this points to an even larger reduction in our food-related environmental footprint.

Now, I realize this probably seems kind of insignificant. Even optimistically, we’re talking about, what, a 4 or 5% reduction in food-related GHG emissions? Is that really worth paying attention to? From my perspective, the answer is yes– and it’s not just about assigning a numerical value to the change in food emissions. GLP-1’s are a case of us beneficially reducing our consumption to improve our quality of life, without any thought to the environment. And since efforts to convince people to sacrifice for the good of the environment are rarely successful, an opportunity to change behavior for the better by giving people something they actually want deserves our attention.

The direct reduction in consumption isn’t the only positive environmental externality on the table. In the US, the healthcare sector is the source of around 10% of our carbon emissions and 9% of harmful non-greenhouse gas air pollution. And the obesity epidemic is a substantial burden on that healthcare system. We’re already seeing evidence of potential here: recent research suggests that treatment for patients with heart failure who were taking a GLP-1 agonist resulted in .25 kg of CO2 equivalent emissions less annually than did treatment for heart failure patients who were not taking one. And if we think about all of the other health issues obesity is associated with– diabetes, hypertension, cancer– that scales significantly.

Ok, so we’ve established that GLP-1’s create positive environmental spillovers. Usually, this is where I’d make some suggestions about correcting the externality– because despite their apparent social benefits, these drugs sit behind a high pay wall of around $1000 per month and are often not covered by insurance. But in this case, conversations about increasing access are far from new. In 2024, the Biden administration announced its plan to give medicare and medicaid coverage for FDA-approved medications prescribed to treat obesity as a disease. The plan was scrapped by Trump, who instead secured a deal with companies Eli Lilly and Novo Nordisk to lower the cost of their GLP-1’s. The deal, which is intended to go into effect in January 2027, would set the prices for the drugs at $245/month for those on Medicare and $350/month through TrumpRx. There’s a lot that could be said about that approach, but I don’t want to get off-track. My point here is just that the drugs do carry a positive environmental externality, and we should be taking that into account in conversations about whether- and how- to increase access.

Before I finish, I want to acknowledge that there are a lot of unknowns here. Will people inevitably go off the drugs, returning their caloric intake to what it was before? Will consumption levels and healthcare costs see a rebound effect as people begin living longer due to the reduction in obesity? Will we find out new information about negative long-term side effects, making encouraging them less straightforward? These are all valid questions, and ones I don’t have answers to. But that doesn’t mean we shouldn’t pay attention. Because in a world of limited resources, a way to alter demand itself is genuinely exciting.

This Week’s Correlation ≠ Causation

Source: https://www.tylervigen.com/spurious/correlation/2727_the-distance-between-uranus-and-earth_correlates-with_electricity-generation-in-paraguay

Economics Question of the week:

The combination of high inflation and high unemployment is known as:

1. Hypergrowth

2. Stagflation

3. Recession

4. Deflation

Last week’s answer: Vodafone & Mannesmann (1999)

Weekly Reader Poll:

Last Week’s Poll Results:

Opinion: The federal funds rate is too low

Yes (Confident) 0%

Yes (Somewhat Confident) 67%

No (Somewhat Confident) 33%

No (Confident) 0%

Interested in Writing for the USCER

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Local News: LA County Reduces Homelessness Spending Amid Budget Pressures

Mario Tama via Getty Images

The LA County board of supervisors passed an $843 million homelessness spending plan Tuesday, which reflects a nearly $200 million dollar reduction in spending on services for the unhoused. The plan cites the reduction in state and federal funding sources, along with “new and expanded cost obligations” as the reason for the cuts. Some programs that saw significant reductions are Pathway Home, which helps move people from encampments to interim housing, as well as street outreach teams and prevention programs. The board also passed a motion to create stricter oversight procedures for government contractors employed by the new Department of Homeless Services and Housing. The motion comes in response to the surfacing of suspected contractor fraud and embezzlement occurring under the oversight of LAHSA, or the Los Angeles Homeless Services Authority.

National News: Delayed Jobs and Inflation Data to Test Resilient Market

Source: CNBC

Markets are currently bracing for a swarm of economic data this week, as the January jobs report and CPI are scheduled for release just days apart due to recent government shutdown delays. The employment data will be especially critical as it includes a benchmark revision expected to significantly mark down past payroll growth, potentially shifting the narrative on labor market strength. Meanwhile, inflation figures will reveal if core price pressures are finally cooling or if new tariffs are beginning to drive costs higher for consumers. This concentrated influx of data arrives at a pivotal moment for the Federal Reserve, as the nomination of Kevin Warsh to succeed Jerome Powell suggests a potential shift toward a more hawkish policy stance in the coming months.

Global News: The US reduces tariffs on India

After the 2022 invasion of Ukraine, most European countries protested by refusing to purchase Russian oil as Russia enticed other customers by offering high discounts on crude oil. India was quick to seize the opportunity, importing nearly 1.1M barrels daily in January 2026 alone. On February 2nd, the White House announced a trade deal with India that lowers US tariffs from 50% to 18%. In the statement, India suggests that it intends to spend $500B on American energy and technology products, ranging from aircraft parts, energy, and oil. A formal agreement is projected to be signed in March; whether India will follow through on the condition of backing away from its high-volume purchases of Russian oil remains to be seen.

Economic Association Events:

The Economics Association is hosting Shark Tank: Policy Edition where you can work help innovate policies for global issues. This will take place on Thursday, February 12th, from 7-8 pm in the Econ Lounge (KAP 309). This is a great opportunity to meet other economics students and apply your critical thinking skills.

This Week in History: The NASDAQ was founded (1971)

NASDAQ

On February 8th, 1971, the National Association of Securities Dealers Automated Quotations (NASDAQ) stock market became the first electronic stock exchange. The lower bid-ask spread nature of the NASDAQ, thanks to its automated stock quotes, disappointed securities brokers but improved market efficiency. The NASDAQ is known for having numerous technology companies, including the magnificent seven: Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia, Tesla

Markets & Statecraft

By Keyan Saberi

Where the U.S. Finds Itself Entering 2026

1. Introduction

The United States, under the Trump administration, has pursued a foreign policy agenda increasingly defined by critical economic chokepoints. Commodities including semiconductors in Taiwan, rare earth elements (REEs) in Greenland, and oil in Venezuela all represent inputs essential not only to American economic growth, but to technological leadership, military supremacy, and geopolitical leverage.

As 2026 begins, the U.S. is favoring direct intervention over multilateral norms to secure strategic supply chains. The cases of Taiwan, Venezuela, and Greenland illustrate how economic vulnerability increasingly dictates American decision-making on the global stage.

2. Taiwan-China Relationship

The United States and China have established themselves as the dominant powers of the opposite corners of the globe, and it appears that it will remain this way for many years to come. Despite ideological differences, the United States and China continue to remain economically intertwined. This contradictory dynamic, in which the two countries compete over influence, technology, and military might, yet are deeply connected through finance, supply chains, and trade, has been tested by the question of Taiwan’s future. Entering 2026, the United States finds itself in a political and economic dilemma— attempting to balance its relationships with China and Taiwan while also avoiding the onset of a full scale war in East Asia and the Pacific with potential for spillover in regions across the world.

The tiny island nation of Taiwan, sometimes called the “Silicon Island”, has gained a central role in the global semiconductor industry in recent years. This quick ascent in the technology sector is largely in part to its contract manufacturing services through foundries—highly specialized facilities that produce semiconductor wafers. Four of the world’s top ten foundries, including Taiwan Semiconductor Manufacturing Company (TSMC)—the largest foundry in the world—reside in Taiwan and collectively account for around 70% of global foundry revenue.

Semiconductors sit at the foundation of modern digital technology, serving the role of either a conductor or insulator of electricity. A compound annual growth rate (CAGR) of 6%, taking semiconductor sales from $139 million USD in 2001 to $526 billion in 2023, is a testament to the economic importance of semiconductors. With Taiwanese foundries producing the majority of these chips, a disruption to supply would have significant implications for the U.S. economy. Unlike other commodities, semiconductor production is technologically complex and capital-intensive, making rapid substitution an unrealistic solution.

Due to the immense importance of semiconductors, Taiwan represents the greatest vulnerability in American foreign policy. However, it is not the only point of interest shaping American foreign policy heading into 2026.

3. Venezuela

Venezuela is home to the world’s largest oil reserves, holding over 17% of the global share. On January 3 of this year, the United States launched a major military strike on the South American nation. American forces captured President Nicolas Maduro and his wife in an operation involving airstrikes on the country’s capital, Caracas, and a ground assault on the Venezuelan president’s compound.

Following Maduro’s removal, U.S. firms have begun re-entering Venezuelan energy markets under new bilateral agreements, including a 50-million barrel supply deal worth $2 billion. Additionally, acting Venezuelan President Delcy Rodriguez recently signed a law opening the nation’s oil sector to privatization with hopes of attracting foreign investors. Renewed access to one of the world’s largest oil reserves following regime change reflects the current resource-driven foreign policy stance of the United States.

4. Greenland

Greenland has once more fallen under the crosshairs of the United States following President Trump’s revival of the proposal to take control of the island made during his first term. The mineral-rich territory ranks eighth worldwide in rare earth reserves, with 1.5 million tons, and contains the Kvanefjeld and Tanbreez deposits, among the largest rare earth deposits on Earth. In the wake of Maduro’s capture, White House officials were discussing different options, including the use of the U.S. Military, to incorporate the Danish territory into the United States. President Trump was additionally planning to implement tariffs on NATO members opposed to his efforts. However, at the World Economic Forum, he backed away from his tariff plans and potential use of force to take over the island. Trump Administration and Danish officials indicate that ongoing talks aim for mutually beneficial outcomes.

5. U.S. Strategy for 2026

Combined, the cases of Taiwan, Venezuela, and Greenland reveal a consistent U.S. strategy entering 2026: securing control over vital economic inputs while reducing exposure to hostile regimes.

In the Pacific, this strategy is being employed to preserve Taiwan’s semiconductor production and sovereignty without provoking open conflict with China. In Venezuela, it has come by means of regime change, reopening access to the world’s largest oil reserves formerly under the control of American adversary Nicolas Maduro. In Greenland, the United States has combined diplomatic and economic pressure with military leverage to secure access to REEs essential for technological supremacy.

In an era marked by governments seeking long-term economic resilience, modern power is increasingly defined by control over economic chokepoints rather than territory alone. While this approach may bolster American supply chain security in the short term, it also carries significant risks, including strain on alliances, escalation with competing nations, and the normalization of economic intervention as an American foreign policy tool. As 2026 unfolds, the failure or success of this strategy will shape not only U.S. economic stability but the structure of the world.

Bibliography

Garcia Cano, Regina. “Venezuela’s Acting President Signs Oil Industry Overhaul, Easing State Control to Lure Investors.” Associated Press, January 29, 2026.

Jones, Lin, and Sarah Krulikowski. Taiwan — The Silicon Island. Executive Briefing on Trade. Washington, DC: U.S. International Trade Commission, February 2024. https://www.usitc.gov/publications/332/executive_briefings/ebot_silicon_island_taiwan_semiconductor.pdf.

Meredith, Sam. “Greenland, Denmark, U.S. Talks on Arctic Security.” CNBC, January 29, 2026. https://www.cnbc.com/2026/01/29/greenland-denmark-us-trump-talks-arctic-security-nato.html.

Schwartz, Meredith, and Gracelin Baskaran. “Greenland, Rare Earths, and Arctic Security.” Center for Strategic and International Studies, January 8, 2026. https://www.csis.org/analysis/greenland-rare-earths-and-arctic-security.

Parraga, Marianna, and Shariq Khan. “Vitol Prepares Fuel Oil Exports from Venezuela, Sources Say.” Reuters, January 22, 2026. https://www.reuters.com/business/energy/vitol-prepares-fuel-oil-exports-venezuela-sources-say-2026-01-22/.

Venezuela Oil Reserves 2025. Worldometer. Accessed January 2026. https://www.worldometers.info/oil/venezuela-oil/.

Xu, Ying Ying Daniela, and Luisa Qiu. “Strategic Rivalry and Managed Interdependence between the United States and China in 2025.” Bocconi Chinese Student Association, December 17, 2025. https://www.bocconicsa.com/2025/12/17/strategic-rivalry-and-managed-interdependence-between-the-united-states-and-china-in-2025/.

This Week’s Correlation ≠ Causation:

Source: https://www.tylervigen.com/spurious/correlation/2052_gmo-use-in-corn-grown-in-minnesota_correlates-with_pirate-attacks-globally

Economics Question of the week:

SpaceX’s acquisition of XAI for $250B will be the largest acquisition in history if it goes through. Until then, what is the largest acquisition (in dollar value) of all time?

1. Gaz de France & Suez (2007)

2. Verizon & Vodafone (2013)

3. Vodafone & Mannesmann (1999)

4. AOL & Time Warner (2000)

Last week’s answer: Monopolistic Competition

Weekly Reader Poll:

Last Week’s Poll Results:

Opinion: Has AI growth been excessive to the point where we are experiencing a speculative bubble?

Yes (Confident) (12%)

Yes (Somewhat Confident) (59%)

No (Somewhat Confident) (18%)

No (Confident) (12%)

Interested in Writing for the USCER

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Local News: Mayor Bass Announces $98M Investment in Exposition Park

Los Angeles Mayor Karen Bass announced a nearly $98M beautification of Exposition park as the 2026 FIFA World Cup and the LA 2028 Olympic Games will garner international attention. Mayor Bass mentioned that three hundred jobs will be created during this project that seeks to improve the infrastructure and upgrade the public safety of the area.

National News: Snowstorms Across the East Coast

Nearly 240M people are under winter advisories as snowstorms affect the East Coast. Over 100 lives have been lost, attributed to the affects the storm, ranging from hypothermia to car accidents. Over 127,000 homes and businesses are without power, as concerns about insulation have prompted the opening of heating centers.

Global News: Iranians Protest Government Amidst Severe Economic Downturn

Protests in Iran have been ongoing since late December 2025 as economic frustration grows. The current annual inflation has ballooned to 44.6%, greatly impacting the cost of living. The growing death toll amidst the protests has prompted President Trump to threaten strikes as an American carrier group is actively positioning itself near Iran. Furthermore, President Trump is using this carrier strike force as a means of opening talks for a nuclear deal; Iran’s nuclear development projects have been at the center of crushing international sanctions that have played a role in the current economic downturn.

Economic Association Events:

The Economics Association is hosting an information session and speed dating event on Thursday, February 5th, from 7-8 pm in the Econ Lounge (KAP 309). This is a great opportunity to meet other economics students and learn more about the economics association!

This Week in History: Maastricht Treaty (1992)

Maastricht Treaty

On February 7th, 1992, history was made in Europe as the Maastricht Treaty was signed. This treaty forwarded notions of economic cooperation amongst its twelve signees: Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, Portugal, Spain, the Netherlands, and the United Kingdom. Although it did not take effect until November 1993, it laid the groundwork for a single European currency. While it would take until 2002 for the Euro to be introduced into circulation, a total of 21 countries now use it as their national currency.

The Bull’s Eye 2/1: The SaaS Meltdown

I hope none of you guys were on margin last week. Jeez. I don’t even know where to start, so I suppose I will default to my favorite Sunday pastime: making fun of crypto bulls. While the crypto evangelists were busy tweeting through the pain, the reality of this weekend’s wipeout is much grimmer. Crypto is tanking because the retail crowd went crazy at the wrong time. After months of momentum trading in commodities, a massive cohort of retail traders went long gold and silver, expecting the trade to carry them to financial Valhalla. Instead, they got absolutely wiped out on Friday, when Trump announced Kevin Warsh as his pick to succeed Jerome Powell. Warsh, who the market sees as more hawkish than Hassett, put a massive dent in the “dollar devaluation long metals long crypto” thesis.

The carnage in precious metals was not just a result of a dent to the thesis; it was exacerbated by the leverage trap. Silver, which had surged toward $120 an ounce on pure momentum, suffered a historic 30% collapse after CME margin hikes forced a tsunami of liquidations. Retail traders, already stretched thin, saw their safe haven bets eviscerated in hours. By the time the weekend hit, the only liquid assets left to sell to cover those massive commodity margin calls were sitting in crypto wallets. Bitcoin and Ether, which continue to tank over the weekend, are being cannibalized to pay for the leveraged silver momentum trade.

I feel obligated to bag on crypto a bit here because this wipeout highlights a fundamental lesson in asset quality. When you own a stock, and it crashes 30%, you still own a tangible slice of a productive company: the same percentage of the company’s physical assets, intellectual property, and future cash flows. It is a claim on reality. When a coin with no intrinsic value drops 30%, you’re just holding a digital receipt for a collective delusion that’s currently being re-priced. One is an investment in commerce; the other is a participation trophy in a liquidity echo chamber that evaporates the moment the margin calls come. God help us if crypto becomes too big to fail.

Apologies for the rant. Let’s get back to the stock market. Stocks were not immune to volatility. Earnings season really kicked off on Wednesday, with 3 of the Mag 7 reporting. Tesla shares were flat-up slightly after the call. The earnings themselves were horrible (as they have been for the last two years). Get this: revenue for fiscal 25 was lower than fiscal 24. Yep. A company trading at a 425 PE has declining revenue. But of course, the market is forward-looking. Investors are betting on FSD & Optimus to take TSLA to the moon (literally). Look, I have no idea if in ten years there will be robots on Mars, but what I do know is that two years ago, Cybertruck was going to save the company. Now, Elon can’t even give those away for free. What’s certain is that for widespread adoption, Optimus must actually provide value, something Cybertruck certainly did not.

Then we have Meta. Zuckerberg delivered. While Tesla is selling dreams of Martian robots, Zuck is actually delivering the numbers. Meta posted a monster Q4 beat with revenue up 24% to nearly $60 billion. They paired those results with a 2026 capex forecast of $115 to $135 billion. That is an insane amount of money (Bullish NVDA, AMD). They are essentially betting the entire farm on Meta Superintelligence Labs. Normally, the market would punish that kind of spending, but the stock ripped 10% because, unlike the crap elsewhere, Meta’s AI is already working. They’re seeing actual conversion gains in ads and a 30% jump in Reels watch time. It turns out investors are perfectly happy to fund a massive infrastructure buildout as long as you can prove it’s printing cash in real-time.

Then we have Microsoft, which found itself on Mr. Market’s bad side. Despite beating on both the top and bottom lines with a staggering $81.3 billion in revenue, the stock got absolutely hammered, dropping nearly 12% in a single session, its worst day since the 2020 crash. The market was spooked by a record $37.5 billion in CapEx for the quarter. While Zuck convinced the market that his spending is already printing cash, Satya is facing a supply-constrained problem. Azure growth clocked in at 39%, which is phenomenal until you realize it’s actually a deceleration from the previous quarter and missed the whisper expectation of 40%. The market’s patience is wearing thin; investors are spooked by the realization that Microsoft is spending $148 billion a year on AI Factories but can’t actually build data centers fast enough to meet demand. It’s a bizarre paradox: the ceiling on their growth isn’t a lack of customers, but a lack of physical capacity and power. When you’re priced for perfection and trading at a premium, saying you are supply constrained is just a fancy way of saying your massive capex isn’t converting into revenue fast enough to justify the multiple. Nevertheless, the 12% drop is a massive overreaction. At the end of the day, everyone wants to own Microsoft. RPO grew 110% (45% of that is OpenAI, which is disturbing), but excluding OpenAI, the numbers are still monstrous. Now trading around a 25 PE, and having lagged the market for the last two years, now is a good entry point for the tech titan.

With the SaaS leader faltering, other software companies followed suit. This past Thursday was effectively the industry’s Black Thursday, marking the worst single-session decline for software since the 2020 COVID crash. The iShares Software ETF (IGV) has officially slid into bear market territory, down 22% from its highs, while the median software revenue multiple has been hacked from a 7x to below 5x in just a year. The carnage is widespread: even bulletproof names like ServiceNow got dragged down 11% in a single day despite beating earnings for the ninth straight quarter. The market has moved past caring about beats; it is now pricing in a terminal existential threat.

The narrative haunting every investor is that SaaS is being killed by AI. Some argue we are seeing the death of the seat-based model in real-time. In the old world (the 2010s), a company’s software budget grew linearly with its headcount. In 2026, thanks to the rise of AI coding and agentic AI, companies are realizing they can do more with fewer people, which directly cannibalizes the per-user licensing fees that built the SaaS empire. Enterprises are aggressively harvesting their SaaS sprawl by canceling those forgotten licenses for mid-tier productivity tools to fund the massive compute bills from AI giants such as OpenAI and Anthropic. It’s a brutal cycle of budget redistribution: dollars that used to go to a specialized SaaS tool are now being redirected to LLMs.

What’s even more terrifying for these companies is the collapsing barrier to entry. While AI coding might not replace Salesforce overnight, it has made it trivial for a small team to build internal, specialized tools that replace $50,000-a-year contracts for point solutions. The Rule of 40 has been exposed as a relic of a low-interest-rate environment; in today’s market, if you aren’t an AI-native system of record, you’re just a line item waiting to be cut. Between the valuation de-rating and the structural shift toward outcome-based pricing, SaaS companies are fighting for their lives.

There certainly might be some value here - SaaS earnings have stayed relatively resilient amidst insane multiple compression. However, that’s a topic for another article. Thank you for reading this week’s installment of the Economics Review. Watch out for Google earnings on Wednesday and Amazon’s report on Thursday. For those with money in the market, I wish you good fortune in the war to come.

This Week’s Correlation ≠ Causation

Source: https://www.tylervigen.com/spurious/correlation/2718_masters-degrees-awarded-in-education_correlates-with_us-bank-failures

Economics Question of the Week:

The global toothpaste market can be categorized as which of the following market structures?

a) Perfect Competition

b) Monopolistic Competition

c) Oligopoly

d) Monopoly

Stay tuned for the answer in next weeks’ edition!

Weekly Reader Poll:

ECON 317 Project Submission Announcement:

Interested in showcasing your Linear Regression project from Econ 317 in the next newsletter? Submit your project using this link.

Interested in Writing for the USCER:

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As always, if you are interested in writing for the Economics Review, please email rswitzer@usc.edu.

“Virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time.” - Nobel Laureate Kenneth Arrow

The penchant of the human mind is to be swept away by narratives, for better or for worse. Urban legends and fantasies become the pillars of our consciousness and shape our perception of the world. Stories of divine authority, obligation, and honor were told widely in ancient societies, and those values were foundational in the informal economic structures of their times. Ancient Greek trade, for example, was heavily reliant on established trust networks because enforcement mechanisms were weak and de-centralized at the time.¹ Though one could credibly argue that modern economies are vastly more complex than ancient trade networks, the two share the core foundation of trust as a catalyst for economic activity. Institutional credibility simply replaced personal reputation as the key conduit of this trust. The perceived transparency of governments and information channels is now paramount in determining stakeholder behavior.

A study conducted by Skidmore College investigated the correlation between social trust and economic growth across 58 countries in 2024. It concluded very plainly that, even after accounting for major macroeconomic factors such as unemployment, education, investment, and technological advancements, trust was a significant predictor of economic performance.² This is a crucial finding because it positions trust as an independent economic input. It asserts that, rather than being a result of other strong macroeconomic factors, trust itself can actually beget a stronger economy. Money and machines are essential, of course, but the coordination mechanisms through which people and businesses interact are held up by trust.

This kind of relationship is mirrored by the economies of developing countries most vividly. The World Bank reported that countries like Morocco, where social trust is in dire condition, economic growth has been significantly limited. One study indicated that poor trust in government and institutions in Morocco inhibited the growth of the economy by a potential $2.21 billion between 2005 and 2014, even when the baseline nominal GDP of $59.52 billion was taken into account.³ This case is yet another example of how trust is not an isolated economic output, but a necessary stimulus for economic growth.

This does not solely apply to developing nations however; trust is essential even on a micro-economic level. Even some of the most high-power firms in the most well-developed countries rely on trust to keep operations running efficiently. Deloitte, for example, released an insight analysis in which they emphasized how per capita GDP is heavily reliant on business investments and productivity– both of which can be swayed by varying trust levels.⁴Intuitively, this makes quite a bit of sense given the amount of resources that can be wasted in low-trust environments. Time and money would be wasted on oversight programs to monitor employees, enforce any contracts, and overall risk mitigation given an unreliable government. In contrast, high-trust companies may contribute more resources to investment strategies, innovation, and expansion which naturally helps the economy grow.

Though it is important to overall social and economic welfare, data indicates that the currency of trust seems to be running dry both at the firm and national level.⁵ A recent World Values Survey found that the global population of people who generally believe that “people can be trusted” has declined roughly 20% over the last 15 years. Though the metric might seem arbitrary, it is indicative of the much larger issue of truth erosion and political polarization globally. As inequality and skepticism deepen, the pillars of economic stability weaken, and with it informal economic infrastructures.

It is important to note that this mistrust is not inherent. It is borne of stories that societies tell themselves about the market and credibility in general. Robert Shiller developed a compelling theory in which he argued that economic behavior is largely shaped by popular narratives (Shiller). According to Shiller, these stories are often simple and emotionally resonant, but their defining feature is their tendency to spread like wildfire through communities and influence decisions about spending and investing. Oftentimes, these narratives highlight institutional failures, such as systematic inequality or corruption, and in turn weaken market confidence and change expectations before any true quantitative evidence is available. Shiller argues that this new era of declining trust is credited, not solely to weak institutions, but also to the wide-spread diffusion of skeptical narratives. These narratives become inherent to the population’s perception of the economy and subsequently discourage long-term investments and promote risk-averse behavior. The embedding of mistrust into everyday economic decisions sets the stage for broader economic instability, ultimately manifesting as a self-fulfilling prophecy.

This phenomenon spells trouble for countries like The United States, which is facing what Amit Seru, professor of finance at Stanford Graduate School of Business, has labeled a “credibility recession” and perhaps a significant risk to economic stability along with it.⁶ Seru asserts that over the past few decades, American trust in governmental and financial institutions has significantly–and perhaps irrevocably– eroded. His analysis concluded that because major institutions such as hedge funds, the Federal Reserve, and shadow banking systems need their credibility in order to function as intended, the country’s entire economic infrastructure is facing a serious challenge. Seru continues on to say that, without any real faith in financial institutions or policy-makers, investors have to make risk-averse decisions and price in potential volatility. Subsequently, there are higher borrowing costs and a crisis of confidence in the markets. By tying his research to the economic pillars of the United States, Seru drew a clear line between trust and everyday business transactions. He highlighted a core angle of this issue, which is that it is not temporary or insignificant; it is a structural challenge that grows as does mistrust.

Bibliography

Carey, Isaac . “A Study of the Impact of Social Trust on Economic Growth and a Study of the Impact of Social Trust on Economic Growth and Defining a Potential Threshold for ‘High Trust’ in Economic Defining a Potential Threshold for ‘High Trust’ in Economic Research .” Skidmore College, May 5, 2024.

https://creativematter.skidmore.edu/cgi/viewcontent.cgi?article=1171&context=econ_studt_s chol.

Cloutier , Mathieu, Abel Bove , and Diane Zovighian. “What Is Trust, Why Does It Matter for Development, and How Do We Measure It?” World Bank Blogs, 2024.

https://blogs.worldbank.org/en/governance/what-is-trust--why-does-it-matter-for-developmen t--and-how-do-we.

Gilson, Dave. “Why the Erosion of Trust Could Shake America’s Economic Stability.” Stanford Graduate School of Business. Stanford University, March 20, 2023.

https://www.gsb.stanford.edu/insights/why-erosion-trust-could-shake-americas-economic-stability.

Kalish, Ira , Jonathan Holdowsky, and Michael Wolf. “The Link between Trust and Economic Prosperity.” Deloitte Insights. Deloitte, May 19, 2021.

https://www.deloitte.com/us/en/insights/topics/economy/connecting-trust-and-economic-gr owth.html.

Pier Paolo Creanza. “Institutions, Trade, and Growth: The Ancient Greek Case of Proxenia.” The Journal of Economic History, January 10, 2024, 1–39.

https://doi.org/10.1017/s0022050723000505.

Shiller, Robert J. “Narrative Economics.” SSRN Electronic Journal, 2017.

https://doi.org/10.2139/ssrn.2896857.

As always, if you are interested in writing for the Econ Review, please email rswitzer@usc.edu.

The Streaming Dilemma

Guess who’s back, back again. It’s that wannabe Peter Lynch whose absence has left a shattering hole in your soul that no other stock market commentator could ever come close to filling (especially not Jim Cramer or The Motley Fool). I’m happy to report that you are whole again, just in time for earnings season.

Oh, how times have changed since my last blathering. This time last year, some were worried the Deepseek debacle would send the mighty Nvidia crashing and burning. I was not worried; I bought the dip. Please admire the strength, wisdom, integrity, and honor I am illustrating by refraining from reminding you all of all the right calls I made last year (shut-up about PayPal, and yes I still believe in you Alex).

Without further yakking, let’s talk Netflix. Kicking off Big Tech earnings, Netflix beat expectations with $12.05 billion in revenue and $0.56 in EPS. They’ve crossed the 325 million subscriber mark and are forecasting a doubling of ad revenue in 2026, as if we needed any more certainty regarding who won the Streaming Wars. However, the stock still took a 5% dive after-hours because, frankly, the real drama isn’t the earnings, but the WBD acquisition. Netflix just went all-cash with a $27.75 per share offer to shut down the hostile advances of Paramount CEO and nepo-baby final boss David Ellison. They’re spinning off the garbage cable parts of WBD (Discovery Global) and keeping the HBO IP crown jewels (DC, Game of Thrones, Harry Potter, etc.).

Remember in April, even amidst all the tariff junk, Netflix stock stayed strong. Every time you turned on CNBC, there was some starry-eyed, middle-aged bald man talking about how Netflix was a “must-own” at $130. Now, nobody wants to touch the stock as it slides towards $83. This just shows how quickly narratives shift. One day you’re the darling; the next, you’re a streaming titan with 20%+ net income margins, high-teens growth, and a world-class management team trading at 27x next year’s earnings.

The stock’s decline did not happen in a vacuum. To pivot from a cash-and-stock deal to an all-cash monster intended to crush Ellison’s $30 bid, Netflix secured a staggering $42.2 billion in bridge loans from the likes of Wells Fargo and HSBC. When you factor in the assumed WBD debt and their own legacy bonds, the combined company’s total debt is projected to balloon from $14.5 billion to a staggering $85 billion–$90 billion at closing. Currently, Netflix sits at a healthy leverage ratio of 0.56, but analysts expect that to jump north of 3.0 once the deal is finalized. Management is betting that their $12 billion in FCF will be enough to keep their new debt monster subdued, as they are aiming to deleverage back to 2.0x within two years.

As for their credit rating, the agencies are giving Netflix the benefit of the doubt. Moody’s affirmed their A3 rating but downgraded the outlook to stable, citing the leverage spike. Unsurprisingly, S&P and Moody’s both view Netflix as a superior credit risk compared to Paramount’s junk status, which is the primary weapon Netflix is using to convince WBD shareholders that $27.75 in cash is safer than Paramount’s $30.00. However, a downgrade is still on the table if the integration gets messy or free cash flow takes a hit from, say, another Hollywood strike.

The Street clearly has no idea what the hell Netflix is worth right now. Let’s try to simplify things. In honor of my personal hero, Professor Juan Carrillo, let’s look at this deal through a game theory lens. There are three possible outcomes for Netflix:

1. The Merger is Blocked by the FTC: If the FTC acts like a functional government agency and blocks the deal, Netflix must cut a $5.8 billion check to WBD, the largest breakup penalty in history. While losing $6 billion sounds like a disaster, the stock would likely pop 10% the next morning. The market is currently pricing Netflix like a drowning company holding an $83 billion anvil; without the debt, it returns to being a clean, high-margin cash machine. The only downside? We won’t get to see a Harry Potter/Stranger Things crossover. 15-year-old girls around the globe (or whoever actually watches Stranger Things) would be devastated.

2. WBD Ditches Netflix for Paramount: If David Zaslav gets cold feet and picks David Ellison’s $30 all-cash offer over Netflix’s $27.75, Netflix walks away unscathed and potentially $2.8 billion richer thanks to the breakup fee. For NFLX shareholders, this is the best short-term outcome: a massive cash infusion, no new debt, and a front-row seat to watch Paramount and WBD try to merge two debt-riddled dinosaurs while Netflix keeps winning by default. The stock would likely rebound toward $100 immediately.

3. The Deal Goes Through: Netflix becomes the undisputed sovereign of streaming, owning HBO, Warner Studios, and an IP library that will make Bob Iger want to retire again. In the long run, this is probably a good thing; in the short run, the stock will be a volatile mess. With leverage jumping to 4.0x, the growth bros will be replaced by value nerds calculating interest coverage ratios. If they successfully deleverage as promised, you’re looking at a $200 stock. If they don’t, at least we’ll have 50 cash-grab Game of Thrones spin-offs to distract us while our portfolios tank.

As I am nearing two pages, I don’t feel like writing much more, much to the chagrin of my loyal readers. I won’t jump into a full bull thesis yet, but I will say the risk-reward here is enticing. There’s an uncertainty discount scaring off Wall Street, but if you’re thinking long-term, don’t hesitate. In two of three outcomes, the stock should rebound quickly. In the third, I think it might take Wall Street a little time to come around, but 4-5 years out we will be looking at an $800 billion company (remember management’s goal of achieving a $1 trillion market cap by 2030). The debt really scares investors, especially with all that’s going on with Oracle and in the private credit markets. Throwing aside the merger uncertainty for a minute, Netflix is one of those companies everyone wants a piece of until the dip actually arrives (remember Meta in 2022?). This isn’t quite a Meta-level opportunity, but when you can grab a quality company at a historically low valuation, you pounce. Anyway, props to you if you made it this far without falling asleep. I’ll be back next week as earnings season really ramps up.

State vs. Market: Two Models of Macroeconomic Coordination

By Vincent Wen, c/o 2029

In modern macroeconomics, it is not only about financial policy or interest rates, but also about coordination—how to coordinate policies to stabilize unemployment and inflation, thereby achieving the optimal output for the economy. However, under distinct systems, the methods of coordination differ significantly. The United States represents a market-based and decentralized model, and China has a state-centered and centralized approach. Both economies aim for economic stability, yet their paths to achieving it diverge markedly.

Market-based model:

In the United States, macroeconomic coordination is primarily achieved through market expectations, the independent institution, the Federal Reserve, and the legislative branch, specifically Congress. The Congress formulates fiscal policy by adjusting taxation and government spending, and the Federal Reserve employs target interest rates and open market operations as its monetary policy tools. The decentralized arrangements demonstrate the belief that policy credibility stems from checks and balances of power. For instance, when inflation rises, even if the Department of the Treasury seeks to continue an expansionary policy, the Federal Reserve will decisively increase interest rates to maintain the price level. Coordination is not achieved through administrative orders, but rather through signals from the labor market, financial market, and inflation expectations.

The advantages of this system are evident: the market signal can constrain policy actions and prevent the domination of fiscal deficits, leading to a low risk premium for long-term investors. The low risk premium will increase investment, resulting in a right shift of the IS curve, thereby increasing the country’s total output. Meanwhile, institutional credibility is the foundation of anchored inflation expectations. When the public believes that the central bank will maintain the stability of the price level, temporary shocks, such as supply disruptions, will have limited effects.

In March 2020, Congress passed the CARES Act, which allocated approximately $2.2 billion, including direct transfer payments, unemployment benefits, and business loans(Romer). At the same time, the Fed reduced the interest rate to the zero lower bound and launched open-ended quantitative easing, purchasing massive amounts of Treasury and mortgage-based securities to inject liquidity into the market. The central bank’s independence and policy actions have swiftly stabilized market expectations, notably as inflation has not deanchored. Through market reactions— such as Treasury yields and labor data—fiscal and monetary policies have proven highly effective in 2021. However, the flaws in this system became apparent in the subsequent year, 2022.

In 2022, fiscal and monetary policies became misaligned. In 2021, the Treasury Department introduced the new fiscal legislation, the American Rescue Plan Act, which, combined with the CARES Act, resulted in cumulative spending reaching $5 trillion—equivalent to 26% of total GDP. Meanwhile, the Federal Reserve did not begin raising interest rates until March, by which time the CPI index had already surged by 8.5%. To curb inflation, the Fed raised the federal funds rate from 0% to 0.25% and then to 4-4.5% within a year(Wessel). This series of policies resulted in an annual GDP growth rate of only 1.9% in 2022. In 2022, fiscal and monetary policies became misaligned. This resulted in annual GDP growth of only 1.9% in 2022, with real estate prices and private business investment slowing to near-zero growth in 2023(FRED). The high degree of independence and decentralization in the U.S. system ensures the credibility of its financial institutions, but it also undermines economic flexibility and coordination. Signals are clear, but transmission often lags.

State-centered model:

On the contrary, the Chinese macroeconomic system emphasizes the integrated role of fiscal and monetary policies, and both the Ministry of Finance and the Central Bank fall under the jurisdiction of the State Council of China. The Ministry of Finance is responsible for administering the government budget and taxation. Unlike the Federal Reserve, the Central Bank of China aims to manage both the money supply and interest rates(Editor). One of the primary tools of monetary policy is the reserve requirement ratio. In China, 70% of corporate financing comes from banks, with state-owned banks accounting for the majority of this funding. Whereas the vast majority of U.S. companies primarily raise capital through bonds and stocks. Therefore, the impact on the total amount of available credit far outweighs the effect on the price of credit. State-owned enterprises in China are another crucial component of the Chinese economy, often benefiting directly from fiscal and monetary policy. State-owned enterprises are typically creditworthy, enabling swift bank approvals and the rapid deployment of funds to projects, particularly those related to infrastructure or natural resources.

The strength of this system is evident: policy implementation is swift, execution is independent of party or local politics, and aligned objectives maximize economic stimulus. In February 2020, the Ministry of Finance and the Central Bank began to react to confront COVID-19. Within a month, the central bank conducted 1.2 trillion yuan in reverse repo operations. It also lowered the reserve requirement ratio for specific banks by 0.5 to 1%, thereby injecting approximately 550 billion yuan in liquidity(Huld). The Ministry of Finance launched local government special bonds, issuing 2.2 trillion yuan in advance, and has also activated 71 billion yuan in central special epidemic prevention funds(Huld). In the second quarter, China’s GDP growth returned to positive territory. This also demonstrates the resilience of the centralized system in confronting risks.

However, under this system of unchecked power, the drawbacks are also apparent. By 2020, central and local government debt had reached 66% of GDP, with unchecked expansion fueling an invisible debt crisis(Trading Economics). Resolving local debt has become a critical issue for contemporary China. Overreliance on state-owned enterprises has also spawned numerous problems, particularly their inefficiency, corruption issues, and crowding-out effects. While state-owned enterprises demonstrated strong resilience during the pandemic, the government is now still deepening its dependence on them post-pandemic. Confidence among private enterprises has been severely shaken, with private investment now trailing that of state-owned enterprises for five consecutive years. Meanwhile, due to centralized authority and the absence of oversight, the government has implemented increasingly stringent measures to control the epidemic. Against the backdrop of a gradually reopening global landscape in 2022, the continued enforcement of lockdown policies resulted in a negative GDP growth rate of 0.8% in the second quarter of that year(Trading Economics).

Conclusion:

Today, both China and the United States face debt challenges, yet each has emerged from the pandemic’s shadow in its own way. China’s fiscal and monetary policies remain highly coordinated, but their lack of transparency and external oversight may further erode investor confidence. The United States’ reliability is crucial for sustaining investor trust, though political maneuvering often highlights policy lag. The future challenge lies in striking a new balance between speed and independence. The ongoing trade war between China and the United States will reveal more about the strengths and weaknesses of both systems.

Shadow Economies: A Closer Look at Southeast Asia’s Informal Markets

By: Paolo Velasco, c/o 2027

Across the dynamic economies of Southeast Asia, the informal economy stands as an essential yet often overlooked component, sustaining myriad livelihoods beyond the purview of official metrics. Defined as the range of economic activities by businesses that operate independently of formal recognition, this sector includes those neither taxed nor monitored by governmental entities. These enterprises aid in constituting a vital support structure within local communities. Globally, such informal employment underpins the existence of over two billion people, representing roughly 58% of the total employed population. Informal economies are deeply embedded within Southeast Asia’s economic and cultural structures, playing a role that encompasses both monetary transactions and social interactions. This article will explore how large informal economies impact economic development within Southeast Asia, and the challenges they present to policymakers in regulating and formalizing these activities.

Prevalence in SEA

Within the ASEAN bloc (Association of Southeast Asian Nations), informal employment constitutes a cornerstone of labor markets. Over half of the region’s workforce derives income from this sector, a figure that escalates to more than 85% in nations such as Cambodia and Myanmar.

Source: World Economics 2023

Informal work, often synonymous with lower remuneration, precarious job security, and a void in social protection, is frequently the only option available to a significant portion of the workforce. The dominant presence of the informal sector in Southeast Asia, particularly in Cambodia and Myanmar, is often reflective of a strong agricultural foundation. Agriculture is the industry with the highest proportion of informal work, with estimates exceeding 90 percent. This is due to a large swath of the informal workforce is entrenched in agricultural pursuits that are typically characterized by subsistence farming or smallholder operations. Such activities, while contributing to the livelihoods of the populace, are frequently informal due to the nature of land tenure, the seasonality of agricultural work, and the low scale of operations which often elude formal economic assessment and regulation. This pattern of informal employment in agriculture suggests that the formal sectors have yet to develop sufficiently to absorb the rural workforce, compelling many to remain in the traditional occupation of farming. Consequently, the informal economy flourishes not only as a reflection of tradition but also as an indicator of the limitations within the existing economic infrastructure.

Expansion of ASEAN informal economies

For most Southeast Asian countries, informal employment remains high, a trend propelled by structural and market forces that make operating outside the formal sector more viable for many. The stagnancy seen here is a response to the constraints of existing economic frameworks, which often inhibit a smooth evolution toward more formalized job opportunities. Economic necessity is a primary catalyst for this growth. As urban centers swell with migrants from rural locales, the formal economy often fails to keep pace, leaving the surplus of laborers to turn to informal work.

Efforts to formalize Southeast Asia’s informal economy are consistently undermined by a regulatory environment that remains burdensome, fragmented, and unevenly enforced. Bureaucratic inefficiencies are often the first barrier encountered by entrepreneurs. In the Philippines, for example, registering property still takes around 33 days (in contrast to the USA’s 12 days) due to overlapping requirements from tax authorities and local government units. In Vietnam, the process of closing a business can extend well beyond six months, especially when court involvement is required. These time-consuming procedures not only frustrate would-be formal businesses but also raise the cost of compliance, making informal operations a much more attractive alternative.

Beyond red tape, weak social protection systems further entrench informality. In countries like Laos, where only 13.6% of workers are covered by the national social security system, formal employment offers few tangible benefits for low-income or precarious workers. Even in countries planning reforms—such as Thailand’s proposed Employee Welfare Fund—gaps in implementation capacity raise doubts about whether such protections will be effectively delivered. The ILO has consistently observed that strong social protection correlates with higher levels of salaried, formal employment; however, many Southeast Asian economies still fail to extend these protections to informal or part-time laborers, reinforcing the incentive to remain outside the formal system.

Enforcement, too, is patchy at best. In Vietnam, recent changes to work permit administration were introduced to streamline oversight, yet institutional limitations continue to hinder effective implementation. Similarly, Singapore’s forthcoming gig worker legislation mandating benefits for platform workers is a step forward in principle, but the challenge lies in ensuring compliance across a decentralized gig economy. These examples illustrate a common thread: while policy reforms may signal progress on paper, the underlying regulatory and institutional weaknesses continue to enable informality to thrive. Without coordinated improvements in bureaucracy, social protections, and enforcement, the promise of formalization will remain out of reach for much of the region’s workforce.

Implications of large informal economies

The informal sector in Southeast Asia, while acting as a buffer against unemployment, presents a paradox in its relationship with economic growth. Contrary to the widely held belief that the informal economy moves counter-cyclically (expanding in economic downturns and shrinking in booms), current research unveils a more nuanced reality. Data from various developing nations reveal a spectrum of informalization trends, indicating that the informal sector’s growth does not always inversely mirror the formal economy’s health. Indonesia stands as a case in point, boasting the largest economy in the ASEAN region; it has witnessed its informal sector cushion the impact of economic fluctuations, absorbing a significant portion of the workforce amidst declining GDP growth rates.

However, the prevalence of informal economies carries significant negative implications for development. High levels of informality correlate with an array of developmental challenges, including heightened poverty, lower income per capita, and slower progress toward sustainable development goals. A sharp illustration of this is found in the fact that, in 2018, countries with higher-than-median informality rates had approximately a quarter of their population living in extreme poverty, compared to just 7% in nations with lower informality. This highlights that widespread informality is not just a labor market phenomenon, but a multifaceted development issue, one deeply intertwined with weaker governance and reduced investments in human capital.

A major problem with having large informal sectors are the issues posed to governments. The informal sector evades the tax system, which leads to a significant leakage of potential government revenue—funds that are crucial for public services like healthcare, education, and infrastructure. As a result, the financial wherewithal of governments is diminished, constraining their ability to balance national budgets and make pivotal developmental investments. As a consequence of this erosion of fiscal resources, it becomes increasingly difficult for governments to enact effective policies, as a large chunk of economic activities elude official records. Moreover, informal businesses often attract consumers by providing lower-cost products, avoiding regulatory costs and tax obligations, which disrupts fair market competition. As such, this dynamic presents a complex challenge for policymakers striving for orderly economic advancement and resilience in the region.

Furthermore, while the informal sector serves as a crucial safety net during economic challenges as explained earlier, it also results in millions of people lacking job security, health coverage, and workplace benefits. The day-to-day reality for workers is characterized by a lack of job security and access to social benefits. Promises of steady, formal employment remain elusive for many who are left to navigate an uncomfortable environment of modest wages and stagnant career trajectories. Such conditions are not just happenstance, but are interwoven into the nature of informal work. These circumstances are exacerbated by low opportunities for career advancement, as the absence of formal skill development pathways hampers the ability of these workers to transition into the formal economy. Their potential for upward mobility, therefore, is left stifled. Inevitably, generations of workers may remain entrenched in a state of financial vulnerability, with their children inheriting the same precarious circumstances, further embedding the vicious cycle of poverty within these communities.

Source: Asia Pathways - Asian Development Bank Institute

One of the underlying drivers of informality in Southeast Asia is the low level of educational attainment among informal workers. Across the region, the informal labor force is predominantly composed of individuals with only primary education or less, a pattern most visible in rural settings where informal employment is almost twice as likely to occur in than urban areas. This educational gap not only limits access to formal jobs but also perpetuates a cycle of vulnerability, with workers’ limited educational attainment hindering a transition into more stable employment.

Within this context, the underlying gender disparities become more pronounced. Women are disproportionately represented in the lowest tiers of informal work, where jobs tend to be insecure, underpaid, and lacking in legal or social protections. While men certainly also participate in the informal economy in large numbers, part-time and precarious roles more frequently fall to women—reflecting deep-rooted inequalities in labor market access, expectations, and caregiving responsibilities. Within this context, the underlying gender disparities become more pronounced. Women make up 60% of the informal workforce, yet only 19% meet the threshold for functional employment before accounting for unreported income. Even when informal earnings are included, just over 40% of female informal workers earn above-poverty wages and work full-time hours. These figures reveal how low-quality formal opportunities, combined with unpaid caregiving burdens and occupational segregation, force women into informal work. Addressing this imbalance requires gender-sensitive policies that expand access to education, improve labor protections, and support women’s economic inclusion.

Addressing the informal sector

One measure to reduce the scale of informal markets is through targeted supply-side policies. Some current suggestions include pre-employment cards, autonomous learning initiatives, and tailored vocational training. These proposed initiatives aim to nurture talent, enabling a smoother transition into the formal economy. Digital technology emerges as a crucial enabler in these policy proposals, with the potential to revolutionize financial inclusion through vehicles like inclusive insurance, pension schemes, and the enhancement of financial literacy. The integration of digital platforms can facilitate corruption-free cash transfers and efficient delivery of public services, incentivizing formalization; when people see tangible benefits, such as reliable access to public services and social security, they are more likely to move into the formal sector.

The use of government-to-person (G2P) mobile transfers, a scheme that was used extensively throughout the COVID-19 pandemic, also presents an alternative to inclusive growth. By providing financial accounts to the unbanked, these platforms empower individuals to participate more fully in the economy. Education reforms also take center stage in these proposals, emphasizing the dual goals of widening access and encouraging the completion of secondary education, complemented by substantial technical and vocational training options. The rationale here is to align educational outcomes with the demands of the contemporary job market, thus shrinking the informal sector by providing viable formal employment opportunities. However, these policy recommendations often face significant barriers, namely budgetary limitations, underscoring the challenge of translating these suggestions into actionable government policies. Furthermore, political leaders might be hesitant to enforce these pro-formalization initiatives due to the risk of losing support from those who benefit from the informal sector, such as small business owners who would face higher costs and more competition in a formal economy.

Tax policy plays a crucial role in shaping business behavior and can either incentivize or discourage participation in the formal economy. High tax rates are often cited as a driver of informality. The logic is straightforward: high taxes can drive companies to seek solace in the shadows of the informal sector to eschew the financial strain. A more pressing concern for many small enterprises though is the issue of compliance. In Southeast Asia, the administrative burden of navigating tax systems frequently deters small businesses from registering formally. Rather than focusing solely on reducing tax rates, effective reform must address the structural barriers that discourage small businesses from entering the formal economy. One of the most common deterrents is the complexity of filing and compliance procedures, which often require time, resources, or digital access that small firms lack. Introducing simplified systems can lower these transaction costs and reduce reliance on intermediaries. For example, Indonesia’s final income tax of 0.5% on gross revenue for small businesses is not just a low rate—it replaces more complex tax calculations and filing processes, making compliance easier for firms with limited capacity. Similarly, the Philippines’ CREATE Act includes not only reduced corporate tax rates for MSMEs but also streamlines administrative requirements and offers targeted tax incentives during a transition period. These reforms acknowledge that simplicity and predictability—especially for small firms—are as critical as affordability in encouraging businesses to formalize. Such measures not only reduce the perceived risks of formalization but also lower the administrative and informational barriers that keep small businesses in the shadows. When paired with investments in enforcement, well-calibrated tax policy can serve as a powerful lever to gradually expand the tax base and integrate informal enterprises into the formal economy without imposing unsustainable burdens.

Still, taxation alone is not enough to enable formalization. Broader structural reforms are necessary to ensure that workers not only join the formal economy but last within it. More precisely, labor market regulations present a pivotal opportunity to shepherd informal workers into formal employment. Simplifying these regulations could foster a more adaptable labor market, where the transition from informality to formality is more streamlined. Concurrently, competition policies that weaken monopolies could catalyze the entry of small firms into competitive markets, particularly in sectors previously overshadowed by singular corporate entities. This would not only democratize economic opportunities but also stimulate innovation and consumer choice. Moreover, they allow small and medium-sized enterprises to grow in the formal sector by using digital tools to overcome traditional barriers like high startup costs and limited market access.

However, this approach may be subject to potential criticisms. Established businesses may oppose such reforms, as can be seen in the past through the Filipino telecommunication monopoly PLDT, fearing increased competition and potential profit erosion. Additionally, there could be apprehensions about the job security of existing workers in larger firms if market dynamics are to shift. There is the pragmatic challenge of overhauling entrenched bureaucratic systems, which requires political will and administrative overhaul that can be met with resistance from those benefiting from the status quo. These institutions often resist reform not simply because of inertia, but because their complexity benefits certain actors, specifically those who gain from opaque procedures or protection from competition. As a result, even well-intentioned reforms risk being delayed, watered down, or unevenly implemented. A clear example is Vietnam’s ongoing failure to regulate its expanding gig economy. A 2023 report describes the current state of regulation as being “in a state of inertia,” particularly due to disagreements within and between key institutions over whether platform workers should be classified as employees or independent contractors. This lack of institutional alignment has stalled the extension of labor protections to gig workers and illustrates how even basic questions of worker classification can derail broader efforts at formalization. Without a shift in political will or institutional incentives, efforts to streamline regulation and promote formalization may struggle to gain meaningful traction.

Overall, Southeast Asia’s informal economy, while providing resilience during economic downturns and a livelihood for millions, represents both a challenge and an opportunity for regional governments. Effective policy reform aimed at formalization could unlock substantial economic growth by broadening the tax base, improving labor productivity, and creating a more stable environment for business investment, ultimately enhancing government revenues to allow for higher investments in public services or infrastructure. However, these reforms must be balanced carefully to avoid negating the informal sector’s benefits as a safety net for the vulnerable workforce. Policymakers must navigate the difficult nature of political resistance and entrenched interests while crafting thoughtful strategies that incentivize formalization. If successful, such measures could foster a more inclusive economic environment, reduce inequality, and lay the foundation for a sustainable economic future in Southeast Asia.

The Coup Belt and a Broken Bloc: A Lesson in Postcolonial Instability

By Yousha Hashmi, c/o 2028

In 1975, an optimistic bloc of fifteen states sought to foster regional unity as the Economic Community of West African States (ECOWAS), with the stated goal of “collective self-sufficiency”. 50 years and dozens of coups later, ECOWAS has largely failed to achieve these ambitions, with many of its member states instead facing rampant instability. This failure epitomizes the struggle to develop regional stability and development in the Global South. In this column, I’ll discuss the recent erosion of ECOWAS credibility, the unraveling of democracy in the region, and ultimately attempt to draw lessons on the challenge of long-term economic stability in West Africa.

To understand ECOWAS’s recent failures, we should first rack the historical conditions that necessitated its creation in 1975. Discussing the history of every individual member state would detract from my focus here, but I’ll faithfully generalize the region’s economics at the time as “barely postcolonial”; nations had largely achieved formal independence, but inherited colonial structures of governance and economics. Across the continent, colonial administrations had prioritized centralized authority and economic extraction, usually neglecting long-term domestic development that didn’t streamline the export of resources abroad. The economies of West Africa thus relied heavily on European markets.

The region’s infrastructure reflected the exploitative structures of colonial economies: rather than serving local development, roads and railroads were built with the sole purpose of connecting mines extracting valuable natural resources to coastal ports. They connected Africa to Europe, but profit was concentrated in Europe; independence, though crucial to achieving eventual economic sovereignty, initially did little to impact the flow of capital. ECOWAS was founded primarily with this issue in mind; by closely linking West African economies to each other, they could develop as a regional bloc, sharing wealth rather than losing it.

At first, the new organization showed strong promise. The ECOWAS passport enabled free movement across the region, and the bloc occasionally served as a mediator during flare-ups (look to Liberia in the 90s or Côte d’Ivoire in the 2000s). The organization’s ambitions, however, eventually outgrew the realm of feasibility. Each member state was managing its own crises of debt, governance, and insurgency. Cooperation demanded stability, of which most governments were quickly losing hold.

By the 2010s, ECOWAS had morphed from an economic union into more of a political police force, issuing sanctions, suspensions, and threats in the face of political instability. The problem wasn’t that ECOWAS lacked authority; member states had agreed on the expansion of its scope to broadly include conflict-resolution efforts. The major issue with ECOWAS’s policing was that its authority had become purely symbolic. Without any enforcement mechanisms to provide backbone to its rhetoric, ECOWAS began to echo the flaws of failed attempts at multilateralism like the League of Nations or the Articles of Confederation. As much as it championed democratic ideals, ECOWAS ultimately could do nothing to prevent the destruction of such ideals, as would be seen in the 2020s “Coup Belt”.

The past decade has seen the slow unravelling of ECOWAS’s moral capital. When coups erupted in Mali (2020 and 2021), Burkina Faso (2022), and Niger (2023), the bloc’s response followed the established formula: condemnation, border closures, and threats of intervention– none of which worked. Instead, sanctions punished civilians more than coup leaders, and in the absence of democracy, the popular will had a minimal impact on actual governance. That wouldn’t matter, though; popular sentiment began to look much less favorably on ECOWAS as it started to create more problems than it solved.

That resentment is partly economic. To many citizens, ECOWAS looks less like a regional unifier and, ironically, more like an enforcer of Western orthodoxy. Its trade and governance rules often echo the prescriptions of the IMF and World Bank, institutions that, in the Sahel, are largely associated with unmet promises. The violent ousting of presidents, accused of corruption or foreign dependency, was thus generally met with wide celebration despite ECOWAS condemnation.

The creation of the Alliance of Sahel States (AES) by Mali, Burkina Faso, and Niger in 2023, and their formal withdrawal from ECOWAS in 2025, cemented this disillusionment. The AES characterizes itself as a break from the “neocolonial order,” firmly rejecting any forms of “external interference.” Whether that rhetoric translates into genuine sovereignty remains to be seen, but it reflected a public sentiment that ECOWAS no longer had the credibility to represent.

The Coup Belt across the Sahel is less of a geographical coincidence than it is a direct result of structural flaws and the material conditions created by those flaws. Widespread insecurity under attempted democracies has undermined popular faith in participatory governance, with a recent poll finding 60% of African respondents to be dissatisfied with how democracy works in their countries. That sentiment necessarily breeds political instability, rendering sturdy economic development an idealized dream.

Coups therefore represent more than simple power grabs; they are political resets in environments where formal mechanisms of accountability have collapsed. Many junta leaders promote nationalistic narratives, invoking anti-colonial language to justify their military rule (see Ibrahim Traore). The last few years of governance in Mali, Niger, and Burkina Faso, however, have shown little substantial change in economic policy in comparison to the bold rhetoric of their respective leaders. Without credible reforms, military regimes risk reproducing the same extractive patterns as the governments that preceded them.

It’s important to note that democratic backsliding doesn’t just happen; it’s a result of ineffective governance, poverty, and violence. Voters who see no improvement in their lives after an election is held have no reason to believe in the ideological superiority of democracy, especially compared to military leaders making bold promises. When the choice is between a stagnant democracy and a seemingly efficient dictatorship, desperation often makes the latter look appealing. ECOWAS’s failure to maintain regional stability thus might lie in its treatment of coups as geopolitical outliers, rather than logical symptoms of a larger-scale failure to mend the extractive nature of colonial economies. Without substantive, structural change, “collective self-sufficiency” is just an empty slogan.

Looking forward, holistic development means investing in the connective tissue of domestic growth that colonialism ignored, like local markets and infrastructure designed for people rather than exports. West Africa’s stability will depend on regional institutions that are authentically committed to economic sovereignty. If that commitment loses credibility, popular support will shift away, as proven by the growing attention to the AES. Fifty years after the founding of ECOWAS, West Africa finds itself at an inflection point; the dream of collective self-sufficiency remains prevalent in the region, but the path toward it has become fractured and unclear.

How do Singapore’s low-wage workers get by without a minimum wage?

By Samantha Lee, c/o 2027

SINGAPORE – Emerald Lo used to spend five days a week serving cupcakes behind the counter at Plain Vanilla, a popular cafe in Telok Ayer, one of the trendier parts of this bustling city.

Until last year, the 20-year-old public policy student at Nanyang Technological University worked eight-hour shifts while studying full time at one of the country’s most prestigious universities.

For her labor, she made S$7.50 an hour, or roughly US$5.75. A cupcake at Plain Vanilla costs S$3.50.

“I felt extremely exploited,” said Lo, who stayed at the job for seven months. “It was really unfair.”

For comparison, the average cafe server in Los Angeles makes about US$17.50 per hour -which is the legal minimum wage in LA County, according to the California Department of Industrial Relations. That’s almost three times higher.

Singapore, however, has no such price floor for labor. Some domestic workers, who are on the job six days a week, make the equivalent of US$460 a month.

Yet, Singaporeans have consistently maintained a high standard of living. The country currently ranks 14th on the UN Human Development Index, which measures key indicators like health, housing and education – three spots above the U.S.

So, how does a country with low wages create a comfortable living environment for its working class?

Instead of a legalized minimum wage, the city-state uses the Progressive Wage Model (PWM), a suggested monthly base pay for workers in specific low-wage sectors like retail, cleaning and food services, according to Singapore’s Ministry of Manpower. The number doesn’t include bonuses, overtime pay, or any other extra compensation.

The framework, introduced in 2012, ties pay to skill level and career progression. The idea is that as workers acquire more skills and responsibilities, their pay will increase accordingly.

But that number, which currently sits monthly at about US$1,400 for food service workers and US$1,000 for cleaners, is significantly lower than equivalent work in the U.S., Australia and Luxembourg, countries in a similar GDP per capita bracket.

The policy embodies the Singaporean economic philosophy, which believes that a flexible wage keeps their market globally competitive and prevents unemployment.

According to the Ministry of Manpower, the labor market should “maintain an overarching principle that wages should continue to keep pace with productivity growth.” Essentially, because skills-based roles pay exponentially higher, citizens are incentivized to ascend into more qualified, specialized positions.

As of the third quarter of 2025, Singapore’s unemployment rate sits at 2%.

As a result, the city-state, which is the only Southeast Asian city on a ranking of centi-millionaires, according to Forbes, houses contrasts, with million-dollar mansions just a stone’s throw away from one-bedroom public housing units inhabited by elderly and blue-collar families.

The Singapore Department of Statistics produces annual data on household income. 'In 2024, the top 10% of earners made over 20 times more than the bottom 10%.

In the U.S., for 2024, that same ratio was 12.6.

While U.S. policies focus on protecting workers and boosting consumer spending power, the Singaporean system values collective wellbeing. Its government makes up for low-wages through state-managed programs such as public welfare, so that living on low-wages is possible. These systems grant access to essentials such as housing, healthcare, education and retirement.

Singapore is renowned for its public housing model, known as the Housing Development Board (HDB). Heavily subsidized by the government, it presents a structured application process which incentivizes home-ownership for couples, and promises affordable housing.

The rent for a two-bedroom flat in Ang Mo Kio, a middle-income neighborhood, costs about S$2,500, or US$1,900. In Los Angeles, the maximum rent for a two-bedroom apartment through the public housing system, HACLA, is US$3,052.

Central to Singapore’s income system is the Central Provident Fund (CPF), which requires employees to contribute 20% of their monthly salary to a retirement fund, with employers adding an additional 17%.

CPF funds help cover the city’s MediSave, which pays for medical expenses, insurance premiums, and hospital care, functioning like a personal health savings plan.

At public universities, Singaporeans automatically receive subsidized tuition, paying about half as much as international students. In 2025, a local business student at the National University of Singapore pays S$9,650, the equivalent of about US$7,400, for an entire year of tuition.

Students can seek a range of need-based financial aid programs, which can further cut costs to almost $0.

Every year, the government also disburses hundreds of dollars in vouchers to Singaporeans, for groceries and daily expenses, to offset consumer tax hikes, which in 2024 increased from 8% to 9%. Together, these programs create a baseline standard of living, even without a legal wage floor.

And on the day-to-day, living essentials are, comparative to other affluent nations, much more affordable.

Picture this: A low-wage Singaporean student worker, who lives in a public housing complex, takes her lunch at the hawker center – an open-air food court with a variety of vendors –connected to her apartment block downstairs. Hawker centers like this exist in every housing estate. Her meal, a filling portion of carbs, protein and veg, costs about S$5, or US$3.85.

She then boards the public bus to work. For a 45 minute trip across the island, her fare totals to about S$0.70, or US$0.54.

Despite this, Singapore’s consumer price index (CPI), which measures the price of goods and services with inflation taken into account, is showing a different trend.

They show the cost of living in the city-state continuing to rise. The rich are only getting richer, with the 50 wealthiest showing a record high net worth – and wages may not be able to keep pace.

In September 2025, private transport inflation rose year-on-year to 3.7% from 2.4% in August, due to a steeper increase in car prices. Retail inflation, including furniture and appliances, increased to 0.3% from -0.2%, according to government data.

Land in Singapore is scarce, and the city is an extremely attractive destination for wealthy expatriates. As a result, there is always money flowing in. This drives up the demand for already limited housing as well as for goods and services across the board.

Although the sticker prices of daily goods still seem affordable, these price increases are being felt by the Singaporean middle class.

In response, in recent years, many Singaporeans have pressured the government into introducing a legal minimum wage.

During the recent 2025 general elections, several opposition labor parties proposed a minimum wage.

Manpower Minister Tan See Leng shut down the requests, arguing that introducing a universal minimum wage at this time would “risk driving businesses away amid economic uncertainty in the light of the U.S. tariffs.”

Linda Lim, a Singaporean economics professor at the University of Michigan, disagrees with the claim that a minimum wage will reduce Singapore’s competitiveness.

“We are competitive because we are productive, because we are innovative, not because we are cheap,” she said in an interview with AcademiaSG. “Sustainable competitiveness for a rich country cannot rely on costs.”

In order to remain competitive, Lim said, Singapore should not be competing with poor countries on wages, but with other rich countries and cities, whose wage standard is notably higher.

Even so, policymakers remain unmoved. In a recent statement, Prime Minister Lawrence Wong reiterated that the Progressive Wage Model will stay and continue to expand by sector rather than be replaced with a standard minimum wage.

So far, this model seems to have worked for Lo, who said Singapore is getting more expensive. She left food and beverage work for a more professional job as a private tutor.

But as the cost of living rises, the question is whether the same model can continue to hold.

“I do know people who work in the F&B industry who are struggling to make a living,” she said.

“Working casually in Singapore really doesn’t give you the means to sustain yourself.”

The Dilemma of Success and Satisfaction

Despite living in a prosperous economy, South Korean citizens report high levels of unhappiness

By Caleb Kim, c/o 2026

For able-bodied South Korean men, a year and a half of military service that cuts away from the prime years of young adulthood is an unavoidable fact of life. Discharged soldiers return to society eager to share stories of their less-than-ideal experiences, bonding over shared struggle.

“One of my friends in special forces had it the worst,” says Sebastian Jeon, an international student at USC recently discharged from the South Korean military. “On the first day, his superiors had made him strip down completely naked, and then they just yelled the worst kinds of insults. I’m pretty sure he cried that night” he says, smiling faintly at the memory.

But as difficult as Sebastian’s stint in the military was, the feelings of freedom and joy that accompanied discharge were short-lived. “I came back, just to be reminded almost immediately that even life outside of the military is like hell,” he says.

The Happiness Deficit

South Korea is facing an epidemic it can’t seem to cure – not of disease, but of unhappiness.

The data tells a chilling story. Compared with its peer nations in the Organization for Economic Co-operation and Development (OECD), South Korea ranked 33 out of 38 in the happiness index. Its reported score of 6.06 trails the 6.69 average. In another survey conducted by global research firm Ipsos, South Koreans tied with Hungarians to report the lowest happiness score at 48% – far below the 71% average polled across 30 countries.

(Source: Ipsos; Global Advisor)

A key contributing force is the intense pressure created by the country’s demanding work-culture. The job market is characterized by limited work-life balance and struggles of youth to secure stable employment.

“There’s just no chance. The guys who go to Seoul National University or Korea University, maybe those guys have a shot. But everyone else might as well not even try, because they probably won’t find anything worthwhile,” says Sebastian. He feels that his decision to study abroad stemmed out of necessity, not volition. “Unless you get a degree from the best of the best, it’s like there’s no point in even getting an education.”

His outlook on the labor market reflects a concerning sentiment shared among much of South Korea’s younger population. By global metrics, South Korea’s unemployment rate is not alarming. The rate stands at 3.7% overall and 5.9% among youth, figures that are even enviable to some OECD peers. But numbers alone fail to tell the full story of South Korea’s youth unemployment “crisis”.

Many young Koreans are technically employed. But a large share work irregular gig jobs, such as those in retail and construction, that offer little long-term security. The issue is not as simple as a job shortage – rather, there is an alarming mismatch between cultural expectations set by the education system and the type of work available.

Analysts often cite this disparity as a leading factor exacerbating the problem. A report by Korean think tank KDI Focus found that the education system creates a workforce concentrated in the middle – mostly homogeneous in skill levels with little low or high performers.

The result is a rift in the kinds of jobs that young, job-seeking Koreans pursue and the actual jobs that are available. Educated youth find low-skill jobs undesirable yet struggle to land mid-skill level positions, a qualitative imbalance that points to why younger Koreans are reluctantly taking precarious jobs.

Even those fortunate enough to find stable work do not report high levels of life satisfaction. The nation’s culture of overwork — perpetuated by social expectations — has led to a growing conversation about burnout and mental health.

“It may come as no surprise that South Korea’s work culture is also rigorous. There is a lot of data to prove this, and more than enough anecdotes about employees working extremely long hours,” writes New York Times journalist Jin Yu Young. An OECD study shows Koreans consistently rank among the highest in hours worked, with an average of 1,872 hours per year per person. For comparison, Japan reported 1,611 hours and the United Kingdom 1,496 hours.

(Source: OECD)

From Crisis to Consolidation

In 1997, the Asian Financial Crisis brought Korea’s astonishing period of economic growth to a screeching halt. For decades leading up to the crisis, Korea’s largest family-operated conglomerates – called chaebols – had been excessively borrowing, raking up massive amounts of debt to fuel their rapid expansions.

On the outskirts, it seemed as if Korea’s economy was undergoing a growth miracle. But this foundation on which this “miracle” was built from was fragile. Banks at the time were limited in their ability to assess risk due to poor regulation and high-levels of exposure to corporate debt. So when the debt-to-equity ratios of these chaebols climbed from overborrowing, many of them defaulted.

Waning confidence in Korea’s economy due to the collapse of these chaebols, coupled with a wave of financial instability across other East Asian countries, caused foreign investors to pull away. And because Korea’s economy was so dependent on foreign capital, the country found itself unable to pay off its accumulated debts. The Korean won collapsed while unemployment rates jumped from 2.6% in 1997 to 6.8% by 1998.

The country was bailed out of this tumultuous moment by accepting a $58 billion rescue package from the IMF, contingent upon the government’s agreement to fulfill certain macroeconomic recommendations such as maintaining high interest rates to cut spending. However, remnants of the crisis’ lingering effects are still felt – most notably through the economic imbalance that persists.

Ironically, the chaebols that caused this crisis came out of it even stronger. The largest ones – household names like Samsung and LG – survived and benefited from the disappearance of smaller competitors. Power across nearly every industry consolidated to the remaining chaebols.

To this day, the country’s chaebol-dominated corporate structure adds fuel to the fire of economic imbalance. Competition for white-collar jobs within these firms remains fierce, and positions elsewhere often carry lower prestige and pay. Because these companies are family-operated, the significance of merit also dwindles.

Historians also point to this period of time as the beginning of Korea’s dualized labor market. Stable, high-income jobs sit at one end of the economic spectrum, with low-wage, irregular contract work on the other. Post-crisis unemployment rose as income inequality widened.

According to research published by the Brookings Institution, the sharp increase in the unemployment rate can be mostly attributed to the bankruptcy of small and medium-sized firms. Workers at large-scale firms shouldered less of the impact of the crisis, thus widening the income gap.

–

The Unease of An Aging Society

Wonjun Son, a native Korean now at UCLA, recalls an incident from 2014. He was sitting in a movie theater filled mostly with kids around his age. Adults nearby kept scolding them, even though they were barely talking.

“It’s funny because the adults complaining were probably more disruptive,” he says, his story reflecting broader cultural discomfort with children.

In South Korea, quietness is often equated with order. Children, viewed as disruptors of that peace, are increasingly unwelcome in public spaces. By 2023, the country had more than 500 child-free zones where children were prohibited.

Yet cultural discomfort alone doesn’t explain South Korea’s record-low birthrate. As of 2024, South Korea’s total fertility rate was 0.748. This represents the average number of children a woman would have in her lifetime. The replacement rate to sustain a population is 2.1. A fertility rate of 0.748 means that for every 100 people, there will only be 37 children born.

South Korea’s workplace culture disincentivizes parenthood. Young adults struggling with job stability are less inclined to have children. Financially, they may not have the capital. Mentally, long work hours can cause burnout even without the added stressors of raising children.

For women, the challenge is even greater. A patriarchal workplace hierarchy often places women at a crossroads between career or motherhood. Georgetown’s Journal of International Affairs highlights this dilemma:

“...South Korea’s rigid workplace culture makes it difficult for women to utilize parental leave. However, even after using parental leave, the cultural emphasis on mothers’ role in childcare and the gendered division of household labor hinders women’s ability to return to the labor market.”

Economists warn that without change, a shrinking workforce will cause an economic downturn within the next few decades. A KDI study projects that demographic changes will push Korea’s potential growth rate to near 0% by the 2040s.

The government is well-aware that a TFR far below the replacement rate spells disaster for the future of the country. It has invested over $200 billion into policies designed to increase birth rates. These pro-natalist policies, such as providing cash bonuses for birth, have had little success.

The failure of these government interventions makes clear that the issue is not purely economic. Its cultural and structural – rooted in the pressures that shape everyday life.

Rethinking Fulfillment

“I kinda know that I’m probably gonna spend the rest of my life in the United States,” says Wonjun. “I’ve kind of known this since I was 15 and I decided to go to international school, that I would end up going to college [in the States] and try to find a job.”

Both he and Sebastian come from privileged backgrounds – born into families that can afford to pay for years of enrollment at private international schools and full-tuition at foreign universities. Most young Koreans do not have access to the resources that can fund such an opportunity.

Instead, they must navigate the challenges of their country’s work culture. A culture emphasizing prestige and productivity has left many citizens reporting low happiness and life satisfaction.

For South Korea to confront its “unhappiness epidemic,” it must rethink the foundation of what it means to live a fulfilling life. The consequences of a values system that prioritizes productivity and prestige over personal fulfillment have begun to show. Birth rates are declining and discontent is widening.

Change will not come from subsidies or statistics alone, but from individuals – and the collective nation – to entirely redefine living a “fulfilling” life.

Choppy Waters: The Red Sea Crisis and Global Market Impacts

When a cruise missile caused the M/V Minervagracht to go up in flames earlier this October, governments, shipping companies, and oil traders alike were reminded the Red Sea is still not secure. Since the end of 2023, the Houthis have turned the Red Sea into a shipping nightmare, leading many companies to send their ships around Africa’s Cape of Good Hope: safer, although inefficient. Following the ceasefire agreement between Israel and Hamas, Houthi attacks have ceased; however, the damage has been done. Israel and the Houthis may have unfinished business, and with recent ceasefire violations by Israel in Gaza, there is no telling if and when the Yemeni group will resume attacks. The shipping industry remains skeptical of a return to normalcy, and regional economies continue to feel lingering effects, leaving global markets uncertain and the Red Sea’s future stability in doubt.

Ansar Allah, also known as the Houthis, is an Islamist political and military organization founded and based in Yemen. Originally started in the 1990s as the Believing Youth to initiate a revival of Zaydism, a sect of Shia Islam, the movement radicalized following the 2003 United States invasion of Iraq. Since then, the group has been in on-and-off conflict with the internationally recognized Yemeni government, other Arab countries of the Persian Gulf, Israel, and the United States. As of today, the Houthis control the nation’s capital, Sanaa, in addition to Yemen’s north-west. Control of the northwest gives the movement access to the Red Sea coastline, from which they launch their attacks. The Houthis’ attack capabilities are made possible through their membership in Iran’s “Axis of Resistance” and funding from Iran. On a regional scale, the Houthis fighting for full control of Yemen ties into the greater Shia-Sunni proxy war being waged by Saudi Arabia and Iran.

The Red Sea is one of maritime shipping’s focal points, connecting the Indian Ocean to the Mediterranean Sea via the Suez Canal. Since the construction of the Suez Canal in 1869, the Red Sea’s importance to world markets has greatly increased, accounting for 30% of container shipping, 9% of seaborne oil, and 8% of liquified natural gas (LNG) —12-15% of global trade. Following Israel’s extensive military response in Gaza in the wake of October 7, Houthi rebels began attacking ships linked to Israel, framing the attacks as a form of protest. Since November 19, 2023, the militant group has carried out 346 naval operations and targeted 228 ships across the Red Sea, Bab al Mandab, the Gulf of Aden, and beyond—setting their sights further than just on Israeli vessels.

Governments have not taken the shipping disruption very well. At the end of 2023, a coalition of countries, led by the U.S., was carrying out retaliatory strikes against Houthi drone and missile infrastructure in Yemen. This military operation, known as Operation Prosperity Guardian, proved to be much more complicated than previously anticipated. The Houthis kept Western forces locked into a nearly two year long military intervention, the United States’ single longest naval engagement since World War II. With advanced air defense resources stretched thin as a result of U.S. contributions to Ukraine and Taiwan, in addition to the American Navy launching countless missiles to neutralize Houthi attacks, Red Sea intervention has not come at a low cost. Surface-to-air missiles used by the Navy include SM-2 and SM-6 types—costing around $2.5 million and $4.3 million per unit, respectively. The high cost disparity between American-made munitions and inexpensive Iranian-made drones or former Yemeni government stockpiles, coupled with the Houthis undermining the May 6 ceasefire with the U.S., has led to genuine concerns over American deterrence capabilities and naval supremacy.

While Operation Prosperity Guardian aimed to contain Houthi aggression, the Houthis’ continued attacks have sent ripples across world markets, causing a number of negative implications that persist today. The Red Sea has seen shipping traffic drop by as much as 60% in recent months, as companies shift operations to the longer but safer Cape of Good Hope, a move that has driven up freight shipping prices. Given the unpredictable security situation in the Red Sea, war risk premiums have risen over the past two years, contributing to higher shipping prices as voyages become costlier for the remaining ships sailing the area. While the Cape of Good Hope offers a safer alternative, trips between Asia and Europe take up to two weeks longer, leading to higher fuel costs and reduced global shipping capacity. Additionally, the Egyptian economy has suffered greatly, with the country’s Suez Canal Authority losing approximately $7 billion in toll revenues in 2024. Canal tolls make up 15% of Egypt’s foreign currency income and 10% of gross domestic product, meaning the Arab nation has noticeably felt the impact of toll revenue loss. These economic disruptions display not only the vulnerability of global commerce but also the Houthis’ growing geopolitical influence over a critical maritime chokepoint.

The crisis in the Red Sea has shown that maritime disruptions can have extensive economic and strategic consequences. A non-state actor has emerged and demonstrated its capabilities in defying major powers and destabilizing global trade with limited resources. The Houthis were able to challenge Israel, withstand a coalition of Western powers, and even managed to disrupt global shipping for almost two years. Unlike other insurgent groups that have historically operated on land, the Houthis exerted influence across borders and into open waters. Their rise marks a turning point in regional power dynamics, demonstrating that Iran’s Axis of Resistance remains resilient–even as Hezbollah, Hamas, and the Assad regime face military and political setbacks. For the West, this conflict has highlighted the growing costs of maintaining military supremacy in an era of asymmetric warfare. Going forward, American policymakers and defense officials may need to rethink how they engage militant groups in their home regions to avoid future prolonged and costly conflicts.

Sources

• Cameron Henley and Cameron Keyani, “The Houthis, Operation Prosperity Guardian, and Asymmetric Threats to Global Commerce,” Center for Maritime Strategy, July 18, 2024, https://centerformaritimestrategy.org/publications/the-houthis-operation-prosperity-guardian-and-asymmetric-threats-to-global-commerce/.

• Stuart Chirls, “Gaza Plan to Boost Suez Shipping Recovery in 2025,” FreightWaves, October 7, 2025, https://www.freightwaves.com/news/gaza-plan-to-boost-suez-shipping-recovery-in-2025.

• Lori Ann LaRocco, “Israel‑Gaza Cease‑fire and the Red Sea: Freight Containerships Rerouting,” CNBC, October 13, 2025, https://www.cnbc.com/2025/10/13/israel-gaza-ceasefire-red-sea-freight-containerships.html.
  Bridget Toomey, “Houthis Signal Pause on Attacks on Israel After Gaza Ceasefire, Detail Attacks During the Conflict,” Foundation for Defense of Democracies, October 16, 2025, https://www.fdd.org/analysis/2025/10/16/houthis-signal-pause-on-attacks-on-israel-after-gaza-ceasefire-detail-attacks-during-the-conflict/.

• Joseph Trevithick, “Replenishing Missiles Used To Down Houthi Threats Will Require Extra Funding,” The War Zone, March 6, 2025, https://www.twz.com/news-features/replenishing-missiles-used-to-down-houthi-threats-will-require-extra-funding.

• BBC News, “Who Are the Houthis and What Do They Want?” BBC News, June 27, 2023, https://www.bbc.com/news/world-middle-east-67614911.

• Freightos, “Freightos Baltic Index (FBX): Global Freight Rate Data,” accessed October 2025, https://www.freightos.com/fbx-link.

McMansion Economics: The Hidden Costs of Residential Excess

When I say a house is “new construction,” what do you picture? For me, it’s a shiny white Cape-Cod mini-mansion, or possibly some kind of modern-style cement double-decker that looks like it was pulled straight out of minecraft. At least, those were the kinds of homes that tended to pop up in my LA neighborhood in place of the older single-story spanish styles or little craftsman bungalows that got torn down. Regardless of architectural designs, though, which vary from block to block, one pattern was always clear: the new houses were big. I’ve now come to realize that that pattern isn’t unique to my corner of Los Angeles: on a country-wide scale, our houses have gotten larger.

In 2024, the median size of a newly-constructed single-family home in the US was 2,146 square feet. That’s an increase of over 40% from the 1,500 square foot median of 1970. Over that same period, our mean household size decreased from 3.58 to 3.15 people, meaning the average square footage per person has increased by more than 62%. I’m throwing a lot of numbers at you here, but my point is, American homeowners are taking up more space. This may appear to be a benign issue of changing home preference and shifting cultural norms– that is, until we take a look at the externalities.

Quantifying the Loss

Arguably the most direct effect of people living in large homes is the energy expenditure. This may seem like a cost that has already been internalized– people pay energy bills, which are obviously higher if they’re lighting, heating, and cooling larger spaces. However, because of the environmental impact of energy production, the full cost of the energy use is not fully accounted for in those bills. One study that looked at the environmental and social effects of electricity production and transport found that the mean external cost of electricity is 7.5 cents per kWh. For reference, US households pay an average of 17.62 cents per kWh, meaning the internalized payment is only about 70% of the total cost to society.

There is, however, a much broader impact of our home ownership problem. A demand for larger homes, combined with decreasing household sizes and increasing population, is a perfect recipe for urban sprawl. This pattern is extraordinarily costly, in more ways than one.

Firstly, sprawl typically increases the cost of delivering public services and infrastructure. For example, annual water and sewer costs are close to three times as high for households with low tract dispersion and near distance as compared to high tract dispersion and far distance. And since most infrastructure costs are paid by city- and state-wide taxes, those in denser areas end up paying more for those who have elected to live in sprawling suburbs.

Additionally, sprawling communities are reliant on cars, which have a variety of negative externalities associated with them. Most obviously, because of the increase in VMT (vehicle miles traveled) and the higher level of emissions per VMT due to traffic, cities with higher levels of sprawl have significantly worse air quality. Carbon dioxide emissions also increase with sprawl– one analysis found that the average carbon footprint of homes in the center of population-dense urban areas is 50% lower than the average. There are numerous other drawbacks of sprawl– less accessibility for those who can’t drive or or unable to afford cars, loss of wildlife habitats, and decreased retention of rainwater due to diminished impervious surface, to name a few (I’ll link a great report about all of that here, if you’re interested in learning more). It’s important to note that increased home size is just one of many contributors to urban sprawl (I’m looking at you, zoning laws). Still, it’s an important part of the discussion.

The last cost I’ll touch on is one that may be less obvious: the social multiplier. Essentially, when large homes are constructed, the home satisfaction of surrounding homeowners tends to decrease (despite their satisfaction with their neighborhoods overall remaining unimpacted). These homeowners are more likely to expand their homes and take on more debt. This is often called the McMansion effect: when we choose larger homes, we are not only making decisions for ourselves; but silently peer-pressuring those around us to do the same. This essentially creates a multiplier for all the externalities I’ve previously detailed.

Correcting the Negative Externality

If we can accept that oversized housing creates environmental and social spillover effects, the next step is finding ways to internalize those costs. At the simplest, this could involve Pigouvian pricing on household electricity and natural gas usage so that the full environmental impacts of energy generation and transport are incorporated into the pricing. The same kinds of taxes can be used to incorporate the environmental costs of driving into gasoline pricing, thus disincentivising homeowners from accepting longer commutes and encouraging density. To mitigate the obvious political loser that is higher energy prices, the revenue from these taxes can be redistributed in a variety of ways, including targeted rebates to low- and moderate-income households. Regardless of how the money is redistributed, these taxes would make it more costly and less appealing to own larger homes.

Another important issue is movement, or rather the lack thereof. As homeowners age, they often choose to stay in the homes they raised families in rather than downsize. And I don’t blame them: it usually makes financial sense! But the policies that make that true should be corrected, because not only does it create the same negative environmental externalities that living in large houses always does, it leads to tight housing markets that push younger families to suburban and exurban fringe and further worsen urban sprawl. A big factor here is the mortgage lock-in effect. The average interest rate on existing US mortgages is 4.3%– but when homeowners move, they can’t take that low rate with them (and the current mean rate for new mortgages is 6.6%). Although the “lock-in gap” between existing and new mortgage rates has shrunk in the last year, it still significantly disincentivises movement. One possible change to the housing market that could mitigate this is having shorter-term mortgages with adjustable rates so that the average borrower’s rate would remain close to the current market rate– essentially, rates would no longer be so “locked-in”. Canada, where this is the case, is currently seeing much less of a lock-in gap despite similarly tight housing markets in cities like Toronto. (There are a variety of other policy instruments that could help combat the gap, but due to my lack of expertise in mortgage markets I’ll get back to the bigger picture here.)

Another incentive for homeowners to stay in place is our tax system. Usually, profits from selling a home are subject to steep capital gains taxes. But in most states, if the home was purchased by a married couple and one spouse dies before the home gets sold, the asset is taxed on a step-up basis. Essentially, this means that if a couple purchases a home for $400,000 and that home is worth $1,000,000 when they sell it, the full $600,000 in gains will be subject to taxation. But if one of them dies when that house is worth $1,000,000, and the remaining spouse sells when the house is worth $1,010,000, the surviving spouse will only pay taxes on the $10,000 that was gained after the death of their spouse. Thus, couples are incentivized not to sell.

This is just one example of policy discouraging movement when it should be encouraged. It’s not surprising that these policies are in place; they benefit older, wealthier homeowners, and these are the people who vote. But that’s why it’s important that we understand what goes on in housing markets, even though they feel far away for most students. Because the policies that will benefit us all– as always– are the ones that align private choices with their public consequences. Until the environmental and social costs of ever-expanding square footage are made visible to homeowners and homebuyers, we will continue to equate “bigger” with “better”– even as the weight of that excess undermines our communities, our climate, and our future.

By Kylie Monterosso

C/O 2028

In my personal opinion, much more exciting is our Wednesday coffee chat with Professor Lodovico Pizzati. Professor Pizzati specializes in macro and teaches 317, 305, 205, and 203. Join us in the VPD courtyard at 5:30 this Wednesday.

Finally, EA is thrilled to announce we are having our symposium next Thursday, 11/13, from 6-8PM in MCB 101. Our symposium will explore how artificial intelligence is reshaping the labor market, and what it means for your future job prospects.

He’ll share insights on how blockchain and stablecoins are reshaping traditional banking and payments! Don’t miss this change to learn from a Trojan making waves in FinTech! Join us on Tuesday, October 28th, from 7-8PM in KDC 236.

While I’m bugging you again, Thursday night is a great opportunity to network and get advice from alums in diverse fields, such as consulting, law, and private equity. You must RSVP to attend. To do so, please scan the QR code on the following flyer.